China’s financial engagement with Africa has increased significantly over the past few decades, making it one of the continent’s most influential economic partners. This relationship, characterized by extensive loans and investments, has fuelled infrastructure development across Africa but has also sparked intense debate over the risks associated with rising debt levels. Critics warn of potential economic dependency and “debt-trap diplomacy,” while proponents argue that Chinese financing has been a crucial driver of Africa’s modernization.
As of 2020, Chinese lenders accounted for approximately 12% of Africa’s external debt, which had grown more than fivefold since 2000, reaching $696 billion. Between 2000 and 2023, Chinese financial institutions extended 1,306 loans, totalling $182.28 billion, to 49 African countries and seven regional organizations. These funds have been primarily directed towards infrastructure projects, including energy, transportation, and telecommunications, areas that are essential for Africa’s economic growth. However, the scale and structure of these loans have raised concerns about their sustainability, especially as some countries struggle to meet repayment obligations.
The Scope of Chinese Lending in Africa
China’s lending to Africa has been largely project-driven, with a focus on key sectors essential for economic growth:
• Energy Sector – $62.72 billion
• Transportation Sector – $52.65 billion
• Information and Communication Technology – $15.67 billion
• Finance and Other Sectors – $11.98 billion
These loans have contributed to the construction of roads, bridges, railways, and power plants, significantly improving connectivity and energy access across the continent. Countries such as Kenya, Ethiopia, and Nigeria have benefited from large-scale infrastructure investments, which have helped stimulate economic development.
However, while these projects have undoubtedly advanced Africa’s infrastructure, concerns persist about the financial burden they impose on borrowing nations. In some cases, the high cost of loan repayments, combined with limited revenue generation from the funded projects, has led to debt distress.
Debt Distribution and Sustainability Concerns
The level of debt owed to China varies significantly across African nations. Some countries have become heavily dependent on Chinese loans, raising concerns about long-term economic sustainability:
• Djibouti – 57% of its external sovereign debt is owed to China
• Angola – 49%
• Democratic Republic of Congo – 45%
These figures have fuelled concerns that some African nations may struggle to meet their debt obligations, leading to financial instability. The concept of “debt-trap diplomacy” has been widely debated, with critics arguing that China may use debt as leverage to gain control over strategic assets. However, there is limited evidence to suggest that China has seized assets in Africa due to loan defaults. Instead, Chinese lenders have often shown flexibility by restructuring loans when countries face repayment difficulties.
A 2022 study found that African nations owe more to private Western creditors than to China. Approximately 35% of Africa’s external debt is held by Western banks, asset managers, and oil traders, compared to 12% by Chinese lenders. This suggests that Africa’s debt crisis is a complex issue involving multiple creditors rather than being solely driven by Chinese lending.
Shifting Trends in Chinese Lending
In recent years, Chinese lending to Africa has slowed considerably. In 2023, China approved $4.61 billion in loans for eight African countries and two regional financial institutions. This marked the first increase in annual loan commitments since 2016, but overall lending remains significantly lower than the peak years of the early 2010s.
Several factors have contributed to this decline:
1. China’s Domestic Economic Challenges – Slower economic growth and rising debt levels within China have made it more cautious about extending large loans abroad.
2. Shift in Investment Strategy – China is moving towards more sustainable and mutually beneficial investments rather than purely debt-financed projects.
3. Growing Criticism and Geopolitical Pressure – The international community, particularly Western nations, has increased scrutiny on China’s lending practices in Africa, prompting China to reassess its approach.
At the Forum on China-Africa Cooperation (FOCAC) summit in September 2024, President Xi Jinping pledged 360 billion yuan ($50.7 billion) in financial support over the next three years. This package includes a mix of loans, aid, and corporate investments, with an emphasis on trade, agriculture, and security. Notably, there was no firm commitment to debt relief, signalling a more cautious approach to future lending.
Case Studies: Ethiopia and Kenya
Ethiopia: A Debt Sustainability Dilemma
Ethiopia represents one of the most complex cases of Chinese lending in Africa. While the country has experienced significant economic growth, particularly in exports of gold and coffee, its debt burden remains high. The International Monetary Fund (IMF) considers Ethiopia’s debt unsustainable and has called for further debt relief. However, bondholders argue that Ethiopia’s financial position has improved, and the IMF may be overstating the need for debt restructuring.
Ethiopia currently owns approximately $30 billion to various creditors, including China. While Chinese financing has helped fund large-scale infrastructure projects, such as hydroelectric dams and roads, concerns remain about the country’s ability to meet its repayment obligations without further external assistance.
Kenya: The Mombasa-Nairobi Railway Project
Kenya’s Mombasa-Nairobi Standard Gauge Railway (SGR) is one of the most well-known examples of Chinese-funded infrastructure in Africa. The railway was built with a $3.6 billion loan from the Export-Import Bank of China, aiming to improve regional connectivity and reduce transportation costs.
While the project has had positive economic impacts, including reduced travel times and increased cargo transport efficiency, it has also faced significant financial challenges. The railway has struggled to generate enough revenue to cover its operational costs, leading to concerns about debt sustainability. Additionally, there have been criticisms regarding the transparency of the loan agreements and the terms under which Kenya negotiated the deal.
The case of the SGR highlights the need for African nations to ensure that large-scale infrastructure projects are financially viable and structured in a way that avoids long-term debt distress.
Towards a More Sustainable China-Africa Partnership
As China and African nations continue to navigate their financial relationship, there is a clear shift towards more balanced and sustainable engagements. Several key trends are emerging:
1. Greater Emphasis on Investment Over Loans – African leaders are advocating for increased Chinese investment in local industries rather than relying solely on debt-financed projects.
2. Increased Focus on Trade Balance – Many African countries are seeking to address trade imbalances by encouraging China to import more African goods, thereby reducing dependency on loans.
3. Stronger Financial Oversight and Transparency – Both China and African nations are recognizing the need for more transparent loan agreements and better financial management to prevent debt distress.
South African President Cyril Ramaphosa has emphasized the importance of Chinese investment in manufacturing, calling for increased efforts to narrow the trade deficit between Africa and China. This reflects a broader effort by African nations to ensure that their economic relationship with China is based on sustainable and mutually beneficial principles.
Conclusion
China’s financial involvement in Africa has played a pivotal role in infrastructure development, contributing to improved transportation, energy access, and economic growth. However, the rise in debt levels has also introduced challenges related to sustainability and economic sovereignty.
Moving forward, the future of Sino-African financial relations will depend on fostering partnerships that prioritize transparency, responsible lending, and mutually beneficial investment. By shifting towards more balanced economic cooperation and ensuring that projects are financially viable, both China and Africa can build a more sustainable and equitable financial relationship in the years to come.