Panelists discuss China’s development model in Africa and the effects of its expanding influence on the continent, with a focus on economic investments and diplomacy.
MCLEAN: Thank you. Good afternoon and welcome to this discussion on China’s footprint in Africa.
I will first introduce our three very knowledgeable and distinguished panelists, and pose a few questions. And after some discussion, we will be opening it—the discussion up to the entire audience.
Ambassador Jendayi Frazer is adjunct senior fellow for Africa studies at the Council on Foreign Relations. She is also president and chief executive officer of 50 Ventures, a private consulting and investment company that seeks to elevate Africa’s global standing by investing in its governance, education, enterprise, and stability sectors. From 2001 to 2004, Ambassador Frazer was special assistant to the president and senior director for African affairs at the National Security Council. And from 2005 to 2009, she served as the U.S. assistant secretary of state for African affairs.
Mr. C.D. Glin is president and CEO of the U.S. African Development Foundation, a public corporation established by Congress to support and invest in African-owned and -led enterprises, promote inclusive economic growth, and create pathways to shared prosperity for underserved communities. In that capacity, he oversees approximately seventy-five million in philanthropic investments in more than fifty community and social enterprises.
And Dr. Deborah Bräutigam is the Bernard L. Schwartz Professor of Political Economy and director of the China Africa Research Initiative at Johns Hopkins University’s School of Advanced and International Studies. Dr. Bräutigam’s most recent books include The Dragon’s Gift: The Real Story of China in Africa and Will Africa Feed China? Before joining the School of International Affairs at Johns Hopkins in 2012, she taught at Columbia University and at American University. Her teaching and research focus on international development strategies, governance, and foreign aid.
Thank you all.
So I’ll start with a question that hopefully will give us some perspective. It’s now been twenty years since the first China-Africa summit, the first having occurred in 2000—rather—then 2016, and then 2018. What is the one biggest change that you can discern that has taken place in terms of China-Africa relations and the U.S. response to it, those relations? And you can consider that in terms of official relations, business, or civil society. But what’s the one biggest change that you discern having taken place over this past twenty years? And why don’t we start with Dr. Bräutigam.
BRÄUTIGAM: Thank you for that question. It’s a big question.
I think in 2000 China was not visible in Africa. Some of us who were studying China knew that they were there, and we were tracking what they were doing in terms of investment and foreign aid. But for the United States, there was very little notice about the Chinese as—in fact, 2000, was the year before they joined the WTO, so they were already ramping up their economic engagement in the rest of the world.
And so, twenty years later, that’s what we see. The Chinese footprint, as our session describes it, is very large all across Africa, and you see this in almost every country. So the buildings that were built by Chinese contractors, the transport, the infrastructure, the electricity provision, it’s now very, very visible. And that has started to really worry the United States. So I think those developments, the size of it and the concern that’s been reflected in Washington in the current administration and in past administrations as well, that has not been present in Africa since the first arrival of China in the 1970s—(laughs)—when we had the last red scare.
MCLEAN: Thank you.
FRAZER: Yeah, I would agree with Deborah. I think that the biggest change is that China’s presence is ubiquitous, and you can look at that on every level. If you look at it economically, you know, they surpassed us in 2009 as the biggest trade partner, now about two hundred billion to our forty billion. So it’s just on a scale that we haven’t seen. China’s the largest creditor to Africa, on a scale that’s as big as the World Bank itself—so, you know, two, three, four times bigger than every other bilateral donor—or, I’m sorry, creditor to or financier to Africa. If you look on the peacekeeping side, they have over, you know, two thousand peacekeepers on the ground, which is two times larger than any of the other permanent members of the Security Council. You can look on the cultural side; there are more Chinese in Africa, there are more students coming from Africa going to China than to the West right now going to school.
And so on every level—on the political side, the engagement of the president, Xi Jinping, has been significant. It’s not an occasional call. It’s constant engagement with African leaders. And so I think that I would say the one big difference is China has made Africa a strategic priority over these past twenty years, and it’s reflected in the level and the breadth of its engagement.
MCLEAN: C.D.? Mr. Glin?
GLIN: Yeah, I’ll pick up—I’ll pick up where Jendayi left off and Dr. Bräutigam. And exactly, it really is about the strategy, the strategic approach that has combined the military presence in the Horn with diplomacy efforts, and diplomacy efforts meaning even things that Jendayi mentioned with regard to media and fellowships and Confucius Centers throughout African capitals, so this sort of citizen engagement. And then, lastly, the economics with the—with the infrastructure. So just the full-on strategic approach has definitely changed the game.
And I would also say that Africa, as being seen by the world in different—in different areas as less of a problem to solve but an opportunity to seize by China and by others, has also changed—changed the narrative and changed the engagement. So we think about the Economist covers, the Economist covers that we all know from “A Hopeless Continent” to “Africa Rising.” And so China taking advantage of that opportunity, if you will, and actually engaging.
And then you look at the growth of African economies, making themselves more attractive with five, six of the fastest-growing economies pre-COVID being in Africa and Africa being more of an opportunity—the rise of the middle class in Africa, urbanization, mobile telephony and technology in Africa.
