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Alba Iulia
Friday, September 24, 2021

Zambia-China Economic Ties need Recalibration

“Why ordinary Zambians have not benefited from Chinese loans” (Excerpts from my new book on Amazon.com: China-West Battleground in Africa: Debt Ridden Zambia)

Columns Zambia-China Economic Ties need Recalibration

By Mwansa Prospery Chalwe

It is a well-known fact that China is Zambia largest bilateral creditor; it is also Zambia’s largest trading partner, and it’s single largest investor. On the basis of this, it is a fact that if the there is one country in the World, that can influence and determine the economic fortunes of Zambia – positively or negatively – it is China. With a bit of thinking and patriotism by Zambian leaders, China with its capital and a massive market, can be a huge part of the solution to Zambia’s economic problems.

To just recap and put the analysis in context, in 2018, bilateral trade between Zambia and China was estimated to be in excess of $5 billion, whereas China’s total investment in Zambia was estimated to be more than $4 billion in various sectors. Zambia also owed China over $3 billion or 30 per cent of the total foreign debt according to official figures. However, according to the China-Africa Research Initiative (CARI) at the Johns Hopkins University, they estimated that Zambia’s accumulated loans from China were almost $9.7 billion including commitments (Credits in pipeline).These are huge sums of money to have “flowed” into such a small economy. Unfortunately, these billions do not seem to have made much economic impact on ordinary Zambians in terms of discernible job creation, poverty alleviation and lowering the cost of living. The big question is, why?

As the situation stands now, any objective analysis of the relationship between Zambia and China, would conclude that it is not the much touted ‘Win- Win” by the China. It is a rather lop sided one. China benefits much, much more than Zambia in so many ways. This view is supported by Chinese scholars of Hebei University of Economics and Business, Cheng Jian and Comfort Lubinda’s study.

“Even though the Sino-Zambia relation is based on ?win-win cooperation, the current pattern favours China more. These shortcomings of Chinese capital in Zambia call into question the widely held belief that Chinese investment in Zambia is a ?win-win for economic cooperation. By analysing various current Chinese development projects in Zambia, the paper has reviewed that Chinese investments are potential sources of new knowledge to Zambia, but despite this fact, the spill over of this knowledge is very minimal,” they wrote in their insightful research paper.

In view of the current dire economic situation that Zambia finds itself in, it is only rational that our
relationship with the most influential stakeholder in our economy needs to be revisited as part of our search for economic recovery solutions. And this, should be a non- partisan issue.

No Foreign Exchange inflow

In the first instance, the Chinese development financing model is structured in such a way that no finance or very little foreign exchange flows into Zambia as a result of loans obtained. In fact, Zambia has to make counterpart contribution to projects which constitutes forex outflow. China’s loan funds do not leave China and so, virtually very little transactions take place in Zambia’s economy. In funding Zambia’s infrastructure projects, China’s policy banks such as China Development Bank (CDB), the China Exim Bank (China Exim) and China National Aero-Technology Import and Export (CATEX), who provide finance for projects, pay Chinese Contractors directly. In Zambia, the main contractors include the following: Aviation Industry Corporation of China (AVIC), Sino hydro, China National Complete Engineering Corporation (CCEC), China Jiangsu International Technical Corporation, China Jiangxi Corporation for International and Technical Corporation and China Henan International Corporation. The net result is that the loans have no positive impact on the kwacha exchange rate.

Apart from the fact that very little finance comes to Zambia, in terms of labour, the bulk of the technical and manual labour employed on most of the Chinese infrastructure projects are brought in from and paid for in China. In addition, the machinery and materials that are used on these projects are also supplied by Chinese companies in China.

Sub-contracting ignored

It should be also noted that the structure of Zambia’s infrastructure projects are such that there is hardly any joint ventures formed between Chinese and Zambian contractors. In addition, despite the Zambian government policy of requiring Chinese companies to subcontract 20% of their works to Zambians, this policy has not been complied with and is mostly ignored. The former minister of the Infrastructure and Housing, Vincent Mwale, whilst on a site visit on one of the road works in Lusaka, blasted one of the biggest Chinese Contractors in Zambia, AVIC International for failing to comply with the policy.

“I am in receipt of a petition from small and medium scale contractors who have complained that you, Avic International are not complying with the 20 per cent sub-contracting Policy.” The Minister said. “As Government we want that, through the 20 per cent sub-contracting Policy, we build capacity in Zambians who in future may bid for bigger contracts because they would have gained the experience. Sub-contracting is also meant to ensure that part of the contract’s money is retained in Zambia to help build capacity in terms of equipment and training.”

Jobs exported and created in China

It is clear from the above scenarios that real economic activities including job creation happens in China and not in Zambia and all we have in Zambia is just brick and mortar which cannot be related to any tangible economic value addition in the short to medium term. It is the combination of the above factors, capacity issues notwithstanding, in certain instances, that are the main reasons why the ambitious, massive infrastructure projects for the past ten years have not had much multiplier positive economic effects. There is no question that Zambia has been a construction site for the past ten years. But, unlike other countries where such multi-billion construction activities transforms their economies, the Zambian construction boom has not led to economic growth and job creation. Instead, it has resulted in the massive depreciation of the kwacha by over 353 per cent in 10 years, inflation rising to 24%, high unemployment, high poverty levels, negative economic growth, high cost of living and high cost of doing business.

