http://www.eldis.org/go/country-profiles&id=35901&type=Document   

Executive summary

The report findings show that Chinese lending is generally welcome in Africa. The loans that China provides often contribute to financing infrastructure and other projects that African countries need. However, it is of concern that China is lending to countries that already have large debts outstanding. It is not the lending per se that is problematic, since it seems that China’s lending occurs in resource rich countries. What makes China a risk to debt sustainability in poor countries is the lack of transparency in loan contraction processes. Loan contracts between China and African countries are not open to public scrutiny. This leaves a lot of power in the hands of a few African leaders. As our case study from Zambia shows, loan contracts are often made at the highest political level, and because of the lack of transparency, the agreements are not available to parliament, civil society or media.

The lack of transparency makes it difficult to assess how much debt is being contracted and on what terms. It also increases the risk that funds will not be used for the intended purposes and might turn out to be cases of illegitimate debt in the future. The report concludes that in order to prevent irresponsible loan contraction, there is a need for responsible lending practices to be put in place.

The report also aims to show that China’s presence as a lender in Africa provides an alternative to the traditional donors within the development paradigm. China’s non-interference policy implies that China does not have any conditions attached to loans apart from the requirement to support the one-China principle and to reject the legitimacy of Taiwan as a country. Traditional donors on the other hand, have applied conditionality aiming to change African countries’ economic policy. Following the recent debt relief initiatives, traditional creditors such as the World Bank and the IMF have less resources to draw on, and their leverage in African countries is diminishing as countries have benefited from debt relief and graduated from debt relief programs monitored by these institutions.

The presence of new lenders, includ­ing China as an alternative on the creditor arena, is also increasing the leverage that African countries have when dealing with traditional creditors. In many countries policy space has increased as a result of China’s presence as an alternative to creditors that apply policy conditionality.

While the non-interference policy might be positively affecting countries because it opens up policy space, it also has negative consequences. China seems to be less concerned with human rights standards and environmental safeguards than other creditors. China’s presence in states that oppress the population is also very controversial, and China has been criticised for playing the role of a bystander in contexts where the international community have urged Beijing to use its leverage to influence oppressive regimes to improve their conduct.

Although it is too soon to conclude, so far it would seem that China is likely to have a negative impact on debt sustainability and perhaps contribute to debt crisis in countries where governance is week. Lack of transparency and accountability to the inhabitants does not seem to stand in the way of Chinese lending if a country is able to use natural resources as collateral for loans. The development of responsible financing and framework for implementation of such is therefore paramount to ensure the rights of future generations to freedom from vicious circles of indebtedness.

Recent Chinese lending underlines the urgent need to establish internationally recognised legal standards for responsible lending. The need for transparency, accountability and inclusiveness in loan contraction processes should be recognised by international society. Our case study from Zambia concludes that the Zambian public should have a right to know about and question borrowing, from new and old lenders, before loan agreements are signed. It also recommends that oversight and watchdog institutions such as the parliament, the auditor-general and the attorney general must have clear mandatory authority over the loan contraction process.

