Chinese debt trap: how china is using loans to take over Africa’s natural resources

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By Edison Simon Waya
The recent decade has seen China position herself as the go to money lender for the African continent. China has become a bank which any African state can walk into and receive any loan amount it so desires.
Unlike the western countries, when giving loans the Chinese do not attach politically leaning conditions and they do not interfere with local politics which African leaders have loved about Chinese loans.



A clear example of the western conditional loans is when in February of 2014, Uganda passed a controversial anti-gay bill into law and this did not sit well with the western powers who choose to react by freezing a World Bank loan of $90 million to Uganda and other European countries like Norway followed suit by withdrawing direct government aid of $8.3 million to Uganda.
Sweden withdrew aid of $10.1 million and Netherlands withdrew $9.6 million. Denmark and Norway withdrew 17 million meant for government NGOs and civil society organizations in Uganda. The USA suspended $13.4 million from its running programmes in Uganda and also withdrew $6.4 million from the Inter religious Council of Uganda. The USA withdrew a further $3 million meant for tourism and biodiversity protection. By passing the anti-gay bill into law, Uganda lost at least $157.8 million in aid which is not the case when it comes to Chinese loans.



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The Chinese have also gotten more African clients for its loan business due to their willingness to lend to corrupt and politically unstable African countries which the western countries tend to avoid.
The Chinese unlike the west are also willing to secure their loans with natural resources or a huge chuck of shares in the infrastructure they have built. Now the Chinese being the default lenders to the continent they drive a hard bargain and unlike the Western countries who give lower interest rates and forgiveness of loans, the Chinese interest rates are too high and can reach up to 56.3% interest rate. Which in layman’s terms means if you borrow 1,000,000 Ugx from the Chinese you can pay back 1,563,000 Ugx plus interest.
These kind of terms have driven many African countries into a mountain of debt that they end up defaulting. Now when an African country defaults on a loan which is backed by natural resources the Chinese take over the natural resource until they have made back their loan with interest.



A case in point is Angola which defaulted on a Chinese loan of $25 billion which was backed by Angolan oil. The Chinese then asked to be paid back in crude oil and this has seen majority of the Angolan oil being shipped to China to service the debt and has left very little oil for the Angolan government to sell and support its people.
Angola as a country has in recent history been ravaged by war till 2002 and has little alternatives in supporting its economy besides oil. Their government aimed at diversifying their economy and since most of their oil goes to China to service a debt they had no choice but to go back to china for loans to diversify their economy and accumulated another debt of $4.4 billion which has now trapped the Angolan government and its people in the Chinese debt trap. They literally cannot afford to pay their way out of the Chinese debt.



The Angolans are not the only victims of the Chinese debt trap other countries have fallen victim too. Djibouti lost a seaport to Chinese debts, South Africa and DR Congo have lost infrastructure and natural resources respectively to the Chinese debt. All sub-Saharan countries have accumulated Chinese debt and financial experts are warning of a looming debt crisis in Africa due to the Chinese debt.



Off the continent other countries like Pakistan have started turning down Chinese loans after realizing the deadly effects of the Chinese debt to their economy. In Sri Lanka, they are about to give up 80% of their sea port to China after defaulting on about $8 billion to China. The Chinese debt trap has pushed oil rich Venezuela into a near collapse of its economy due to the burden of the Chinese debt. The Chinese government has made this problem even worse by refusing to cooperate with other governments that aid and give loans to Africa. To this day they refuse to abide to regulation and partnering with other governments in their endeavors in poorer economies.

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