Chinese lenders approved loans worth $4.61 billion to Africa last year, marking the first annual increase since 2016, according to an independent study. This surge in lending comes after Africa secured more than $10 billion in loans a year from China between 2012-2018, largely due to President Xi Jinping’s Belt and Road Initiative (BRI). However, the lending fell significantly at the start of the COVID-19 pandemic in 2020, making last year’s figure a notable increase from previous years.
The study conducted by Boston University’s Global Development Policy Centre found that this increase in loans signals China’s intention to curb risks associated with highly indebted economies in Africa. The data suggests that Beijing is looking for a more sustainable equilibrium level of lending and is experimenting with a new strategy to achieve this goal. This shift in focus comes as Chinese institutions prepare to host African leaders for the Forum on China-Africa Cooperation, emphasizing the importance of economic partnership between the two regions.
Last year, there were 13 loan deals involving eight African countries and two African multilateral lenders, showcasing a diversification of loan recipients. Some of the most significant loans included a nearly $1 billion loan from China Development Bank to Nigeria for the Kaduna-to-Kano Railway and a similar size liquidity facility to Egypt’s central bank. China’s role as a top bilateral lender for African nations, with a total lending amount of $182.28 billion between 2000-2023, highlights the significant financial support provided to Africa’s energy, transport, and ICT sectors.
Despite the overall increase in loans, there is a noticeable shift towards funding renewable energy projects in Africa, with nearly a tenth of 2023 loans allocated to solar and hydropower energy initiatives. This move indicates China’s willingness to move away from traditional coal-fired power plants and invest in more sustainable energy sources. By focusing on renewable energy, China is not only supporting Africa’s sustainable development goals but also aligning with global efforts to combat climate change.
While the increase in loans and the shift towards renewable energy projects are positive developments, there are still challenges and uncertainties in China’s financial engagement with Africa. The reduction in loans in recent years was primarily driven by China’s domestic pressures and the growing debt burdens among African economies. Countries like Zambia, Ghana, and Ethiopia have undergone debt overhauls, highlighting the financial challenges faced by many African nations.
While China’s increased loans to Africa reflect a renewed commitment to economic partnership, there are still uncertainties regarding the quality and sustainability of these partnerships. As China navigates its evolving financial engagement with the continent, it will be crucial to prioritize risk management, sustainable development, and transparency in all future loan agreements to ensure the long-term success of China-Africa cooperation.