So just the framing of a problem to solve, that the U.S. may have looked at Africa as that problem to solve, when China had a strategic approach, a multipronged strategic approach to Africa as an opportunity and to integrate with the Belt and Road Initiative, it changed everything for China and Africa, and it changed everything for the U.S. and Africa and U.S. and China.
MCLEAN: Excellent. A lot of change. And I think we’ll go in the same order with this second question. And of course, if you think of something else that you want to add to your previous answer, since all of these questions are related, feel free to.
So, what was it, someone said that, you know, a century’s worth of events can happen in a week or something along those lines. I’m sure I’m mangling it. But there’s been a lot that’s taken place in terms of recent events, among them the U.S. threat to withdraw from WHO, which now has its first African president; the stripping of Hong Kong preferences. In recent days the U.S. president has been courting the continent, suggesting that it can fill in on the COVID-19 relief response effort. How are all of these events playing into this relationship? Dr. Bräutigam?
BRÄUTIGAM: I think the U.S. past engagement in Africa has focused very much on health and we’ve done a magnificent job. More than 70 percent of our foreign assistance has gone into the health sector. We’ve kept many more Africans alive, and on—and we should be congratulated on that. (Laughs.) We’ve done well.
But we haven’t—we’ve neglected a lot of other sectors. So the Chinese engagement, I think, has actually been very complementary to ours. More than 70 percent of Chinese engagement in terms of funding is going to infrastructure. It’s going to things like electricity. It’s going to better roads. And all of these are really essential complements to health assistance. So whether it’s fighting COVID-19 or any other kind of health situation—problems are rife across the continent, not just on COVID-19—but getting medicines out to rural areas and other aspects of working to reduce the disease burden in Africa require electricity, they require better roads, and that’s where China’s been good. So I think that it’s really quite complementary.
In terms of what’s happening right now, the U.S. threat to withdraw from the WHO, this has not looked very favorably. African countries are not looking very favorably upon this. They really rely on the WHO to help them, to provide assistance in the design and management of the pandemic response. So the idea that one of the main funding partners is taking away funding at a time when—there may be controversies about how the WHO handled this, but they have been by and large essential to many countries as a partner. So I don’t think that this is looked upon very favorably by Africans.
In terms of the stripping of the Hong Kong preferences, I’m really not sure how this is going to play out. I doubt—except for the fact that a lot—quite a bit of investment into Africa is channeled through Hong Kong, but they can find other offshore financial locations in which to channel investment. So I would imagine that it’s not—that is not going to have a big impact, except perhaps on the concern about—from democracy proponents. But Hong Kong has never been a democracy. It’s a complicated and—very complicated story of a longstanding colonial experience and this very, very—fifty-year reengage or re-coming-back-together of Hong Kong with the rest of China, and I don’t think that story is going to be that resonant in Africa. I could be wrong on that, but I’d be interested in what my fellow panelists have to say.
FRAZER: Yeah. I think that this is actually an extremely important moment in U.S.-China—or, well, I should say China-Africa relations and U.S.-Africa and U.S.-China relations. What I’d be interested in—and I agree with Deborah 100 percent about it doesn’t—you know, the fact that the United States is trying to withdraw from the WHO in the middle of a pandemic and at a time, you know, also really going after the reputation of the head of the WHO, which is an African, the first and one who the continent mobilized behind to get him into that position, our Dr. Tedros, and so it seems like it’s an attack not only on an institution but also on a continent and one of its favorite sons from the point of view of his reputation in the health field there. And so that’s at the same time that the United States is apparently attacking the head of the AfDB, another African institution that has a critical role to play in the COVID response, you know. And so going after Akin Adesina, as our Treasury Department has done, again speaks to the United States being a little bit tone deaf, particularly if it’s trying to position itself vis-à-vis China on the continent, where the president of China is going to the WHO, speaking very favorably about Africans, talking about, you know, continued development support and assistance to them, as well as beefing up their—what would you call it?—donor/humanitarian diplomacy, their mass diplomacy in terms of getting, you know, PPE and testing kits, et cetera, going into Africa from Jack Ma and others.
So I think that this is a time when the United States needs to play its game a little smarter and, you know, deepen its engagement. Right now China has blocked exports of American product—you know, America—you know, all of the supply chain goes to China and manufacturing, and you know, now American companies can’t get their medicines and test kits, et cetera, into Africa because China is blocking that, right? (Laughs.) You know, it doesn’t help our companies.