On the basis of the aforementioned experience and statistics, the current model, needs some recalibration in its implementation so that it promotes inclusive economic growth in Zambia in order for it qualify for the so called “win –win” situation that is claimed by China. The recalibration actions should be undertaken by China and Zambia both individually and jointly.
There are a number of possible suggested changes that are required in the recalibration process of Zambia and China’s economic relationship. The first issue that needs to be addressed is the prioritisation, sequencing, spreading out and proper mix of development projects funded. From the common sense point of view, the top two priority sectors for infrastructure funding in Zambia, which would have had a direct impact on ordinary Zambians while at the same time contributing to economic growth, was to increase agriculture productivity and the provision of reliable and affordable power. The bulk of the funds should have been channelled there.

Studies have shown that growth in agriculture is four times more effective in the reduction of poverty than non-agricultural sectors growth. Building dams for irrigation in agricultural areas like Eastern and Southern provinces, building feeder roads to peasants’ farmers to enable access to markets for their produce and training extension workers to improve peasant farmers’ productivity would have totally transformed Zambian economy already and there would have been something to show for the billions of Chinese loans. In addition, China could have provided a huge market for any massively produced agriculture produce such as soya beans by importing from Zambia, as a “favoured” nation rather than from USA and other Western countries – that is how “win- win” looks like.

China is a leader in renewable energy and it should have facilitated the electrification of rural areas through solar power plants which would have had massive impact already. Rural areas are key to Zambia’s development. These two sectors would have achieved multiple objectives of food security, tax revenue generation, employment creation, poverty alleviation, diversification of economy and foreign exchange generation through exports. This would have been a vote winner also unlike the expensive and uneconomical roads, airports and single sourced digital migration projects for example.

Value addition and Human Capital development

China should avoid falling in the trap of being another neo-colonial power whose interest is simply to make Zambia and other African countries as suppliers of raw materials. It should differentiate itself from the West by ensuring that while it imports a substantial amount of raw materials, it leaves some in Zambia, and help the country add value to those raw materials. The abundant copper, cobalt and manganese should be retained to develop the battery and copper cable industries to meet the demands of the electric car market and other clean energy industries in China and the other industrialized countries. China has also not paid significant attention to Zambia’s human capital capacity building. Chinese companies still import mostly skilled labour from China to work on large projects. The development of human capital and skills transfer is a prerequisite to development and no economic relationship is ever truly beneficial to host country if there is no technology transfer and building of the local capacity.

Vanity projects and debt trap

China has a “5 Nos” non-interference policy in relation to African countries by respecting their sovereignty. This is a very commendable policy indeed. In the commercial world, however, it is irresponsible for a lender to give money for projects that will not generate money to repay the loan unless they have some other hidden agenda. In order to avoid the current debt trap and sovereign default that Zambia has found itself in, China’s policy banks will need to do better project evaluation in future to ensure that no vanity projects are approved. This does not constitute interference in the internal affairs or the development path of a country but it just amounts to prudent lending, period.

Perceived Corruption Exporting

There are other issues where China should not use the excuse of non-interference which has contributed to Zambia’s economic ruin, is corruption. There is a perception in Zambia and the World that China is an exporter of corruption. In Zambia, it is alleged that corruption has gone up exponentially in the last ten years with Chinese nationals and corporations accused of being among the contributors to the scourge’s increase. Critics point to one case as an example. In 2020, the World Bank sanctioned State-owned Chinese company, China Electric Design and Research institute (CEDRI) for fraud and corruption on an electricity project. Western critics and media allege that the reason why China is not keen to fight corruption in African countries like Zambia is because it serves China’s interests well. China needs to work hard to change this perception. As part of the recalibration process, China needs to do more to fight this scourge in Zambia among its nationals and companies like the US does through its Foreign Corrupt Practices Act (FCPA). Corruption is a moral and values issue. If corruption is bad for China, it must be bad for Zambia too.

The proposed recalibration are possible to implement with some political will from Zambia as the Chinese leadership respect the views of their cooperating partners unlike the West. This has been borne out in practice by many countries like Indonesia, Rwanda, Ethiopia, as well as through research.

According to independent researchers Larry Hanauer and Lyle J. Morris of Rand Corporation in the United States of America, China is ready to adjust its policies depending on the reactions of African governments and populations to its presence in a country in order to accommodate any hostile concerns.

“Beijing has adjusted its policies to assuage Africans’ concerns and put the Sino-African relationship on a more balanced footing. These modifications include a greater emphasis on “sustainability” in the economic and trade relationship; the promotion of Chinese soft power, culture, and people-to-people exchanges; and proactive engagement in the security and stability of conflict-prone areas in Africa. Such adjustments represent an understanding among Chinese elites that China’s increasing presence on the continent is producing negative consequences that must be addressed. Beijing’s adjustments have the potential to benefit both China and its African partners; the resulting favourable climate will enable Chinese investments to continue securing natural resources and generating profits while also contributing increasingly to local job creation and economic development,” they wrote in their report.