Table of Contents

Acronyms 4

Executive summary 5

1. Introduction 8

1.1. China – a “new” lender? 8

1.2. The diverse Africa and Zambia as a case 9

Part one: 10

2. China’s engagement in Africa 10

2.1 Key trends in Chinese cooperation with Africa 10

2.2 Chinese aid 11

2.2.1. Frameworks 11

2.2.2. Form 12

2.2.3. Size 12

2.3. Main differences between new and old actors 12

2.3.1. The historical relationship with Africa 12

2.3.2. From develop-ing to develop-ed 13

2.3.3. Inside versus outside of the development paradigm 13

2.3.4. Quick versus slow 14

2.3.5. “Interference” versus non interference 15

3. Debt crisis, debt sustainability and new loans 16

3.1. Debt build-up 16

3.2. From reckless lending to structural adjustment 17

3.3. Debt cancellation schemes 17

3.4. A clean slate – what has debt relief done for poor countries? 18

3.5. Debt sustainability 19

3.6. China’s impact on debt sustainability in African countries 20

3.7. Free-riders 23

4. China’s lending and good governance 25

4.1. Increased policy space and the China alternative 25

4.2. A challenge for African leaders 26

4.3. Debt contraction processes – personalisation of politics and zero transparency 27

4.4. China’s ‘non-interference’ in oppressive states 28

5. Lessons and the way forward 29

Part two: 31

6. Chinese lending to Zambia 31

7. Background to Zambia’s Debt Situation 31

7.1. Heavily Indebted Poor Countries (HIPC) Initiative 32

7.2. Multilateral Debt Relief Initiative (MDRI) 32

7.3. Economic Development Implications of External Debt Relief 35

8. Zambia China Relations 36

8.1. Zambia’s Debt with China 36

8.2. Chinese Projects (1967-2006) 37

9. The Loan Contraction Process and Transparency 40

9.1. Loans and Guarantees (Authorisation) Act 40

9.2. Constitutional and Statutory Controls on Borrowing 41

9.2.1. The Attorney General 42

9.2.2. The Auditor-General 42

9.2.3. Parliament and Budgetary Controls 42

9.2.4. Public Reporting and the Public Accounts Committee of Parliament 42

9.2.5. Ministry of Finance Internal Controls 43

9.2.6. Bank of Zambia Controls 43

9.3. Loan Contraction Process in Zambia in practice 43

9.4. Loan Contraction Process with the Chinese 45

9.5. How do Zambians feel about the Chinese presence in Zambia? 45

9.6. Reactions from Traditional Lenders 48

9.7. Reactions from China 49

10. Conclusions and Recommendations 51

10.1. Conclusions 51

10.2. Recommendations 51

Annex 1: Description and value of Chinese Debt to Zambia. 52

Annex 2: List of Cooperation Projects between Zambia and China 53
***************************************************** 

10. Conclusions and Recommendations

10.1. Conclusions

Zambia has had a difficult time contracting, managing and paying back external debt. The reasons are many and varied. The main reasons are failure to recognise that Zambia’s economic problems were not of a short term but long term nature. The borrowed resources, in the absence of economic reforms were not adequate to address the problem and in fact only made matters worse. This was a failure by both Zambia and the creditors.

Now that most of Zambia’s external debt has been written off, there is urgent need to develop a coherent and participative debt management strategy and stay along that strategy. The Chinese loans, though welcome, may jeopardize Zambia’s chances of keeping by the agreed debt management strategy because of the political overtones involved. The tendency by China to give loans without exhausting the procedures of the loan contraction process, inadequate as they may be, may make Zambia accrue loans that may not be priority in the poverty reduction drive that the country is persuing.

Zambian NGOs, donors and well wishers need to keep a close eye on Chinese loans and raise the alarm when need be. To the extent that the Chinese loans do not have very strict loan repayment conditions, these fears are somewhat reduced.

10.2. Recommendations

Oversight and watchdog institutions such as Parliament, the Auditor-General and the Attorney General must have clear mandatory authority over the borrowing process.

The Zambian public should have a right to know about and question all borrowing, from both new and old lenders, before loan agreements are signed. This right should be incorporated in the Bill of Rights.

There should be a law relating to borrowing detailed in one Act of Parliament and authorised by the Zambian Constitution.

Norwegian NGOs should strengthen and work closely with African and Zambian NGOs to monitor the effects of loans on the development process and democracy in Africa generally and Zambia in particular.

