By William Orr…..
Zambia appears to be the first African state that has defaulted on its international debt payments as a consequence of Coronavirus. The Zambian government potentially owes the Chinese government in excess of $23 billion in loans, project money and infrastructure. This article explores some of the problems concerning the Sino-Zambian relationship.
In a statement made on the 13th October by Zambia’s Finance Ministry, the government has decided to ask all external creditors to agree to debt service suspension. The statement adds, “Should Zambia fail to reach an agreement with its commercial creditors… the Republic with its limited fiscal space will be unable to make payments and, therefore, fail to forestall accumulating arrears.” Even prior to the pandemic, Zambia was facing major difficulties in meeting their commitments to their international debt repayment programmes. This statement has highlighted the severity of the Zambian debt crisis.
The majority of Zambia’s international debt is owed to China – it is believed that, of the total $11.7 billion owed to international creditors, at least $3 billion is held by China. In 2019, former Broadcast Minister, Chishimba Kambwili claimed, “if we count all project money and guarantees, Zambia should owe China in excess of $23 billion.” If Zambia is unable to repay Chinese commercial lenders, it is possible that the Chinese government will compensate their lenders through different measures, such as direct money transfers or preferential project stakes. The real worry for the Zambian economy is the likelihood their government will surrender access to the country’s copper resources and public assets, such as the Kenneth Kaunda International airport.
The White Elephant Projects
The problem has been exacerbated by Zambia’s aggressive construction policies, which require massive loans and substantial Chinese assistance. In 2011, the Zambian government revealed a new plan for boosting the country’s infrastructure, with an estimated budget of $20 billion. Since the inception of Zambia’s aggressive construction policy, 83% of projects have been implemented by Beijing-affiliated companies. Since 2014, 19 infrastructure projects have been built in Zambia, with loans from China that total over $9 billion. A number of these cumbersome construction projects have been called ‘White Elephant projects,’ due to their expense and impractically. The Levy Mwanawasa football Stadium in Ndola is a prime example of a ‘White Elephant project’. The stadium cost $65 million to build, and has a maximum capacity of 40,000 people, however, it rarely attracts a crowd larger than 5,000.
Zambia has been a significant recipient and participant of China’s Belt and Road Initiative. China’s primary ambition in Zambia is its access to copper. China is the world’s largest consumer of copper and Zambia is the world’s second largest producer of copper. Since the turn of the millennium, Chinese investment in Zambia has grown at an exponential rate. Trade between the two countries grew 25-fold between 2003 and 2009 and during that same period, 98% of Chinese investment in Zambia targeted the mining and manufacturing sectors. Currently, over 600 Chinese enterprises operate in Zambia, the majority of which are based in the Copperbelt region in the north of the country, primarily to serve Chinese mining companies.
Failure to Diversify Economy
Zambia’s reliance on copper as its primary commodity has weakened the country’s economy in the long-term, as it has failed to diversify its sources of income. Currently, the mining sector accounts for 65% of Zambia’s export earnings and over 11% of the country’s GDP. The credit rating company, Fitch Ratings, downgraded Zambia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC’ from ‘B-’ as a direct consequence of Zambia’s over reliance on copper. Zambia’s IDR fell despite an 8.6% increase in copper production in 2018. Additionally, Fitch Ratings’ decision was influenced by Zambia’s declining agricultural output, new mining taxes, and its uncertainty regarding electricity supply in the Copperbelt. In the first half of 2019, the extent of Zambia’s reliance on copper was revealed when copper production declined by 9.3%, resulting in a decline in earnings of 23.5%.
Criticism of China in Zambia: Quality of work, Human rights and Local Exploitation
Chinese built construction projects are frequently criticised for their inadequate quality. A prime example is the Chinese built road that ran from the Zimbabwean border to the Copperbelt region of Zambia. It is the main artery for imports from South Africa, and washed out just 18 months after construction. In November 2011, the Human Rights Watch released a report deploring the conduct of Chinese-owned mines in Zambia, highlighting their especially poor health and safety regulations, which include regular 12-hour and even 18-hour shifts involving hard labour, and preventing the formation of Unions – all of which are in violation of Zambian law. The Collum Colleries mines, a Chinese owned and operated enterprise, have been repeatedly shut down due to work-related deaths, but remain operational.
Currently, over 100,000 Chinese nationals officially live in Zambia, but the actual figure could be significantly higher. Chinese nationals are drawn by the opportunity to work in Special Economic Zones (SEZ) that have been established by Chinese development aid. Primarily, Chinese nationals are drawn to SEZs due to the associated low tax rates and career opportunities within Chinese companies. The first SEZ was set up a stone’s throw away from the Chinese-owned Chambishi mine. The problem here is that Chinese aid provides little benefit for the local population and businesses. This criticism is so widespread that it has become an integral part of Zambian politicians’ campaign platforms. For example, in 2011 former President, Michael Sata, won the national election on an explicitly anti-Chinese ticket.
Zambia faces a serious challenge in managing the country’s growing $11.7 billion debt to Chinese and Western creditors. Unless the Zambian government can renegotiate their payments, it seems highly likely that Zambia will become the first African nation to default on their debt repayments since Coronavirus. While Chinese investors have been integral to the regeneration of the mining sector, the key threat to the Zambian economy is that Chinese creditors will continue to further their influence over their mining sector. Perhaps more importantly, the Zambian government is likely to cede access to their key resources in order to make repayments to their national debt and fund the country’s expensive and, at times, unnecessary construction policy.