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Is Africa’s debt burden a problem for Japan?

Approximate reading time: 3 minutes

China’s help to Africa could be blocking the financial aid from other avenues with the increasing external debts.

 

When ministers from African countries met their counterparts in Tokyo, Japan they agreed to take action to aid the African continent to achieve its sustainable economic growth.

The ministerial meeting as well addressed the “vulnerabilities” facing the continent that have somewhat crippled their economic growth and development over the past years.

One of the highlights was the construction of infrastructure in the African countries. Investments in this sector are touted to be the vehicle to the next dimension of African economies as it is one of the factors in driving investors and foreign firms. East African countries allocated much of their budgets towards infrastructure to attract more businesses.

Japan’s worry is the big external debts that most African countries have accumulated in their pursuit of economic growth. This financial burden in the form of loans continues to raise eyebrows of potential financiers as governments may fail to pay back the money. As a result, it has become difficult for African governments to borrow more or ask for a financial extension.

China is a reputable powerhouse with a household name in Africa, having invested heavily in the continent. From the construction of infrastructures such as roads, railways, and ports to building industrial parks and social amenities, the Chinese have found fertile grounds to work across the African continent.

According to Ernst & Young’s (EY) latest Africa Attractiveness report released in 2017, China became the single largest investor of foreign direct investment (FDI) capital and jobs in Africa in 2016. Over 293 FDI projects in Africa since 2005, with an investment outlay of $66.4 billion and 130,750 jobs creation, China edged the European Union and the United States of America (USA) as a primary supporter of African projects.

China’s goodwill to lend and help African countries has found the latter in debt, locking out Japan to extend its yen loans. Foreign Minister Taro Kono, addressing the ministerial meeting urged African countries to pay their debts to relieve themselves from the financial shackles. China wrote off Sudan’s pre-2016 $6million debt as part of a cooperation agreement between the two countries.

In 2009, with an external debt of around US$300 billion, African countries spent about 16 percent of the continent’s export earnings on servicing their external debt. As of 2011, the annual Chinese loans to the African governments was $10 billion. In 2014, the figures indicated $15 billion year loans with 2016 recording a $30 billion high.

When the former the United States Foreign Secretary, Rex Tillerson visited Africa, he warned them from accessing Chinese loans. According to World Factbook, South Africa, which is Africa’s second largest economy leads the debt log with $143 billion with Angola following second with $37.7 billion external debt. Ethiopia – $22.5 Billion, Kenya – $22.2 Billion and Ghana – $21.2 Billion make the top five Sub-Saharan African countries with the highest foreign debt.

Source: The Exchange

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