List of 51 Cooperation Porjects between Zambia and China

1. Economic and Technical Cooperation (RMBY 41.36 million, 23/06/67)

(i) Lusaka – Kaoma Road

(ii) Diplomatic Radio Station

(iii) Training for Diplomatic Radio Station

(iv) Makeni Government Factory

(v) Ten Agricultural Tractors

(vi) Bore-hole Drilling and Water Supply

(vii) Ministry of Defence

(viii) Personnel Training for TAZARA

2. Construction of TAZARA (RMBY 494 million, 05/09/67)

3. Economic and Technical Cooperation (RMBY 100 million, 24/02/74)

(i) Ministry of Defence

(ii) Mulungushi Textiles

(iii) Chingola Maize Mills

(iv) Mununga Quarry

(v) Kafue Agriculture Technical Cooperation

(vi) Kafushi Agriculture Technical Cooperation

(vii) Repair Project for Chambeshi River Railway Bridge

(viii) Mungule Quarry Products

(ix) Spare Parts for TAZARA

(x) Medical Equipment and Medicines

(xi) Serenje-Mansa Road

(xii) 225 – 227 Road

4. Loan for 12 Locomotives (RMBY 5.58 million, 31/08/79)

5. Loan for spare parts for TAZARA (RMBY 5 million, 14/08/86)

6. Loan RMBY 50 million 24/05/87

(i) Spare Parts for TAZARA

(ii) Repairs for Diplomatic Radio Stations

(iii) Repairs for Chingola Maize Mills

(iv) Rehabilitation of Lusaka-Kaoma Road

(v) Second Phase of Serenje-Mansa Road

7. Economic and Technical Cooperation (RMBY 50 million, 02/03/88)

(i) Serenje - Mansa Road

(ii) Machinery and Equipment for Lusaka-Kaoma Road

8. Economic and Technical Cooperation (RMBY 30 million, 28/09/90)

9. Special Train Loan (RMBY 30 million, 09/12/92)

10. Economic and Technical Cooperation (RMBY 50 million, 09/10/93)

11. Cash (US$ 1 million, 09/08/95)

12. Donation of Relief Food (US$ 0.2 million, 05/10/95)

13. Donation of Implements & Sports Goods (RMBY 1 million,17/01/96)

14. New Government Complex (US$ 8 million, 21/06/96)

15. Donation of General Goods (RMBY 3 million, 11/09/96)

16. Economic and Technical Cooperation (RMBY 30 million, 05/05/97)

17. Special Train loan (RMBY 50 million, 05/05/97)

18. Construction of Bailey Bridge (RMBY 0.6 million, 24/11/97)

19. Donation of Relief food (US$ 0.2 million, 02/02/98)

20. Five Water Pumps to Kabwe (RMBY 2 million, 23/04/98)

21. Donation of Medicine (RMBY 0.2 million, 04/98) 54

22. Economic and Technical Cooperation (RMBY 20 million, 27/07/98)

(i) Completion of the refurbishment of the new Government Complex

23. Donation of Relief food (US$ 0.2 million, 22/02/99)

24. F. M. Transmitters for Seven Provinces (RMBY 2 million, 09/07/99)

25. Donation of Office Equipment (RMBY 2 million, 29/09/99)

26. Donation of Office Equipment (RMBY 2 million, 26/10/99)

27. Special Train Loan (RMBY 50 million, 10/12/99)

(i) Overhauling 2 CKD Locomotives for TAZARA.

(ii) Technical construction and personnel training for railway sleeper plant for TAZARA.

28. Economic and Technical Cooperation (RMBY 30 million, 29/12/99)

29. Donation of Equipment to National Assembly (RMBY 1 million, 21/02/00)

30. Economic and Technical Cooperation (RMBY 30 million, 1/10/00)

31. Donation of cash to OAU (US$ 0.5 million, 07/03/01)

32. Donation of goods to OAU (RMBY 5 million, 07/03/01 )

33. Concessional Loan (RMBY 100 million, 25/06/01)

34. No information

35. Special Train Loan (RMBY 50 million, 19/07/01)

36. Economic and Technical Cooperation (RMBY 20 million, 24/07/01)

37. Donation of Web Printing Press (RMBY 1.9 million, 31/12/01)

38. FM Transmitters for Seven Provinces (RMBY 1.7 million, 18/03/02)

39. Donation of maize (4,500 tonnes, 06/08/02)

40. New Government Complex (RMBY 69.2 million, 16/09/02)

41. Economic and Technical Cooperation (RMBY 30 million, 26/12/02)

42. Special Train Loan (RMBY 50 million, 31/12/02)

43. Web Printing Press (RMBY 0.55 million, 19/07/03)

44. Economic and Technical Cooperation (US$ 6 million, 07/11/03)

45. Economic and Technical Cooperation (US$ 1.1 million, 17/02/04)

46. Economic and Technical Cooperation (US$ 2.5 million, 6/11/04)

47. Special Loan to TAZARA (US$ 11 million, 6/11/04)

48. Cash for Purchase of Relief Food (US$ 1 million, 9/02/06)

49. Special Loan for TAZARA (US$ 10 million, 22/06/06)

50. Economic and Technical Cooperation: Extension of Cooperation for the FM Radio Transmitters (RMBY 3,820,000.00, 11/2006)

51. Economic and Technical Cooperation: Anti-malaria Medicines (RMBY 1.5 million (US$ 200,000), 11/ 2006)

Published by:
Norwegian Campaign for Debt Cancellation,
http://www.slettgjelda.no  

Norwegian Council for Africa,
http://www.afrika.n o

*This report is financed by The Norwegian Agency for Development Cooperation.

Disclaimer: Opinions expressed in this article are those of the writer(s) and not do necessarily reflect the views of the AfricaFiles' editors and network members. They are included in our material as a reflection of a diversity of views and a variety of issues. Material written specifically for AfricaFiles may be edited for length, clarity or inaccuracies.

     top of page