Opinion
Mint Explainer: Will Africa divide the G20?
Summary
- China and the West may clash over the continent's mountain of debt
G20 finance ministers and central bank governors go into a huddle on Friday and Saturday. G20 chair India, and the International Monetary Fund, say debt restructuring of low-income countries (LICs) and emerging economies will top the agenda of the sessions. Now, most LICs are African nations, a natural resource-rich continent patronized by China over more than a decade. Any effort by India and its allies, such as the US, to widen their influence in Africa, directly or through multilateral bodies like the IMF and the World Bank, will be resented by Beijing. China is the largest bilateral lender for public sector projects in Africa. IMF wants to be at the centre of a “global financial safety net". It may become another flashpoint between the West and China.
The G20 agenda may be divisive
The G20 finance ministers will debate issues from slowing global growth to regulating cryptos. Mounting debt of LICs and emerging economies will top the agenda, according to India and the IMF. IMF managing director Kristalina Georgieva estimates "15% of low-income countries (LICs) are in debt distress and an additional 45% are at high risk of debt distress. And among emerging economies, about 25% are at high risk and facing “default-like" borrowing spreads."
Since most LICs are African nations, the continent will have to be at the heart of these discussions. And that may not go down well with China. In fact, it may even see it as an attempt by India and allies, including the US, to curtail its influence in Africa. Beijing has emerged as the leading bilateral lender to Africa in recent years. In 2020, almost 9% of Africa's external debt was owed to China. Angola, Ethiopia, Kenya, Cameroon and Zambia are the countries with the maximum exposure to Chinese debt, ranging from 15% to 40% of their total external debt.
In the recent past, western leaders have repeatedly taken potshots at China for delaying country debt restructurings, a charge Beijing has angrily denied. In fact, there is a school of thought that China competes with the IMF in giving credit to new markets, and extending its strategic influence globally. Africa may just emerge as the new battleground for China and the West. “So, a well-resourced global financial safety net, with the IMF at its centre, is more important than ever," says IMF’s Georgieva.
Why China is interested in Africa
The Organization for Economic Cooperation and Development (OECD) a rich-country club, sees China's interest in Africa as an attempt to sustain its high growth rates. "China needs, first and foremost, natural resources, oil, industrial metals, and increasingly, agricultural resources," OECD said in a paper. But in recent years, a clearer picture of the Chinese footprint in Africa is emerging. According to Washington-based think-tank Carnegie Endowment for International Peace, more than 65% China's of lending goes to infrastructure projects. While initially some Chinese lenders offered government-subsidized concessional loans, now most Chinese creditors offer loans at commercial or non-concessional rates.
Carnegie Endowment further says, "The controversial resource-backed lending model persists" in some cases. Essentially, it's a model for financing infrastructure projects – the borrowing nation promises to repay Chinese loans from the share of revenues earned from its natural resource exports. Of course, volatile commodity markets can disturb this debt repayment arrangement, and borrowers have on occasions had to seek help from other entities, such as the IMF.
Africa is capital-starved
Many African countries have been roiled by the pandemic and need debt restructuring to tide over the crisis in the near term, and cheaper long-term debt. Zambia has already sought a bailout programme from the IMF. Many other countries, including Zambia, Ghana, Mozambique, Rwanda and Sudan too have mountains of debt. It's not that the rest of the world has ignored Africa in the past. In fact, Africa's debt shrank in the 2000s after waivers under the Heavily Indebted Poor Countries (HIPC) initiative of the World Bank and the IMF. The US is the leading shareholder in both multilateral institutions.
But many believe the West has not done enough in Africa in recent years, a vacuum China has filled. Africa is mineral-rich, from oil in Niger and Chad to natural gas in Mozambique. It has not gone unnoticed.
IMF’s Georgieva has said that the multilateral body has taken "unprecedented action" in Africa recently. In 2021, IMF lending in Africa was 13 times higher than the annual average of the previous decade, she asserted. But Africa needs much more.
India is also expanding in Africa
In recent years, India too has been expanding its footprint in Africa. In fact, its among the top five investors in the continent. Across Mozambique, Sudan, Ghana and Nigeria, India has been spreading its footprint in agribusinesses, IT, energy and pharma.