And so I think the—I guess what I would say, stepping back from all of that, is to ask the question now what for Africa, given COVID response and what’s coming after it. And one of the things I would say is if the UNECA’s projections are correct about this, it’s likely to be the first time as twenty-five—in twenty-five years that there’s a recession in Africa, going from about 2.1 (percent) GDP to negative 2.1 (percent) to 5.1 (percent) GDP. If that’s the case, then, you know, the call of UNECA and, you know, the AU and others for debt cancellation or a debt moratorium speaks to China more than it speaks to anybody else, you know, because China holds the majority of Africa’s debt today, and so—especially on a bilateral basis. And so really what is China going to do in terms of that debt? Because African countries were moving into a debt trap with China in all of their enthusiasm to build their infrastructure, but those infrastructure loans were coming at not the most favorable terms—short moratoriums, short repayment terms. And so what really—is there—is there a window here to—for Africa to rebalance its debt relationship with China? I think that’s one important question. And is there an opportunity here for American companies to rebalance their supply chain relationship and manufacturing capacity, to move it out of China—or not entirely out of China, but at least to move some of that capacity into Africa so that we can realize this idea of a fourth industrial revolution and really building that manufacturing capacity? A lot of American companies pre-COVID were laughing at the idea of moving their—some of their capacity—manufacturing capacity into Africa. Now there may be a window where they understand the vulnerability that they have, particularly with China blocking exports from Chinese—or from American companies into Africa.
And so I think that it is—it is—there’s, you know, definitely, you know, the pandemic is taking a tremendous human toll, also an economic toll on these African countries, but there is opportunity here. And the question is, does the United States have a strategic interest to move on that and stop making preventable mistakes like going after WHO at a time of pandemic?
GLIN: I would—I would add a lot to what Jendayi and Deborah have said as it relates to where our focus as the U.S. should be and even what we’re doing at the U.S. African Development Foundation during this time of the global pandemic, the health crisis that’s leading to an economic crisis, and really double down on some of the things that we have done—I mean historically, as Deborah mentioned, in terms of our support for health, good governance, security, agriculture, energy, education; but now a real focus on trade and investment. And we saw this happening. We saw this with the announcement of Prosper Africa, which could be the legacy building of the African Growth and Opportunities Act. And so there was—there is and was a high level of momentum as it relates to trade and investment and looking at U.S. investments in Africa in a new—in a new way, and we don’t want to do anything that diminishes that because the economic integration that we see from China into Africa is something that we are all cautious of as it relates to the model of, quote/unquote, “development,” whether it—whether it be transactional, extractive, short-term wins that lead to long-term dependency with some of the trade—the deals, if you will; loan-to-own programs; predatory lending.
But it’s really not about the U.S. integrating all that China’s doing in their model. It really is having a response in our own model that does lead to more trade and investment into Africa. What are we doing? People are doing deals with people who show up. So how are we doing more as the U.S. to be a part of the solution, to really talk about bottom-up-driven solutions not only for poverty alleviation but for economic development, for peace and security, the fragility situation that we see throughout the continent? So really showing up in new ways, in inclusive ways and participatory ways, really focusing on local ownership. We hear USAID talk about a journey to self-reliance. That’s a very direct counter to a narrative that you would hear from any other investor, if you will, or development actors, particularly China, around building self-reliance and self-sufficiency in these African countries and communities.
I think Jendayi said it—said it really, really, well around COVID. And COVID is sort of this setting the stage for a number of resets, if you will, in terms of relations. The economic downturn that we see in China and the opportunity for debt restructuring are there. China doesn’t really relieve—forgive—in a traditional sense forgive their loans. And so will they have the wherewithal now to look at some debt restructuring or loan forgiveness in new ways that they haven’t done in the past? Because of—whether they interact with the African continent in a bilateral standpoint. So you have China as a—as a, you know, global economy having direct trade negotiations with, I don’t know, Guinea-Bissau. And so the power dynamics there are such that in this new economic downturn in China there is going to be a delay, but we know there’s going to be a resurgence of investments that are also going to come.
And what we see, and what Jendayi mentioned as sort of mass diplomacy, is real. I mean, this is—this is diplomacy, and we see the donation diplomacy, where we see China donating to Rwanda and Chinese companies donating to Rwanda and South Africa and Mozambique and many other countries. And are they doing that, if you will, for greater influence? Are they looking at greater dependency? Is the health-care industry—and so that leads to a large collection of data when you are—when you are looking at ventilators and PPE and other equipment. And so there’s a number of concerns as we think about this COVID reality and what it’s doing to the U.S. relationship in China and the U.S. relationship in China and Africa.
But what I see on the frontlines in COVID is less about donations coming from China to Africa. Africans aren’t, during COVID, sitting around waiting to be saved. Many of these countries—countries are showing an exorbitant amount of resilience and self-reliance. And so instead of donating masks, what I see in my work at the U.S. African Development Foundation is that we’re investing in companies that are actually turning from shea butter producers and palm oil producers to creating soap, organizations that were—that are focusing on water and water access in their local communities for washing stations. We see power generation, related from Power Africa, the U.S. government initiative, where we see African energy entrepreneurs providing power now to rural health clinics, to vaccination centers, to isolation centers, providing cold storage for a number of vaccines. So there is a retooling and a reconfiguration of African enterprises in African countries coming to their own aid in new ways. And we also see this with—again, with PPE gear, where handicraft and textile producers are now getting new funding from groups like the African Development Foundation and other investors to turn their productions into creating local mask and local PPE gear.
