Research by the UK-based Jubilee Debt Campaign showed that debt in some Sub-Saharan Africa countries has increased by 50 percent in the past two years, the highest level since 2005. International organizations such as the World Bank and the International Monetary Fund (IMF) have also issued warnings about potential debt crisis in Africa. In May, the IMF warned that Sub-Saharan African nations were at risk of debt distress due to heavy borrowing and gaping deficits, despite an overall rise in economic growth.
In fact, the current African debt crisis is partial, with 12 African countries recording high debt risks, accounting for only 22 percent of the total number of African countries. In addition, compared to the highest point of historical African debt, the current African debt risk is relatively controllable. In 1999, Africa's external debt reached $350 billion, equivalent to 93 percent of the gross domestic product (GDP) of African countries (excluding South Africa). At present, Africa's external debt accounts for less than one-third of total GDP. From 2015 to 2017, Africa's external debt accounted for 27.8 percent, 31.1 percent and 32.4 percent of GDP respectively.
The current increase of debt in Africa is mainly a result of decreased commodity prices and a slowdown in economic growth.
In recent years, due to the sluggish global economy, weak demand for bulk commodities has led to a decline in commodity prices. Taking crude oil price as an example, the price has dropped from $114.8 per barrel in January 2014 to an average of $43 in 2016. In addition to crude oil, metal raw materials fell by 6 percent in 2016 compared to 2015. Since 2014, the commodity price index has fallen by more than 40 percent.
The economic structure of African countries is singular and the economies have a huge dependence on the world market. The changes of global commodity prices have a great impact on economic development of African countries. In recent years, the continuous decline in commodity prices in the global market has heavily impacted Africa's economic development, especially those relying on the export of raw materials. The economic growth rate in Africa has dropped from around 5-6 percent to 3.7 percent in 2015 and on to 1.7 percent in 2016. Taxation in African countries has also decreased from $499 billion in 2014 to $444 billion in 2016. The income decline in return affects their ability to repay debts.
In addition, with the strengthening of the U.S. dollar and the depreciation of Africa's national currencies, the debt burden of some African countries has been increased. Since 2014, the appreciation of the U.S. dollar has reached 15 percent. In some African countries, large currency devaluation has occurred. For example, Mozambique's currency, Metical, depreciated 56 percent against the U.S. dollar, and the Angolan currency Kwanza has depreciated by 41 percent against the U.S. dollar.
Alleviating debt burden
Every country needs financing support during the economic take-off phase, especially in the initial stage of industrialization. Without financial security, industrialization and modernization in Africa are difficult to achieve. China is not the main creditor of African countries. China's financing support for Africa is mainly invested in infrastructure construction and production areas, which have greatly improved the economic development environment and helped Africa attract foreign investment, and enhance its independent development capability.
China's loans to Africa are mostly concessional loans with low interest rates. In addition, the three major advantages of Chinese infrastructure construction enterprises - high cost performance, fast administrative approval process and high quality - save a lot of infrastructure construction costs for relevant countries and created a lot of employment opportunities for the locals. It has been recognized by the international community that Chinese investment has boosted Africa's economic growth.
In June 2017, McKinsey published a report called Dance of the Lions and Dragons, which pointed out that China's investment and business activities in Africa brought three major economic dividends to the region. The first is job creation and skills development. Among the 1,000 Chinese enterprises surveyed in Africa, 89 percent of employees are African. The second is the transfer of knowledge and new technologies. Chinese companies have promoted the modernization of African markets by introducing new products and technologies to African countries. In the past three years, about 48 percent of Chinese companies have introduced new products or services to African, and 36 percent have introduced new technologies. The third is financing and infrastructure development. China's low-cost financing channels and significant improvements in infrastructure have been widely recognized by African countries. As a result, China's investment and financing in Africa is conducive to alleviating the debt burden of the countries concerned.
Development is key
At present, heavily-indebted countries in Africa are mostly those with simple economic structures dependent on the export of resources. Therefore, it is important for African countries to develop an independent and sustainable economy.
In fact, some African countries have already begun their economic transformation for a diversified economy by developing infrastructure, unlocking the potential of the private sector, helping workers improve their skills and creating jobs - especially for women and youth. Many of these attempts are successful. For example, East African countries like Djibouti, Ethiopia, Kenya, Rwanda and Tanzania, without having rich mineral resources, achieved sound economic growth in 2015 and 2016, with a higher growth rate than many African countries rich in mineral resources. By restructuring their economies for comprehensive development, these countries with fewer resources made remarkable achievements. In 2015, Ethiopia, Ivory Coast and Rwanda saw a growth rate of 10.2 percent, 8.8 percent and 7.1 percent, respectively.
In addition, to solve the debt problem, it is necessary to adhere to the concept of intensive development and emphasize the enhancement of the independent and sustainable development of African countries, to prevent them from increasing their debt burden. This is something China is aware of. On July 2018, Chinese President Xi Jinping made a remark in a signed article published by the Senegalese daily newspaper Le Soleil ahead of his state visit to the country. Xi said China wishes to have closer discussions and cooperation with Senegal to see to it that financing arrangements are based on sound planning, economically feasible and done in a step-by-step manner, thus ensuring their sustainability. With the gradual improvement of the world economic situation, Africa's economy is generally stabilizing and recovering. According to the IMF, Africa's economic growth rate will reach 3.4 percent in 2018 and 3.8 percent in 2019. Therefore, there is reason to believe that the possible debt crisis of African countries will be eased as these economies begin to grow.
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