The Centre for Trade Policy and Development has advised the Zambian delegation attending the third Forum for China Africa Cooperation (FOCAC) summit to avoid contracting any fresh loans.
CTPD Executive Director Isaac Mwaipopo said Zambia should avoid at all costs acquiring more debt during out of this summit.
Mr Mwaipopo added that Zambia is at high risk of debt distress, and the Chinese government has time and again signaled that China might be open to supporting the Zambian Government to restructure its debt portfolio.
He said Zambia must therefore take advantage of this platform and bring to the table a conversation around the need to renegotiate its Chinese debt.
Mr Mwaipopo also noted the need for transparency and accountability in loan acquisitions, the terms and structure of Chinese loans to Zambia and that details about how they are secured must be transparent.
Below is the full statement from CTPD
FORUM FOR CHINA AFRICA COOPERATION (FOCAC) RECOMMENDATIONS
Since the turn of the century China has increasingly been interested in many African states, largely the result of the establishment of the Forum on China-Africa Cooperation (FOCAC). Zambia is no different, and Chinese investment in the infrastructure, natural resources and energy sectors are substantial.
Chinese financing and companies are responsible for the ongoing construction of airports (such as the new terminal at Kenneth Kaunda International Airport and the new Copperbelt Airport); roads (including the new Lusaka-Ndola dual carriageway project); and rail links (including extensions to TAZARA).
Such Chinese investment takes many forms, including (i) grants direct from the Chinese government; (ii) interest free loans from the Chinese government through the Commerce Ministry; (iii) concessional loans; and (iv) commercial loans.
However, in Zambia the bulk of Chinese lending is through direct project finance loans with either fully commercial or concessionary terms.
The scale of this Chinese lending is significant: speaking in October 2017, the then Chinese ambassador to Zambia said that over 600 Chinese enterprises are investing in Zambia and the total Chinese investment is close to US$4 billion, making Zambia one of the top ten destinations in Africa for Chinese investment.
95% of all of Zambia’s external debt from export and suppliers’ credit sources comes from China, with debt from Chinese sources equaling approximately US$3 billion (or 30% of Zambia’s total external debt stock) in 2017.
Additionally, in 2016 a staggering US$1.7 billion – 50% of all new loans contracted that year – was lent by Chinese sources. More importantly, according to a statement issued by the Minister of Finance on 21 February 2018, it was stated that China is a natural first creditor and accounts for 28% of Zambia’s debt.
Nonetheless, very little is known about the terms and structure of these loans. Much of the Chinese debt is relatively low-cost when compared to other sources of finance (at least in terms of interest rates), therefore permitting significant investment into projects designed to promote economic growth and development.
However, there is a severe lack of transparency over many key terms, including repayment, contracting obligations, project feasibility, and value for money and loan security. This lack of transparency makes it impossible to have a clear account of the implications of this borrowing for the public finances.
The Center for Trade Policy and Development recognizes the fact that FOCAC is the premier platform through which trade and investment is mediated between China and African countries.
Therefore, CTPD recommends the following to all the African Heads of States attending the summit running under the theme “Win-win cooperation and joining hands to build a closer community with a shared future for China and Africa.” Project financing, it is important to ensure that projects financed through FOCAC are integrated into and consistent with countries national development plans.
This will make FOCAC projects more coherent and focused. It should not be just be because China has resources to lend out and countries jump on them without taking into consideration how some of the projects fit in with national priorities.
Engagement strategy, While China has an Africa Policy, African countries should begin a conversation on the need to develop a strategy that can help them engage with China effectively.
Africa should eventually develop an African-grown comprehensive agenda or strategy going into negotiations with China that emphasizes policy co-ordination and sustainability. It is also recommended that African governments make sure that all projects supported by the FOCAC framework fully adhere to rigorous environmental and social sustainability standards and deploy best international standards and practices of planning, implementation and progress reporting.
In the Zambian case, Chinese investment has been cited to come with a host of environmental impacts and sustainability concerns. Even in the recently finalized study conducted by the Centre for Trade Policy and Development on the performance of Multi Facility Economic Zones also revealed the need to improve conditions of service of workers.
Renegotiation of Chinese Debt, Zambia is at high risk of debt distress, and the Chinese government has time and again signaled that China might be open to supporting the Zambian Government to restructure its debt portfolio.
Zambia must therefore take advantage of this platform and bring to the table a conversation around the need to renegotiate its Chinese debt.
Zambia should avoid at all costs acquiring more debt during out of this summit. Transparency and Accountability in loan acquisitions, the terms and structure of Chinese loans to Zambia – and details about how they are secured – must be transparent. Not only will this help to allay market concerns on the basis that investors should be provided with the key commercial terms of Zambia’s debt portfolio (thus reducing uncertainty), but it will permit greater oversight of the projects the government is promoting and will improve value for money.
The Centre for Trade Policy and Development remains deeply concerned about the growing negative publicity of Zambia which has now penetrated the international media space, there is need to come together as a country and find common ground that can help to resolve the current situation.
As the 2019 budget debates draw closer, there is serious need to put heads together in finding lasting solutions as the current debt situation might get severe. It is our sincere hope that the departure of the IMF representative to Zambia will not affect prospects for accessing the desperately needed support from the international monitory Fund as the failure to access that support could have severe implications for the country.