And so there is—there is a way to use COVID-19 to move beyond helping these communities and countries survive with donations from China, but thrive with new investments from the U.S. And I think that if we double down on the trade and investment opportunities, that this global pandemic can bring—and that’s needed and the new investments that are needed in these communities. But there is—there is a light at the end of the tunnel as we think about how these countries that are proving themselves to be resilient, that they can continue to build on that resilience. But we’re going to have to, as the U.S., show up in new ways, and those ways are ways that lead to less dependence and more self-sufficiency and self-reliance in partnership with African countries.
MCLEAN: Thank you for that.
Well, I have one other question before we open it up. There’s so many that I could ask, but I will refrain. The last question is—and it tees off, I think, very well from your comments, C.D.—what are some lessons that we in the United States can learn from the direction—whether it’s forward, backward, sidewards—and the tenor of China’s relationships with African countries? What are some lessons that we can derive at this moment from that relationship? Professor Bräutigam?
BRÄUTIGAM: I think one thing that has made the Chinese successful in Africa is not only this whole strategic sort of all-of-government—(laughs)—approach that they have, but the fact that they really are listening to what African governments and African people want, which is they want development. And they admire China and they admire us. They admire us for our democracy, our robust system. They admire China because it’s a developing country that has lifted seven hundred million people out of poverty, and they’ve seen China develop so rapidly, and they want to learn from China and they want to learn from us.
So I think understanding the appeal of China as a—as a development partner comes in part—and this relates a little bit to what C.D. was talking about in terms of dependency and the need for structural transformation in Africa, the need for industrialization, the need for adding value to African raw materials, which is still so underdeveloped—that if we could understand and actually move more to supporting U.S. investment in that direction, which we haven’t been but the Chinese have been—they’ve been supporting, for example, industrial investment in Ethiopia for well over a decade, and it’s helped. (Laughs.) It hasn’t—it hasn’t done the entire trick there, but—to listen to these African dreams for development as structural transformation, which is something that we’re really not been doing.
FRAZER: Yeah, I agree 100 percent with that. I think that, you know, our—the Development Finance Corporation, our Ex-Im Bank, these institutions need to be brought back into the game, you know, and on a big scale, to support American companies going into Africa and investing. So I completely agree with that.
And I also agree with the point about listening and partnering with African countries. And you know, I think it would be—I think it’s a mistake to try to have a new Cold War in Africa competing against China, you know. I don’t think China came into Africa to compete against the United States. It came into Africa for its own self-interest, primarily resources, you know, and then overcapacity in its infrastructure corporations and companies in China, and then a market for their goods as well. The United States has done best when it focuses on its engagement in Africa for its own strategic interests and not vis-à-vis competing with some other power. You know, that simply doesn’t work.
And you know, I think that we’ve had in the past a very robust relationship on the continent, whether it’s, you know, supporting peacekeepers, training peacekeepers. The United States is still in there working against extremists and radicals in terms of the fight against terrorists. The United States has, you know, done quite a lot, as Deborah said, on the health side, you know, with the PEPFAR and other programs. But we also had so many different funds through OPIC that were operating in Africa, and supporting American companies going in, and giving them guarantees and other types of securities so that they could take the risks that came from, you know, investing in emerging markets.
And so I think that, really, the United States, what we can learn from China is mind our business and focus on our interests, right, and not try to be reactive to what China’s doing but actually be proactive towards the type of engagement—and the foundation of that engagement is our people. You know, there’s been a strong civil society/civic relationship between Africans and Americans. And also, I think the strength of our relationship is, frankly, even if it’s a flawed democracy, our openness and our, you know, liberal institutions, because one thing that you cannot do is impose a dictatorship or a communist system, et cetera, on an African public that has been agitating for greater democracy and freedom for, you know, the fifty, sixty years of the independence of that continent. And so I’m not suggesting that that is against China; I’m saying that is our strength. And even if we are flawed and we have people in our streets demonstrating today because of police brutality, the fact of the matter is there is an engagement and there is an openness and there is a democracy in that. And I think that that sort of cultural/social/philosophical orientation of the United States and an open society is one that matches very well with the sentiments of the African people.
GLIN: I agree with both Deborah and Jendayi. And just sort of from—
MCLEAN: And we’re at the 3:30 mark, C.D., so—
GLIN: OK. I’ll be—I’ll be really fast.
MCLEAN: I’m just going to ask you to—mmm hmm.
GLIN: Really with sort of short—in looking at the Chinese model and what we can learn, some of it’s what we can—we can learn so that we don’t make those same mistakes. So whether it’s short-term wins that are long-term indebtedness for African nations and how we’re offering them long-term solutions, that we also are showing opportunities where we are demand-driven and demand-responsive in engagement, from the bottom up and not only top down. And so what we see often is diplomacy happening at the highest levels in national governments and not being transparent with the people. And so having more of a transparent, inclusive engagement with African leaders and African communities is something that we can do as the U.S.
