China’s loans contributing to Africa’s growth

Loans from China to African countries are contributing positively to the continent’s economic growth, infrastructure, and human capital improvements, a report by Peking University in China has stated.

The report said a positive impact of Chinese loans on African economic growth ranged from 0.176% to 0.300% from 2000 to 2020.

There is also a positive influence on infrastructure improvement, ranging from 0.027% to 0.084% for the same period.

The report was conducted by the Department of International Department Cooperation of the Institute of New Structural Economics (INSE) at Peking University in China, titled “A Study on the Effectiveness of China’s Sovereign Financing in Africa”.

The report was jointly presented by Xinyue Wu, project research specialist, INSE, Peking University, and Dr Sovath Kenh, research fellow, INSE, Peking University, at a press conference in Beijing.

China has injected US$160 billion in financial commitments to African countries as the majority lender, amounting to 56% of the loans over the past two decades.

The objective of China’s financing of African countries is in line with the 2030 Sustainable Development Goals of the United Nations.

The report utilised regression analysis with Chinese loan data from Boston University to 49 African countries from 2000 to 2020.

It employs regression methods to estimate the causal relationship between Chinese loans and six pivotal dimensions – economic growth, job creation, infrastructure improvement, export earnings, foreign direct investment, and school enrolment rates.

The report indicates a positive impact on export earnings, ranging from 0.244% to 0.33% and on foreign direct investment inflows, from 0.293% to 0.533%.

Also, the report revealed that one per cent increase in loans leads to 0.118% to 0.212% increase in enrolment rates and 0.143% to 0.167% increase in industrial job creation.

Touching on case studies of the Mombasa-Nairobi Railway in Kenya for the transport sector, the report revealed that the average cost of a railway was the highest in the sector.

“The railway project has contributed to the carbon reduction in Kenya by replacing road transportation. In general, the projects are less ideal for financial credibility,” the report said.

The report said the Soubre Hydropower Plant in Cote d’Ivoire and the Adama Wind Farm in Ethiopia had overcome the electricity bottleneck by unleashing natural endowment potential and leading to positive impacts for reducing carbon emissions.

The Soubre Hydropower Plant can export electricity, which improves the foreign exchange revenue of Cote d’Ivoire, reducing debt pressure.

The report stated that projects like Bole International Airport in Ethiopia and the Tanzania National Fiber Optic Backbone had led to growth for regional public good.

The rural well-drilling project in Senegal improved the basic hygiene conditions and provided alternative methods for water purification.

On education, the report stated that in one project combined with digital capacity, the University of Ghana developed a distance learning system that narrowed the gap in the digital divide, which helped to improve human capital.

China, overall has supported 33 training and education programmes, amounting to US$1.6 billion, including vocational training and hardware construction of public schools.

On recommendations, the report urged African countries to introduce systematic and long-term data collection at the project level of sovereign financing and to inform a more growth-oriented evaluation mechanism.

For the international community, the report called for advanced economies and industrialised countries to have their strategic focus on infrastructure projects in Africa.

The report asked the Chinese creditors at the macro level to promote financing for Africa in the future, build a multilayer Chinese financial system, and improve support for Africa for the prosperity of the global economy.

Wu Peng, director-general of the Department of Africa Affairs of China Foreign Affairs, in a panel discussion, pledged China’s commitment to honour all promises made at the G20 summit to African countries to ensure sustainable infrastructure development.

Ibrahima Sory Sylla, the Senegalese Ambassador to China, welcomed the report because it would give African countries guidance to make an accurate assessment of the projects.

Ivan Zyuulu, the Zambian Ambassador-Designate to China, commended China for its support of Africa’s development and appealed for an extension period for the repayment of the loans.

Allan Joseph Chintedza, the Ambassador of Malawi to China, called on the International Monetary Fund, the World Bank, and the Chinese government to support Malawi in leapfrogging from an agricultural-based economy to an industrialised country.