AfricaInvestor Activity

China’s new approach in Africa to focus on FDI over loans: Report

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China’s new approach in Africa to focus on FDI over loans: Report

China is taking a new approach to Africa which prioritizes FDI over loans, small and medium-sized businesses over large ones, and green development over carbon emissions, according to Ethiopia-based publication The Reporter.

The report says: “According to a study undertaken by Chatham House, a renowned policy institute based in London, China is moving away from a high-volume and high-risk model of investment in Africa to one where deals are struck on their own merits, at a smaller and more manageable scale than before.

”The new model comes as various African countries have failed to repay loans secured from China. East African country Ethiopia is at risk of defaulting on a USD13.7 billion external loan that it secured from China.

Many African countries such as Djibouti are struggling to pay their debts to China amidst the setback caused by the COVID breakout and the Ukraine war. Countries such as Ethiopia are facing internal conflicts and have spent a lot of forex to finance their war economy.

According to researchers at Chatham House, “China has built a large stock of debt across the African continent, and now faces the challenge of managing these investments amid economic woes linked to the legacy of the COVID-19 pandemic and the war in Ukraine, which have heightened the prospects of default in some African nations,” reported The Reporter.”It remains to be seen how long this approach will continue and how far it reaches. Eventually, China may feel it needs to become more forceful in extracting payment through unilateral actions, regardless of the political costs.

This would be particularly detrimental if China resorted to appropriating significant assets such as ports, railways or power networks in response to defaults,” the researchers added.Debates exist within China on whether the country should provide debt relief to countries like Ethiopia or be more cautious in retrieving its investments.

According to a recent report, after the first version of China’s flagship Belt and Road initiative was blocked, Beijing is working on a 2.0 version while being open to accepting some losses on loans and renegotiating debt, something it had been previously unwilling to do.


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