China should always keep in mind that Africa is a diverse and complex continent. There are some countries with very poor quality leaders who need mentorship and handholding and where the blanket application of the “5Nos” policy will just ruin China’s name. Also, the security of its citizens and investments in Africa, lies in ensuring that the citizens of the host African countries are happy through job creation and poverty alleviation. It does not lie in propping up corrupt leaders, supplying surveillance and military equipment to insecure dictatorial governments.

To conclude, it is important that China recalibrates its Zambian policy by ensuring that it helps create more local jobs, transfers more technology, adds value addition to local raw materials, invests in agriculture technology and infrastructure, helps fight corruption and in building local capacity-both technical and manage­ri­al — because that is what ordinary Zambians are looking for.
Zambia’s special, long and evolving relationship with China, has been extensively covered in my recent book from all angles. This article comprises just few excerpts my book. Below is the link to my book.

CHINA-WEST BATTLEGROUND IN AFRICA: DEBT RIDDEN ZAMBIA: Why U.S. May Lose Geo-Economic Competition to China https://www.amazon.com/dp/B097DVXBKH/ref=cm_sw_r_wa_api_glt_7PR5H7YBZZ14FCDNT54Y
The writer is a retired Chartered Accountant and Author. He is a financial commentator and Analyst, and an Op-Ed Contributor to the Hong Kong based, Alibaba owned, South China Morning Post (SCMP).

13 COMMENTS

  1. Defaulted Eurobonds and ballooning China loans have strangled Zambia during PF’s reckless era.

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  2. Any attack on China will backfire. China or any other cooperating partner must be free to invest in areas where profits are high and secure. China is not out to fraud or corrupt African countries. That is cheap propaganda. Remember that China’s biggest trade partner is the USA. Government procurement is different fro private procurements from China.

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  3. See the comment from the so-called Dr.fimo..fimo, focusing on irrelevant issues……the USA is already fighting china…the USA has partnered with EU to fight China, why can’t Zambia or Africa do the same? Yes, you want to remain in your comfort zone, as usual = do nothing ! ati fikaisova !!!
    The point is, we should be asking ourselves, how do we incorporate clauses in the contracts with China to ensure that Zambians also benefit? How do we impose the legally agreed 20% contract to be subcontracted to Zambia Companies?
    Its not “….cheap propaganda.”, just take a few minutes and think like a PHD holder and not like a PF cadre.

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  4. I enjoyed reading this. Well done. It is full of great ideas and I am now getting the book as well. this is so informative that it will be read by few. Zambians do not like reading that makes them to think but reading that makes them insult. This is not an attack on China but a very diplomatic approach that I believe the Chinese would most welcome. The next President of Zambia should make Prospery the Zambian ambassador to China or Minister of Finance. I feel relieved that Zambia still has people who took their vitamins as kids.

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  5. @Dr.Makasa you should read the article carefully before you make sweeping statements. If you read it carefully, China is ready to listen to host countries. This borne out in research and even to statement by President Xi himself. President Kagame said countries that do not negotiate well with China and choose proper beneficial projects should not blame China if their economy and citizens.
    Most of your comments are well thought out but this one was knee jerk. Very Disappointing! This article to me appears to be non- partisan but you appear to take a partisan angle.

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  6. 1}… When a bank gives you a business or mortgage loan, it makes sure that the repayments options of the money benefit the bank itself. In other words, it puts self-interest first before you.

    China will provide infrastructure investments to suit and benefit its self-interest. The world has become possessed complaining about China. China has the money because it has opened to Free Market Economy and given freedom to everyone chase their aspirations

    From 2012, there is an average of 1.2 million per year becoming millionaires in China. So, it will set the tone how you get loans from it. A beggar never chooses. You get what is offered to you.

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  7. 2}… The answer to the article is to change a mindset and become creative people. We have become a nation that are experts in complaining at every junction.

    When citizens of nation have lost the creative and innovation mindset, the nation becomes poor, and people suffer. The backbone of every developed nation starts from private citizens who set up small scales business that at times become big corporations.

  8. Its a bit late now…when you have ate the loans…I said it time and time again that EXIM Bank loans don’t benefit you in the long-term.

  9. Doing business with China remains rational and smart. It is the law of supply and demand. When Zambia needs a turbine to generate electric power, then Zambia will source from a competitive supplier, Stop assuming that Zambian technocrats cannot differentiate between right and wrong. China is a dependable supplier of goods and services. That is the reason why USA and EU states and UK continue to strike huge business deals. Do not attack China simply because of xenophobia. The solar milling plants are performing wonders. In Zambia maize mal is abundant and affordable for the vast majority of working people. Truth hurts you more than lies. Ask Africa-Asia experts first. Don’t advise experts. Think before leap.

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