Sustaining China’s new approach to development finance and multilateral debt relief in Africa, notwithstanding heightened geopolitical tensions, will benefit Africa, China and the West. The G7 should therefore promote a plan to tackle African debt distress in the broader context of Africa’s medium- to long-term investment needs, and if necessary seek to ‘carve’ this out from other areas of competition with China.
The analysis in this paper indicates that China is moving away from a high-volume, high-risk model of investment in Africa to one where deals are struck on their own merits, at a smaller and more manageable scale than before. Equally, ambitious strategic visions of linking central Africa to the BRI via integrated transport corridors – including Kenya’s Standard Gauge Railway project – appear to have been abandoned. China is beginning to adopt a ‘new development paradigm’, supporting small and medium-sized enterprises and human capital investments, boosting green development, and emphasizing foreign direct investment flows rather than loan financing.
However, this shift in approach is insufficient to resolve the policy dilemmas facing China, particularly regarding how the country deals with bad debt and furthers its strategic interests in Africa.
China’s initial instinct was to try and manage debt distress problems on its own. However, with the onset of the pandemic, it has increasingly engaged in multilateral debt relief initiatives (notably the DSSI and, more cautiously, the Common Framework) under the auspices of the G20. Indeed, in some places, such as Zambia, it has taken a more forward role, being the first international lender to offer relief and co-chairing the creditor committee with France. This probably reflects a recognition that these initiatives, at least currently, have the best prospect of preserving the value of past lending, as well as a desire to retain credibility as a champion of the developing world in circumstances where it has faced extensive criticism for past lending practices.
It remains to be seen how long this approach will continue and how far it reaches, particularly as the pandemic eventually recedes and against the backdrop of new stresses on global economic governance created by Russia’s invasion of Ukraine. Eventually, China may feel it needs to become more forceful in extracting payment through unilateral actions, regardless of the political costs. This would be particularly detrimental if China resorted to appropriating significant assets such as ports, railways or power networks in response to defaults – the ‘debt-trap diplomacy’ vision is not impossible, but it is hard to overstate the strategic and political costs that this would bring. China will also need to balance a shift to sounder investment decision-making with the strategic demands of the BRI and in developing Chinese influence in strategic areas, such as Djibouti and the wider Horn of Africa.
But an important determinant of the route China chooses to take, on both debt relief and future investment in Africa, will be the extent to which it sees benefit in continuing and even deepening the current multilateral approach.
This paper argues that the cooperation between the West, China and African nations – to address current debt distress and Africa’s long-term financing needs in a sustainable way – is a global priority and should remain in focus, notwithstanding the potential for heightened geopolitical tensions. That is why the authors recommend that the G7, led by the incoming Japanese presidency for 2023, develop and build support for a new three-part plan (see Chapter 5), to be embedded eventually at the G20 level, on debt relief and future investment in Africa. In short, this would make an offer to China to engage on a broader multilateral approach over the long-term, and respond to the expressed wishes of African nations on how they want the issue of debt distress and long-term finance to be dealt with at a global level. If successful, it would help deal with the rising threat of debt distress facing some key African economies in 2023 and beyond and would also put in place a longer-term framework, which would have substantial benefits not just for individual African nations, but also for the wider world in the fight against climate change and global public health threats.