China’s loans to Africa are rising for the first time in seven years, a Reuters study shows

By Duncan Miriri

NAIROBI (Reuters) – Chinese lenders approved $4.61 billion in loans to Africa last year, marking the first annual increase since 2016, an independent study showed on Thursday.

Africa secured more than $10 billion in loans a year from China between 2012 and 2018 thanks to President Xi Jinping’s Belt and Road Initiative (BRI), but lending has fallen sharply since the start of the COVID-19 pandemic in 2020.

Last year’s figure, a more than three-fold increase from 2022, shows China is eager to reduce the risks associated with heavily indebted economies, the study by Boston University’s Global Development Policy Center found.

“Beijing seems to be looking for a more sustainable level of lending balance and experimenting with a (new) strategy,” said the university center, which runs the China Loans to Africa database project.

The new data comes as Beijing prepares to host African leaders next week for the Forum on China-Africa Cooperation, held every three years.

There were 13 loan agreements last year involving eight African countries and two African multilateral lenders, the study shows.

Last year’s highlights include a nearly $1 billion China Development Bank loan to Nigeria for the Kaduna-to-Kano railway and a similarly sized liquidity facility by Egypt’s central bank lender.

In recent years, China has become the main bilateral creditor for many African nations such as Ethiopia.

It lent the continent a total of $182.28 billion between 2000 and 2023, the Boston University study found, with most of the finance going to Africa’s energy, transport and ICT sectors.

Africa was prominent in the early years of the BRI as China sought to recreate the ancient Silk Road and expand its geopolitical and economic influence through a global push for infrastructure development.

China, however, began to turn off the cash tap in 2019, a shift that was accelerated by the pandemic, leaving a number of unfinished projects in the region, including a modern railway meant to link Kenya to its neighbours.

The credit squeeze was driven by China’s domestic pressures and rising debt burdens among African economies. Zambia, Ghana and Ethiopia have entered into extended debt reviews from 2021.

More than half of the loans committed last year, or $2.59 billion, went to regional and national lenders, underscoring Beijing’s new strategy, the Boston University study found.

“The focus of Chinese lenders on African financial institutions is most likely a risk mitigation strategy that avoids exposure to the debt challenges of African countries,” the statement said.

Nearly a tenth of the loans in 2023 were for three solar and hydropower projects, the study found, illustrating China’s desire to shift to financing renewable energy instead of coal-fired power plants.

However, trends visible in last year’s figures did not provide a clear direction of China’s financial engagement with the continent, the study said, as Chinese institutions also extended loans to struggling economies such as Nigeria and Angola.

“It remains to be seen whether China’s partnerships in Africa will maintain their quality,” the Center for Global Development Policy said.