Monday, September 3, 2018

China's FOCAC Financial Package for Africa 2018: Four Facts

We finally have the long-awaited 2018 Chinese financial pledges in support of FOCAC (Forum on China-Africa cooperation). Although Chinese president Xi Jinping spun the numbers to come to $60 billion (the same as the 2015 pledges in Johannesburg), the Chinese state only seems to be putting $50 billion of its own money at stake, while encouraging Chinese companies to contribute the rest through their own investment projects.
China pledged:

  • US$20 billion in new credit lines
  • US$15 billion in foreign aid: grants, interest-free loans and concessional loans. 
  • US$10 billion for a special fund for development financing  
  • US$5 billion for a special fund for financing imports from Africa.
(These two latter funds are unlikely to be loan-based but details have yet to be released.)

Here is my quick analysis in "four facts".

1. The total Chinese pledge of grants and loans (including commercial rate loans and export credits) has declined from $40 billion in 2015 to $35 billion in 2018

The first pledge of Chinese interest-bearing loans was in 2009 (US$5 billion). In 2009, the loan pledge doubled to US$10 billion, and in 2012 it was US$20 billion. At Johannesburg in 2012, the Chinese pledged a full US$35 billion in interest-bearing loans of various kinds, and another $5 billion in grants and interest-free loans ($40 billion in total). Now at this Beijing summit, we are back down to $20 billion in what look to be more commercial credit lines and export credits, while the concessional loans have been folded into the rest of the foreign aid instruments: the $15 billion.

2. Which makes this is a more concessional package than that offered in 2015. Why? Because China's foreign aid pledge (grants, interest-free loans, and concessional loans) has jumped to $15 billion. This means that China is providing official, concessional assistance to Africa of $5 billion per year, the highest level ever. These resources are likely all to be administered by China's new International Cooperation and Development Agency.

3. China still doesn't challenge the US position as Africa's largest donor. The US disbursed $12 billion just to Sub-Saharan Africa in 2017, and $250 million to North Africa (Chinese figures include both as "Africa". (This could change under the Trump administration's budget cuts.)

4. Debt relief policies have not changed but a lot of Africans won't realize this. Debt relief is (as always) limited to interest-free Chinese government loans maturing at the end of the year. These foreign aid loans are a long-standing and relatively modest part of Chinese finance in Africa.

Since 2006, African overdue interest-free loans from China have been regularly cancelled -- but not everywhere. These are a relatively small part of Chinese lending. In 2018 these debt relief programs are again, as usual, limited to the "least developed countries, heavily indebted and poor countries, landlocked developing countries and small island developing countries that have diplomatic relations with China." 

5 comments:

  1. My take on the trend of interest bearing loans + other forms of financing support by FOCAC cycle:

    2009: $11 billion
    ($10 billion loans + $1 billion SME loans)

    2012: $30 billion
    ($20 billion in all variety of loans announced in 2012 + $10 billion tacked on in 2014)

    2015: $40 billion
    ($35 billion loans + $5 billion SME loans)

    2018: $45 billion
    ($10 billion in concessional loans assuming $5 billion is in aid as was the case in 2015; $20 billion in credit lines; $10 special fund development financing; $5 billion special fund for financing imports)

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  2. Hi Professor!

    Special purpose funds are generally large policy-based and policy-targeted budget outlays that individual subsidy programs (usually aimed at Chinese enterprises) can draw from. If I were a betting man, I would guess that there will be a handful of individual subsidy programs under each fund that have drawing rights from those funds, and that the subsidies will be things like insurance guarantees, project investment capital financing, commercial loans that are subsidized by the government, and direct grants. Based purely on the name of the special funds, I would guess that the criteria for application by a Chinese firm would be that the firm either imports from Africa, or that it is launching a project in Africa.

    Of course the funds have yet to be established, so these are mere predictions. But if I'm correct, these funds would largely effect African traders and workers in a more indirect way, through lowering risk and cost for the Chinese enterprise involved in the transaction.

    -A previous CARI research assistant

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  3. Thanks for an informative reality check to the BRICS/FOCAC euphoria in the social media at present...

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  4. US$10 billion for a special fund for development financing - what I heard is that it will not be a new fund; instead,CADFund,Industrial Cooperation fund, and other development finance institutions will set aside part of its money for specific types of investment (such as ICT).

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  5. Dear Deborah,

    Haven't visited your site for quite some times (more than 5 years, actually), how are you?

    I've been very busy in Africa all the while, too many things to do, and even more projects ahead waiting.

    Anyway, I would like to share with you a link --- https://www.aiddata.org/blog/chinese-infrastructure-investments-reduce-inequalities-in-developing-countries

    That one was done by AidData, a supposedly independent body.

    Hope you'll find the info useful.

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