And then, as we said, leaning forward with what we do best in terms of investment. They have shown us with infrastructure, and that infrastructure to some extent becomes a good thing—roads and railroads and buildings. But we also know FDI, in Jendayi’s world right now with private equity, with venture capital, really bringing all the tools that we have in our capital markets as well as in our government institutions with OPIC and Ex-Im and others.
MCLEAN: Thank you. I could—I’ve got several cards with more questions that I’d like to pose, but I’m going to turn over to Carrie so that our audience can participate.
STAFF: (Gives queuing instructions.)
We will take our first question from Macani Toungara.
Q: Hello. Hi. This is Macani Toungara from the Obama Foundation.
My question is around the recent reports that African students and Africans in China in general have experienced a lot of xenophobia around COVID and have been treated in ways that are—being put in hotels, being blamed for spreading COVID, and those sorts of things. What impact do you think that that activity is likely to have on China’s relationship with the African continent? And what more should African countries be doing to advocate for their citizens in China who are facing some draconian responses—whose citizens are facing draconian responses to the COVID crisis in China?
MCLEAN: Thank you for that question. And of course, there was a response from the Nigerian government, but I think your question is much broader and relevant in light of what is going on in our own streets here in the United States. Jendayi, you commented on that. You want to pick up on it?
FRAZER: Yeah, I can’t—I can’t speak other than very generally. Of course, I think that African countries and mainly African civil society through social media, you know, there was a backlash against China, and African leaders spoke up to, you know, Xi Jinping and, you know, made this an issue. But what really impact it’s going to have, I mean, you know, the sort of people-to-people relations—I mean, this is actually not just people to people; this is official China reaction, as well as xenophobia in China. But you find the same thing in Africa, really. You know, sometimes there’s tension between Chinese, you know, vendors and others and African traders, right? And so I think that that type of tension will be there.
I’m not sure that it will—I guess I don’t believe that it’ll have a long-term impact. I do think that it will, you know, lead to some suspicion and, you know, a sour feeling that has already been there. But I don’t think it will lead to a fundamental change in the structure of the relationships that are taking place between, you know, either African people, African—you know, African people and Chinese people, because there are so many in Africa today, or even at the governmental level, I’m afraid to say.
MCLEAN: C.D. and Deborah, do you want to add quickly to that?
GLIN: You know, I—it’s one of the comments that I—one of the points that I wanted to make around sort of COVID and how Africa is being impacted by COVID-19 in the China relations. I think it’s a really great point that Macani brings out. And I don’t know—Jendayi’s right; I don’t think long term there’s probably any structural changes, but I think the narrative that it has put forward, especially to young people—so I think about what we’ve done in the U.S. in the past, you know, five to seven years in terms of focusing on young African leaders and Africa’s next generation, and those same young people are thinking about trade and investment and thinking about going to school in China as a place or a destination. So I do wonder about the narrative of it’s not all milk and honey; or doing to China, is this a new opportunity. It is maybe put (seeding ?) in some young people’s minds about maybe their own institutions, but also other institutions and nodes in the U.S.
So I think about it from a standpoint of just a psychographic—the psychological, sorry, nature of what it—what it showed during this time and that level of open discriminatory practice. And as you said, Nigeria evacuating, you know, somewhat less than three hundred people from China back into Nigeria recently. So I wonder about the psychological. I don’t think structurally there’s going to be much of a—much of a(n) impact.
BRÄUTIGAM: I think they said it very well.
MCLEAN: OK. Next question.
STAFF: We will take our next question from Steve Wallace.
Q: Thank you very much. Steve Wallace. I’m the founder and president of the Omanhene Cocoa Bean Company, go back almost forty-five years in West Africa.
And I’m fascinated. This is a wonderful discussion. I’m fascinated by the COVID situation as a restart to Chinese debt restructuring. And I’m curious, when we talk about debt restructuring from China, is it forgiveness of the cash that’s owed? Or is it forgiveness of—presumably or anecdotally the Chinese have security interests in the form of either sovereign guarantees or interests in the resources, the extractive industries of many African countries. When we talk about debt forgiveness, are we considering that they’re going to forgive even their secured interest in the resources of any given African country that’s a debtor nation? Do we have any facts on that?
MCLEAN: Jendayi, I think you—
FRAZER: No, Deborah—Deborah knows. (Laughter.)
BRÄUTIGAM: All right. At CARI we just completed a study of Chinese debt-relief practices in the past in order to help guide us in thinking about how the Chinese will likely approach the debt problems that are exacerbated now by COVID-19, and what we found is that there were two very distinct patterns. One was that, like the Paris Club and the World Bank/IMF, the Chinese also have done some complete debt cancellation, very much following in the HIPC line. But this debt cancellation was limited to one category of Chinese loans, which is interest-free government foreign-aid loans. So they’ve canceled maybe three-and-a-half billion or so of those loans, and those were mainly the older debts that are back—like the HIPC-era debts.
