China isn't the main cause of Africa's debt crisis, but concerns about transparency and collateral agreements cannot be ignored.
Africa’s mounting debt crisis could undermine the continent’s economic progress and stability. The problem has worsened with the economic fallout of the COVID-19 pandemic, the war in Europe, and the impacts of climate change. The current debt situation in Africa has reached alarming proportions and could have severe consequences for human security.$1.8 trillion by 2022, representing a 183 per cent increase since 2010.
A lack of transparency surrounding Chinese loans is another major concern. Government transparency is crucial for financial interactions with external creditors, as it ensures accurate information reaches both markets and citizens. However, the rise in ‘hidden debt’ from Chinese state-owned banks complicates the estimation of debt levels, posing a serious challenge for financial management and accountability.
Concessional loans, often directed towards infrastructure projects, play a significant role in China’s engagement with Africa, and have helped reduce the continent’s infrastructure gap. These loans have more favourable terms than standard commercial loans, but can present their own challenges. Lending contracts often stipulate that Chinese state-owned enterprises are primary contractors for the projects, which can suppress the development of local industries and introduce other problems.
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