Throughout both the COVID-19 pandemic and much of 2023, there was been an abundance of reporting on a slowdown in Chinese lending to Africa, and projections that this would continue into the future. Now as we start a new year, and as the Chinese foreign minister prepares to make his annual visit to African countries, many are wondering what direction Chinese lending to Africa will take in 2024.
At Development Reimagined, our general house view is that Chinese lending will, in fact, increase in 2024. Yet we also know that there could be barriers. There are four key reasons we fall cautiously on the upside.
First, the recent decline in Chinese lending to Africa – especially post-pandemic – is not inconsistent with historical trends, taking the outliers out, particularly the huge loan to Angola in 2016. As is well known, African countries took over $170 billion worth of loans from China between 2000-2022. From 2000-2007, Chinese loans to Africa grew at a slow, steady pace, before falling sharply in 2008, as the Global Financial Crisis took hold. Then 2009-2013 saw the fastest rate of growth of Chinese lending, with another slowdown between 2014-2015. Thus, it is entirely possible, based on these historical trends, that an increase could be seen again in 2024 and beyond.
Second, not all African countries borrow from China at the same rate, and many are in demand of lending. Analysis often focuses on the supply of loans by China, ignoring the demand for loans by African countries. This creates a false impression that all African countries borrow from China, all the time. In fact, the top five African borrowers from China during this period – Angola, Kenya, Ethiopia, Egypt, and Zambia – collectively account for just over 51 percent of total Chinese lending to Africa. Additionally, of the 48 African countries that have borrowed from China, 15 countries have borrowed less than $500 million.
Meanwhile, many African countries have not borrowed from China in quite some time. Algeria, Africa’s fourth largest economy, last took a loan from China in 2004. Botswana and Tunisia have not borrowed from China since 2010, while Niger, Tanzania, Seychelles, and Togo have not taken a loan from China since 2017. Six African countries – the Central African Republic, Guinea-Bissau, Libya, Somalia, Eswatini, and Sao Tome and Principe – have not borrowed from China since 2000, for various reasons ranging from the status of diplomatic relations over that period (e.g., Eswatini) to ongoing multilateral debt relief negotiations (e.g., Somalia). However, most of these countries were recipients of Chinese aid projects.
In the same vein, Chinese lending to Africa has been uneven at a regional level. Between 2000-2022, Southern Africa by far received the largest volume and number of loans (64 percent), with North Africa receiving the least amount (4 percent).
Third, the pace of Chinese lending to Africa has been uneven over the past few years, with 2016 again being a highly anomalous year. The typical explanation for this is a slowdown in China’s appetite for lending.
However, in response to growing concerns in the recent past about a looming “debt crisis,” African countries too have restrained themselves in their demand for new Chinese loans – instead seeking public private partnerships, which would not have an impact on balance sheets. Here again, demand from African countries – rather than supply from China – is the key overlooked factor.
The challenges of the COVID-19 pandemic, of course, have exacerbated these issues. China’s prolonged global travel restrictions due to the pandemic made it hard for business trips and due diligence to be performed. These are key prerequisites for lending to happen, hence the slowdown in loans.
Furthermore, to address challenges brought on by COVID-19, African countries turned to traditional multilateral development banks (MDBs), which tend to provide financing for sectors such as healthcare that were most affected by the pandemic. Consequently, while Chinese lending to Africa reduced during this period, African borrowing from the World Bank spiked. Between 2016-2021, World Bank lending to Africa rose from $52 billion to $90 billion per year, during the pandemic.
Fourth, while acknowledging that China’s own economic considerations could adversely affect Chinese global lending, we believe that expanding its overseas lending for infrastructure – particularly in Africa to support manufacturing – remains key to China’s long-term economic growth. And since Africa’s development needs remain significant, especially in infrastructure, we anticipate that Chinese lending will likely rebound to pre-pandemic levels moving forward.
Furthermore, with the Ninth Forum on China-Africa Cooperation (FOCAC9) coming up in late 2024, we anticipate that fulfilment of pending financing commitments from FOCAC8 will drive up Chinese lending to African countries. Relatedly, 2023 saw a spike in the number of African leadership visits to China following the pandemic-induced freeze. As our previous analysis has shown, African leadership visits tend to be associated with an increase in Chinese investment, trade and deals. Therefore, we also anticipate the many visits from 2023 to result in an increase in Chinese lending to Africa in 2024.
Last but not least, new financing commitments for the Belt and Road Initiative announced at the October 2023 Belt and Road Forum provide a new Chinese funding avenue that African countries are likely to tap into.
Based on these factors, we expect China’s lending to Africa to rise.
One final note: In our analysis, we always aim to avoid undertones that African countries have spent badly, are too “indebted” to creditors, or that they are “risky” investment destinations, as a recent article in The Economist alleges. We also avoid implying that China is “learning” about lending in Africa, as this can appear rather condescending. Instead, we take into account African agency and legitimate needs for debt for development, plus the continent’s strong growth prospects compared to the global average. We argue that this is a more objective approach to understanding borrowing trends in Africa.
Whatever happens, and with new interest by other development partners in African infrastructure and resources, this space will be a fascinating one to both watch and be part of in 2024.