Then we also found that there have been about $15 billion of debt restructuring so far in this decade. Some of that happened earlier. Some of it’s—a lot more of it’s happened more recently. And this debt restructuring by and large has been—some of it has just been changing the repayment period, adding another five years or so to a loan to make it from fifteen to twenty, or even longer in the case of Ethiopia; went from ten to thirty years for the railway line. But a lot of it has been what we call net present value neutral, which means that the lender doesn’t take a haircut of any kind. So that would be where just none of the principal has been reduced. And we don’t see, in fact, any cases of principal reduction of these loans that are not the zero-interest-rate loans.
And the G-20 commitment for—the pledge to reschedule the debt under the—to have a debt moratorium, it basically involves all of the official creditors, including China, have agreed for their official lending to suspend all debt service till the end of the year. But then the official agreement requires that that suspended debt service, the amount they would have paid, then be repaid over the next three years after a one-year grace period. So that’s—again, none of the Paris Club or China, none of the official bilateral creditors, have agreed to cancel any of that debt.
So we gave a presentation at the IMF last week on this research and someone in the audience said, well, the Chinese are going to need to walk the road that other creditors have walked before. And so I think that may happen. I know that people in China are optimistic that the economies will rebound and not—that not every country is going to need the kind of deep debt reduction that we found from the last debt crisis, from the 1980s. And we still don’t know whether or not that will be the case. But if they do walk the road that other countries have walked before, it’ll probably take some time. It took from the Paris Club—the debt crisis started in the 1970s and they did not start giving any reduction on the principal that was owed until after 1988, so—and it wasn’t until 1996 that they started in on the multilateral—on actual debt reductions at the multilaterals. So that was a long road for Africa to have to—as Julius Nyerere said, to starve their children to pay their debts, and we hope it doesn’t take as long this time.
MCLEAN: C.D., do you want to make a quick addition, or should we move on?
GLIN: We should move. The expert has spoken. (Laughs.)
MCLEAN: All right. Thank you for that. Next question.
STAFF: We will take our next question from Flori Liser.
Q: Good afternoon. This has been a great discussion.
My question has to do with what your views are on how individual U.S. government agencies as well as our private sector can really go in, as Jendayi was saying or maybe it was C.D., in sort of new ways. Because I think we’re all pretty aware that, at least from the highest levels, it doesn’t appear that we are in the process of trying to do anything new that’s positive overall. And notwithstanding Prosper Africa, which, you know, I think is an excellent initiative, you know, how are we going to—what do you think organizations like DFC, ADF, you know, MCC, TDA, how can they work with the private sector to create sort of a new path forward maybe supporting more African production of, you know, products shifting from China to the continent? How can they do this despite the fact that we may not get sort of a reset button at the top level in terms of, you know, the way people view us on the continent? Thank you.
MCLEAN: Who wants to—
GLIN: Mora, let me—let me jump off from a U.S. African Development Foundation, U.S. ADF standpoint.
Flori, thanks for the question. Thanks for all the great work that you’re doing with championing the American private sector to invest in Africa through Corporate Council on Africa.
You know, really quickly, as it relates to COVID, what we—what we did as a U.S. government agency that provides grants directly to grassroots organizations, small and medium-sized enterprises, was really focused on working capital. That was our immediate challenge as lockdowns created shutdowns of trade, supply chains. So we knew all the businesses and all the organizations and entrepreneurs that we invest in would grant capital with zero-interest loans. We knew they were going to need some level of business continuity, and so we provided immediate working capital. I think that’s something that’s really important in this time for small and medium-sized enterprises.
There’s a couple of things that are going to happen. They’re either going to exit, they’re going to retrench, or they’re going to literally have to sort of reengineer and reimagine their future, which will probably have some level of digitization tied to it and some other level of transparency in their supply chains.
So working capital, I think, for African SMEs is really essential. But the connective tissue between the goods and services that African enterprises and entrepreneurs produce and having those supply chain linkages with U.S. companies is also important. And so things that we’ve seen in the past with trade hubs that really build the capacity of Africans to export into the U.S., but also provide the linkages between American investors and American manufacturers of goods and services, American SMEs, to link with African SMEs.
In our portfolio we have a number of agricultural cooperatives and off-grid renewable energy entrepreneurs that are using and buying U.S. goods and services. And so we serve as a connection between two-way trade and investment because the technology and the equipment that some of our businesses and agriculture need in terms of processing equipment, some of the batteries and charging stations and switches that renewable energy, solar energy provides need. Yes, they can buy them from China, but are there American companies that they can buy these goods and services to? So a lot of it has to do, to me, with greater coordination and connection between SME to SME—African SMEs and African small businesses with American small businesses—but also with some level of capacity building that the African organizations can look at the U.S. market, but also that the U.S. market can see visibility in African opportunities, and then linking those opportunities to the different tools that we have, a real continuum.
So my agency has grant financing and zero-interest loans. Are we linking better with what the DFC now has and their—and their investment capabilities? And so really a real continuum of development assistance to development finance that then really leads to real investment, commercial-ready investment, with FDI and private equity and venture capital. So a real coordination would be helpful. But we’re in the frontlines and really helping those companies survive and thrive for another day, and then providing them a linkage to other streams of capital and funding so that they can continue to grow. We want to develop them, we want to grow them, we want to scale them to reach new markets and with new money, but there’s a real linkage in a handover, even with U.S. government agencies that we can—we can look at. But linking more with the private sector, companies, and investors is necessary.
