Getachew obtained his first degree from Addis Ababa University’s Political Science and International Relations department PSIR. He holds an M.A. in International Relations from Addis Ababa University and an M.A. from the University of Leeds, UK, in Political Communication. Getachew served as Director General at the Ethiopian Ministry of Foreign Affairs and worked as Secretariat for the Foreign Policy Review Team. Upon Joining the private sector, Getachew worked as a senior political editor at The Reporter Newspaper in Ethiopia.
China has emerged as an alternative source of finance in a stringent system of global development finance. Apart from bilateral financiers, multilateral lenders for national development programs came from the World Bank and the International Monetary Fund (IMF) – which are two sides of the same coin. Money from these institutions comes with certain spending and policy adjustment requirements that align with the political interests of the West, which prioritizes access.
It was in this context that the Chinese appeared to be a blessing to African countries in becoming preferred creditors to developing countries, particularly those with ambitions of economic transformation. In Africa, over the past decade, more than 3,000, largely critical infrastructure projects have been financed by China, according to China Aid. Between 2000 and 2017, China disbursed nearly 150 billion dollars in loans to African countries, an average of about USD 8.4 billion a year.
These loans from China complement the Chinese Belt and Road Initiative – a large infrastructure project stretching from East Asia to Europe. Ethiopia is a central hub for China’s Belt and Road Initiative. Currently, there are about 400 Chinese construction and manufacturing projects in Ethiopia, valued at over 4 billion. Much of Ethiopia’s air, road, and rail infrastructure is financed and built by Chinese loans/co-tractors. Nonetheless, concerns exist about the sustainability of Ethiopia’s estimated 13.7 billion dollars of Chinese debt, second only to Angola’s in Africa.
Zambia is on its way to becoming the first post-COVID pandemic sovereign default in Africa in a decade. Pressure also mounted on other debt-burdened countries during the coronavirus pandemic. This debt crisis has revealed the fragmented nature of Chinese lending as well as Beijing’s reluctance to fully align with global debt relief plans. China has lent money to almost every African country and some have taken up to five billion USD over the past ten years. But following the COVID pandemic, Beijing’s involvement in a debt service suspension initiative from the G20 group of the world’s largest economies has been slow. Several creditors’ committee meetings were either canceled or postponed as a result of Chinese absence.
Ethiopia has also been one of the top borrowers, borrowing at least 13.7 billion dollars between 2002 and 2018 for infrastructure development such as roads and railways to sugar factories. Following a fresh negotiation Prime Minister Abiy Ahmed launched immediately after assuming power, over the past two years, China has pledged to restructure some of Ethiopia’s loans. This in part, as experts say, is made possible because of the strong political ties between the two countries Ethiopia was the first African country to host a Forum on China-Africa Cooperation meeting, held in 2003. In 2012, China funded and built the 200 million dollars African Union headquarters in Addis Ababa. In 2005, they entered a defense agreement on joint training, technology exchange, and peacekeeping operations.
The West insists that Chinese lending should be understood as a product of “fragmented authoritarianism” and the continent is “captive to Beijing’s wishes and demands” due to its huge debt. They also believe that infrastructure built by Chinese financing is intended to “serve China’s ambitions to write the rules of the next stage of globalization.”
They assess that China has been using cheap secret loans to get access to African resources. Hence, the West recommends that China needs to rethink its strategy otherwise it will end up with a huge pile-up of debt that will be very difficult to restructure and even put many Chinese state enterprises at higher risk of default. A prime example of investments facing challenges is the Ethio-Djibouti Standard Guage Railway. Costing more than 4.5 billion dollars, the railway was partly financed through 2.5 billion dollars in commercial loans from China Eximbank.
The railway uses a package of Chinese trains, construction companies, as well as Chinese standards and specifications—and is currently operated under a six-year contract by a joint venture of the two Chinese contractors. But the repayment period for this railway reached even before the railways began transporting goods to and from Djibouti. PM Abiy was vocal about such arrangements and expressed his preference for concessional loans over commercial, non-concessional loans. To his credit, in late 2018, Ethiopia negotiated with Beijing to restructure the Eximbank loan terms, extending the repayment period from 15 to 30 years.
Immediately so, Ethiopia vowed to avoid non-concessional loans that have short amortization periods and large interest rates. Contributors to Ethiopia’s challenges in paying its debt are long-term foreign exchange shortage, and poor export performance. Despite its delayed Chinese debt repayments which later got restructured, Ethiopia has reportedly never missed a payment to its European creditors, where the penalties for future access to credit are harder.
Nonetheless, the EximBank of China withheld about 339 million dollars in credit to Ethiopia on worries disbursing additional credit may exacerbate the country’s already growing debt and repayment problems. EximBank said it was withholding the money until the restructuring negotiations called for by the creditors’ committee are finalized. This affected a total of 12 projects in the transportation and power sectors. In the meantime, Ethiopia is looking at other forms of financing its much-needed infrastructure by resorting to public-private partnerships. This is because, given Ethiopia’s reliance on China as a source of investment and finance, issues affecting Chinese firms may have a deep impact on Ethiopia’s future development.
While the debt challenges are interpreted differently by people of different outlooks, Teshome Toga, Ethiopia’s Ambassador to China, told a Chinese think tank in May 2022 that, the debt problem is not in the predatory lending from China but in the capacity problems of the African side that lead to an accumulation of loans. He also made clear that for many African governments, the benefits of the relationship outweigh the hazards, and that what is wanted is more cooperation – not less.