May 22, 2024
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Why China is Reluctant to Fund Africa Energy Projects

The Chinese government halted funding for energy projects in Africa due to rising risks of debt distress among several African countries and its internal economic challenges.

This has pushed lending to the African continent from China to below $1 billion, the lowest in about 20 years.

Beijing’s shift in its lending policy towards Africa has been bolstered by President Xi Jinping’s determination towards ‘greening’ his massive Belt and Road Initiative (BRI) and supporting small scale projects (with values under $50 million) which are economically feasible, with more beneficial social and environmental impacts.

The GCI policy brief report dated September 2023 shows that although the African energy sector has historically received the most Chinese loans, no sovereign loans for energy projects were identified in the years 2021 and 2022.

So far Chinese lenders have extended $59.95 billion in loans to African governments, of which almost half is to fossil fuel projects (oil, coal, and gas/LNG), The EastAfrican publication revealed.

The Chinese lending to Africa is unfolding, characterised by fewer large-scale loans over $500 million, more loans with smaller values under $50 million and loans with more beneficial social and environmental impacts.

“Emerging trends in Chinese global overseas development finance indicate shifts in Chinese lending are moving toward a “small is beautiful” approach. Loans are also supplied to sectors with more social and environmental impacts, such as environment and education,” says the report.

According to the report, 39 Chinese lenders provided 1,243 loans amounting to $170.08 billion to 49 African governments and seven regional institutions during the period from 2000-2022.

This is equivalent to 64 percent of the World Bank’s $264.15 billion in sovereign loans to Africa and almost five times the African Development Bank’s $36.85 billion in sovereign loans to Africa in the same time period.

Angola, Ethiopia, Kenya, Zambia, Egypt, Nigeria, Sudan, South Africa, Cameroon, and Ghana borrowed 69 percent of the loans in the 2000 to 2022 period finance.

The report however noted that in recent years, the levels of large-scale Chinese loan finance to Africa have waned.

For instance, from 2021 to 2022, only 16 new loan commitments worth $2.22 billion from Chinese lenders to African government borrowers were recorded.

In 2021, seven loans totalling $1.22 billion were signed, and in 2022, nine loans amounting to $994.48 million were signed, signifying two consecutive years of lending to Africa below $2 billion.

Although Africa’s economy grew by 1.6 percent to 4.8 percent from 2020-2021, respectively, bolstered by higher oil prices, growing global demand and domestic consumption in most countries, almost two-thirds of African countries experienced currency depreciation and increased external debt levels.

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