MCLEAN: Thank you, C.D. And any other thoughts on creating a new path forward, Jendayi and Deborah?
FRAZER: I think the expert has spoken. (Laughs.)
MCLEAN: Well, Deborah, go ahead if you have. I’m sorry. I didn’t mean to cut you off.
BRÄUTIGAM: No, I just want to add one thing about the debt situation. And as Jendayi pointed out, China is the largest bilateral creditor in Africa, and the World Bank estimates that it’s about 60 percent of the bilateral debt is owed to China.
But in terms of debt more broadly, about 32 percent of African debt right now—government debt and government-guaranteed debt is owed to bondholders. So this is something—and they have not agreed to a debt moratorium. So they’ve been pretty intransigent. They’re staying out. And that doesn’t even include other private creditors like some of the commodities traders firms that also hold African debt. So this is something—these are our companies, you know? (Laughs.) They’re headquartered in New York. Some of them are vulture funds; they’re waiting there to grab some of that debt at a deep discount and then hold those African governments completely responsible for paying the full value of that. And that’s something we can—some countries have made that kind of vulture-fund activity or are considering making that illegal. That’s something that probably wouldn’t work here, but it is something that we can continue to highlight, that this is really unacceptable. (Laughs.) It’s a reprehensible kind of the kind of—that’s not the kind of private equity or the private markets that we want to see operating in Africa.
MCLEAN: Interesting. Well, thank you for the question, Flori Liser, former U.S. trade representative for Africa. Next question.
STAFF: We will take our next question from Justin Villamil.
Q: Hi. Thanks, everybody, and thanks for this conference. This is fascinating. I’m with Bloomberg News, by the way. I had two questions, if that’s OK.
The first: How has China’s investment and lending approach changed under the coronavirus? Are we talking just it’s a complete halt? Are they looking at any isolated opportunities? What’s your sense of that?
And the second question: Ambassador Frazer, you mentioned that there—you know, there have been—that this is an opportunity to kind of rebalance the manufacturing relationship of U.S. companies in China towards a more sort of Africa-centric approach. I sit here in Mexico City and we’ve heard that, you know, a million times, that tensions between the U.S. and China will lead to companies moving to Mexico, and that’s—really, there’s very little evidence that that’s ever happened. Are there any concrete examples that this is kind of in the cards? What’s your sense? Thank you.
MCLEAN: So those are two questions. Maybe in addition, Jendayi, Deborah, you’d like to take on the debt portion? Who wants to go first?
FRAZER: Deborah, it’s fine. I’ll wait. (Laughter.)
BRÄUTIGAM: Hi, Justin. I think because of the travel restrictions on the coronavirus, we haven’t been seeing Chinese running out, snatching up new opportunities as prices fall and so on, investing.
And in terms of lending, in all of these agreements they take—you know, people need to come and sign them and so on, so I would imagine that there has probably, unfortunately, been almost a complete halt in Chinese lending. We already saw that that was happening. In the last few years the Chinese official lenders, particularly the Exim Bank, their lending to Africa went from a high of $10 billion a year to under $5 billion. So that’s already that—those lines of credit have been diminishing. And I would expect right now, given the uncertainties, that that—the risk averseness—and there is some risk averseness in Beijing—has got to be on a high alert, and I imagine at least at the moment for lending.
In terms of investing, there will be opportunities. And the Chinese have already been talking about that as being the flipside of whenever there’s a crisis, one part is opportunity. And so there will be opportunities for buying distressed companies, and I think there will be Chinese investors looking for those opportunities. I don’t imagine they’ve gone there quite yet, but they will.
FRAZER: Yeah, sure. I’m not really thinking about this in terms of a crisis between the U.S. and China; I’m thinking of this more as a crisis of American companies that have put their entire manufacturing capacity or the majority of their manufacturing capacity in China. And when China shut down because of the virus, that was productive capacity that American companies no longer had.
Now what I see in Africa, and I’ve seen, is that the Chinese are in some ways putting a roadblock in front of American companies who are trying to export out of China. They’re putting export restrictions on them to go into Africa, which is basically giving a competitive advantage to Chinese companies vis-à-vis American companies.
And so the imperative of this is different. It’s not because of tension. It’s not even because of labor costs, right—labor costs going up in China and people think, well, then they’ll move manufacturing capacity to other regions. It’s because of the imperative to diversify your supply chain so that no one political risk or economic threat can stop your global business. And so that’s really what I’m talking about.
