By Edam Shem

China Woos African Heads

The just concluded Forum on China-Africa Cooperation (FOCAC), which is the ninth since its formulation in 2000 is spoken of as a next step in developing a multifaceted partnership between the two continents. Dating back to the early years of the historical ties between the two, and spurred by China’s rise, FOCAC is said to have provided the framework for strengthening cooperation in economic relations, infrastructural projects, and cultural exchange, with the previous themes dubbed ‘Ten Major Cooperation Plan’ in 2015, ‘Eight Major Initiatives’ in 2018 and ‘Nine projects’ in 2021. However, beneath the veneer of partnership and prosperity, palpable critical challenges are threatening to undermine the long-term sustainability of this vital alliance.

Debt Relief and the growing burden

One of the leading and most pressing concerns is the issue of debt relief. In the just concluded summit where over 50 African leaders gathered in Beijing, China. As one of the world’s largest creditors, China did not, however, commit to an outright debt relief despite the crippling load that many African countries carry. It instead proposed the Beijing Action Plan, which includes terms of repayment postponements and called for an African rating agency under the aegis of the African Development Bank. This is against the criticism it has faced for offering loans devoid of environmental, financial, or human rights conditions considerations that have led to the funded projects being tainted by corruption. This move only continues to heighten overdependence on loans by African countries, putting them at risk of deeper debt burdens, inadvertently leading to economic instability, and loss of sovereignty.

Surging Geopolitical Considerations

Furthermore, the existing geopolitical tensions between China and the USA, more notably, over the Russian invasion of Ukraine and the increasing assertiveness of China in the South China Sea, are more likely to cast a shadow over the FOCAC summit outcomes. Africa, as a continent, with resources and strategic advantage has now been turned into a theatre of competition between these two superpowers where China’s involvement in Africa has been interpreted by many as an attempt to usurp U.S. dominance and to reshape global order.

Africa’s dependence on foreign currency has been a major trade undoing. Image | Tima Miroshnichenko via Pexels

For example, China and the United States are largely involved in funding, investing and financing infrastructure projects across African countries, resulting in bidding wars and debts. It is also worth pointing out that both countries have been engaging with African nations under the frames of free trade agreements that can offer more favorable trade conditions but at the same time can lead to trade friction and dependence issues. Moreover, the competition for military cooperation and diplomatic influence has been observed to compromise the sovereignty and stability of African countries. Nonetheless, China has emerged as Africa’s largest trading partner, with surging trade volumes registered in the past years.

A report by the International Monetary Fund (IMF) indicates a modest 1.5% growth in trade between China and Africa in 2023 from 2022. Similarly, it points out that over the last 20 years, about 20% of Africa’s exports now go to China and around 16% of Africa’s imports come from China, amounting to a record $282 billion in total trade volume in 2023. While this surge in trade has led to increased economic activity, job creation, and improved infrastructure development in many African countries, the growing dependence on the Chinese market also raises the concerns about the potential for trade imbalances and the vulnerability of African economies to fluctuations in the Chinese economy.

This competition between the two, raises concerns about the potential for using the continent as a proxy battleground. While both countries have sought to cultivate relationships with African nations, there is a risk that their rivalry could destabilize the region and undermine efforts to promote peace, security, and development.

Dominance and risk of dependency

Crippling debts owed by most African countries to China notwithstanding, Beijing provided a new credit facility of $51 billion. Broken down, $210 billion will be disbursed through credit lines and at least $70 billion in new investments by Chinese companies, for three years indicating China’s ascendancy in Africa. This is an increase from the $10 billion in investment and the same amount in credit lines that China pledged in Dakar, Senegal during the 2021 FOCAC summit. This influx of Chinese capital, while undoubtedly beneficial in some respects, also raises concerns about dependency and the potential for China to exert undue influence over African governments.

“… there is always the worry that China might use the Yuan as a political tool, perhaps to coerce or even dictate policies or manner of engaging in trade among the African countries.”

Internationalization the Yuan

It is key to note that China intends to internationalize its currency by disbursing the said $50 billion pledged in Yuan, a significant development in its lending practices. While this might open new options for African countries in terms of financing, it also poses questions about currency risks as shifts in the value of the Yuan can affect the ability to meet the interest and/or repay the loans. Zambia and Djibouti are notable examples of countries that have struggled to service their debts to China due to factors such as declining commodity prices, economic difficulties and high interest rates.
Moreover, there is always the worry that China might use the Yuan as a political tool, perhaps to coerce or even dictate policies or manner of engaging in trade among the African countries. This would inadvertently have a bearing on the dollar which is under threat by the possible rise of the Yuan as the prospective world reference currency. Moreover, the higher acceptance of the Yuan as a medium of exchange in Africa may decrease the necessity for the acquisition of dollars, thus negatively impacting the worth of African countries’ debts in the US dollar and the Euro.

For instance, the recent trade crisis that was experienced in Kenya due to shortage of foreign exchange reserves revealed how the country relied on the US dollars. With the fluctuating world market and the Kenyan currency being devalued against the dollar imports became dearer for the Kenyan importer due to the added cost of the dollar equivalent of products and services. Consequently, business and customers incurred high costs, tightening inflation, and generally challenging the economy.

While the FOCAC partnership offers opportunities for economic development and cooperation, it is not without its thorns. The issues of debt relief, geopolitical competition, China’s influence, and the internationalization of the Yuan are all key spines that can potentially mar the rise that is the China-Africa relationship. Therefore, to ensure that the FOCAC partnership is mutually beneficial, both China and African countries must address these challenges head-on and work towards a more equitable and sustainable arrangement.

These are the writers own opinions and do not necessarily reflect those of Liberty Sparks, our board, or its representatives.