The respected Africa Confidential has revealed that talks are underway for a Chinese company to takeover power utility ZESCO.

And Africa Confidential has warned that Zambia risks losing its sovereignty to China as that country will seize national assets once government defaults on loans.

In a report titled ‘Bonds, bills and ever bigger debts’ published on September 3, Africa Confidential observed that ZNBC was already being run by the Chinese and disclosed that Zesco was also already in talks about a takeover by a Chinese company.

“A major worry of the IMF and US is that China’s BRI strategy is first to encourage indebtedness, and then to take over strategic national assets when debtors default on repayments. The state electricity company Zesco is already in talks about a takeover by a Chinese company, AC has learned. The state-owned TV and radio news channel ZNBC is already Chinese-owned. The long-term outcome could be effective Chinese ownership of the commanding heights of the economy and potentially the biggest loss of national sovereignty since independence,” the report read.

Africa Confidential noted that Zambians would be alarmed to learn the real Chinese debt figures.

“Zambia is a good example of what the International Monetary Fund and the United States Senate are calling a crisis of accelerating developing-country indebtedness to China.

On 3 August, a bipartisan letter by prominent US Senators to US Treasury Secretary Steve Mnuchin urged the US not to allow the IMF to bail out countries which had got themselves into financial difficulties thanks to over-exposure to Chinese debt, especially for ‘overpriced’ infrastructure projects.

The démarche builds on the concern expressed by IMF Managing Director Christine Lagarde in a major speech in April and pundits in Lusaka say the description fits Zambia like a glove,” the report read.

“The Senators’ letter names ‘predatory Chinese infrastructure financing’ as part of ‘debt-trap diplomacy’ which is integral to the Belt Road Initiative (BRI).

The letter continues that Twenty three of the 68 developing countries are in debt distress or strong risk thereof because of the BRI.

Although Zambia is classified as at high risk of debt distress it is not among the 23 named, but Africa Confidential’s sources say this is only because much of its debt to China has not been fully accounted for, an exercise the Lusaka exchequer is not anxious to complete for fear of the alarm the figures would cause.”

Africa Confidential noted that although Finance Minister Margaret Mwanakatwe announced that all Chinese projects below 80 per cent completion would be halted, President Edgar Lungu told Chinese nationals that all projects would go ahead as planned.

“The Zambian government is supposed to be contributing 15% of its own money to the Chinese-financed projects. Meeting this commitment is testing government finances to the limit and taking precedence over social expenditure. Even though Finance Minister Margaret Mwanakatwe pledged to halt all Chinese-backed projects that were less than 80% complete, on 11 July President Lungu publicly told Chinese officials in Lusaka that there would be ‘no disruption in the ongoing projects’ financed by China,” read the report.

“Since President Edgar Lungu came to power, Zambia has signed off on at least US$8 billion in Chinese project finance. Over $5 bn. of this has not been added to the total because Zambia insists the money has not been disbursed, and more large loans are in the pipeline. Yet the finance ministry does not have the capacity, insiders say, to police, let alone stem, all the spending. In some cases, the financial penalties for halting disbursement on projects would outweigh the savings. Donor governments have offered technical assistance to bring the project debt mountain under control but have been rebuffed.”

Africa Confidential also reported that IMF representative Alfredo Baldini was asked to leave on accusations that he was “spreading negative talk.

“The government has all but expelled an IMF official, as the debt continues to spiral and the role of Chinese projects in it raises more concern. Having allocated US$500 million to external debt service this year, the government’s liquidity crisis drags on as relations with donors and international financial institutions plummet. Lusaka asked the International Monetary Fund to withdraw its resident representative Alfredo Baldini on the grounds that he was supposedly ‘spreading negative talk’ among the donors, a source in Lusaka said. The rift is a blow to any chance – practically non-existent though it already was – of a deal,” read the report.

And Africa Confidential revealed that Britain’s Department for International Development was investigating three ministries for fraud.
“Financial management across the ministries is under scrutiny. Britain’s Department for International Development is investigating fraud in three ministries, which could have serious implications for future funding, Africa Confidential has learned. And Zambian exposure to Chinese debt, especially project credit, is still causing concern,” read the report.

Meanwhile, Africa Confidential noted that government had continued spending lavishly despite the country being in debt distress.
“In mid-July Lusaka announced a supplementary budget of 7.2 billion kwacha ($721 mn.). Half of this is for debt service, which leaves only just enough only for public sector salaries, which it is struggling to pay. It missed most August salary payments, causing outcry among civil servants last week. Efforts to raise capital domestically are not going well. The auctions of Treasury Bills have been poorly subscribed on average although it has been using massive inducements to attract the banks. Government data shows that by the end of May it had spent $489 mn. on external debt service and on 19 July it announced a further $161.3 mn. was paid in June. It will need a further $360 mn. over and above the sum originally budgeted to cover debt service,” read the report.

Ministry of Finance insiders say that domestic measures now in train to re-allocate spending are not realistic and that at least another $300 mn. needs to come from fresh borrowing. Yet the government is spending as freely as ever, as in the lavish expenditure by the Patriotic Front on the election of Miles Sampa as mayor of Lusaka on 26 July, even though only 15% of voters turned out.”

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.
Isaac Mwaipopo
EXECUTIVE DIRECTOR

The opposition UPND has challenged the PF Government to leave the University of Zambia (UNZA) and Coppebelt universities graduates alone on student loans.

And the UPND has promised to cancel all students loans when it forms government.

UPND Secretary General Stephen Katuka said the PF should apply austerity measures on the graduates as well as for imposing a job freeze.

Mr Katuka said instead, government should let the PF ministers who remained in office illegally pay back the money .

“Where do they think the poor youths will get money from when government has imposed a job freeze. The First Lady, Esther Lungu can afford tuition fees under distance learning at UNZA but the majority youths cannot because the PF have caused poverty by failing to create the jobs they promised the youths,” Mr Katuta said.

He said Ministers and PF MPs can also afford to take their children abroad to expensive universities yet poor Zambians have no money to pay for their children at local universities.

“Let Edgar Lungu stop unnecessary journeys and save the money he is using for travelling with his entourage to sponsor poor students. Lungu over borrowed money from everywhere and abused it. We warned them against borrowing for wrong purposes, they did not listen. Most of the PF surrogates called us bitter, now they will eat their bitter pill of Kaloba, balalipila.”

“For us in the UPND, education is an investment and not a cost as the PF takes it. When we are given a mandate, we shall ensure we cancel all the loans the PF are giving students. We shall ensure we offset all those loans the students have obtained. We shall provide free education. Lungu has no vision for this country. Am sure Zambians have now proven that.”

He said President Lungu and his Ministers should have morality.

“Why would a responsible leader want the poor people to pay when his corrupt government is abusing public funds. Ministers who remained in office illegally have not paid even after the court made a ruling. We would like to urge the graduates from these two universities never to pay the said loans,” he said.

“Why does Lungu want poor jobless youths to pay when his own Ministers have refused to pay what they illegally obtained from the people of Zambia? This is not fair. We must have a human heart.”