Now, the challenge for Africa is that those American companies will not necessarily move into Africa. You have to put in place the type of environment that would allow the American companies to come in and to see that it would—there were advantages. Some of those requirements are actually that African governments can pretty much, you know, put incentives in place and also put some sticks in place, right? If you don’t—which is what the South Africans are doing. If you don’t bring some manufacturing capacity here, and if you don’t invest in, you know, the education of our people or the training of our people so that they can do these jobs, and you just continue to think of us as a market for selling, you’re going to find that you’re not going to have as much access to our market, you know. Or they could do it on a positive side, which is we have, you know, these tax breaks, we have these new industrial parks, we’ve got this new infrastructure; you know, we can make it very, very attractive for you to come here and to invest, which is what the Ethiopians are doing and the Chinese are taking advantage of it in many of these factories. And so in addition to sort of that dynamic, which is—it is a dynamic. There’s no way that one would say it’s going to push that way. It’s what is the level of engagement to bring it in that direction.
But I would also say, you know, for the United States government, you know, we have all these great institutions that C.D. just mentioned, right, where, you know, we can de-risk American companies’ investment; we can provide guarantees. There are many things that our institutions can and have done. But we also, you know—and I—and I always say this, and I say it always with some hesitation because I am absolutely against corruption, and I know that American companies don’t have a level paying field even with Chinese companies, et cetera, because of the opaqueness of many deals. And so there is a level of corruption there that we can’t engage in and should not engage in, so let me be very clear there. But what you see is with the Foreign Corrupt Practices Act, the penalties are so high versus the opportunity that actually there are many American companies that refuse to do business in Africa, because they’re actually afraid that they’ll get caught up into something and the economic opportunity versus the risk that the Justice Department or someone is going to put huge penalties on them is simply not worth it, particularly when we are honest and talk about the fact that the African market is very fragmented.
You know, and so it’s little opportunities in countries. It’s not big, huge opportunities—not yet, anyway. And I think once you start getting that regional infrastructure, you start having the Africa free trade agreement come into place and you know, barriers go down, then it’ll be a much bigger market and a much more attractive market, and one where companies will want to take risks backed by a lot of government institutions that could support that engagement, and actually incentivize it. Like, if you train a certain number of young African people, you know, there’s some incentive that you get rather than it’s just all on the risk side.
MCLEAN: Thank you. Well, we’ve got just about five minutes left. Do we have time for one more question?
STAFF: Yes. We will take our next question from Jane Stromseth.
Q: Hi. (Inaudible, technical difficulties.)
STAFF: Since we’re having some technical difficulties, we will take our next question from Kneeland Youngblood.
Q: Yes. I’m a founder of a private equity firm and once upon a time used to practice medicine.
My question is, my understanding is the Belt and Road Initiative, the debt is not going to be restructured. And number two, what African countries are vulnerable to loan-to-own with regard to their specific resources and critical resources?
MCLEAN: Two debt questions. Deborah?
BRÄUTIGAM: The Belt and Road Initiative is not a very useful concept in Africa because there are now a number of countries—dozens—that joined in 2018. So how does one look at a loan being a BRI loan or not BRI loan? So we basically just look at lending in general.
And we find that the—if you’re—if you’re talking about the loan-to-own—(laughs)—it’s an interesting kind of catchy phrase, but this concern about asset seizure, which is I think what the—is at the heart of that, is something that we also looked into, and we found that there weren’t—so far there have been no cases, no accusations of this, that it’s actually happened anywhere in Africa. And indeed, when you look at this globally, there’s really only one case that’s ever been used as an example, and this is Sri Lanka. And we looked at that case in our paper to try to understand it better and we found that it was actually not a collateral seizure of the port for a loan, but it was a privatization. And in a debt-stress situation where Sri Lanka, again, owed a lot of money, mainly to those bondholders which had very high coupons, so they were looking for foreign exchange to repay those. And so that was, essentially, what happened in Sri Lanka.
So I do think that if you look at—in the loan contracts that we’ve seen, there isn’t any collateral. You know, there’s nothing—there sometimes is collateralized exports, so that an export might be used and it builds up in an escrow account in order to repay and provide some guarantee for a loan, but that’s not the actual asset. It’s not like the mine itself is at risk. It would be—it’s just an amount of money from an export. For example, cocoa beans were used in Ghana to help secure a loan for the Bui Dam that came from the China Exim Bank.
So this—and I—while I think the phrase loan-to-own is kind of ironic is that so many African countries have really been trying to get Chinese to invest in public-private partnerships. They’ve been setting up these public-private partnership offices. They’ve been trying to—you know, they’ve been bringing delegations by, saying we have this infrastructure, we’ve got independent power producers, we’d like you to invest in this, we’d like you to invest in that, and the Chinese have been much more hesitant about doing that because—like in Zambia they’ve looked at the Zambian electricity pricing structure and they decided it doesn’t look like an investor could really make a profit here.
So that—it is kind of ironic that there’s all of this concern about assets being used as security for these loans. And it’s not what we see, and the Chinese I think by and large have been more reluctant to invest in a lot of infrastructure. They’re happy to give the loans, but they don’t really want to own it.
MCLEAN: Well, thank you very much. You know you’ve had a good discussion when you don’t have time for all the remaining questions, including a few of my own. So I—perhaps there needs to be a part two.
Thank you so much, Deborah Bräutigam, Jendayi Frazer, and C.D. Glin, and all of the very able Council staff who put this session together.
GLIN: Thank you.
BRÄUTIGAM: Thank you.