MakanDay and Finance Uncovered, a UK based journalism organisation, interviewed Professor Deborah Brautigam of the China Africa Research Initiative at the Johns Hopkins University’s School of Advanced International Studies, Washington DC, which has done extensive new research on Chinese lending to Zambia.
This interview has been edited for brevity and clarity.
Why do you think Zambia borrowed so much more money from Chinese lenders than most African countries?
Deborah Brautigam (DB): The Patriotic Front were facing very tight [electoral] races. So they were hoping that building mega-projects or completing roads would make them politically popular and help them get re-elected. And it worked for a while, but it didn’t work this year.
All these road projects would create a lot of employment locally and of course that’s a political resource for the government.
Why were Chinese lenders so keen to do business in Zambia?
DB: What I think was happening was that Zambia looked like a promising place to do business. So you would have all of these contractors competing for different projects and then helping to smooth the way with the different financiers. Zambia’s very peaceful. It’s very business-friendly.
It really looks as if there was no control by the Zambian government. They’re supposed to be the ones watching out for all these loans being made and deals being struck and they weren’t in control or supervising that well. And that gets back to the politics of it.
Of course we have no hard evidence of corruption but there are lots of rumours and suspicion about that, and it’s very common in the infrastructure field [globally].
Before Michael Sata became President, he was very anti-Chinese and it could be that there was some kind of feeling that the Chinese government wanted to placate Zambia because the relationship had been so contentious. I don’t know whether that helped to create conditions under which nobody was really willing to say no.
Which Chinese companies were most prominent in helping Zambia to get loans?
There are lots of them. One of my arguments is that there were quite a few and that created this competition with lots of different actors getting into the business.
In hydropower it’s clearly SinoHydro, but they weren’t the only one. There was competition with other Chinese companies that wanted to get involved in the Kafue Gorge project and bid on it. And in roads there are just so many. There were so many that some of the contractors were providing their own finance to Zambia. That’s one of the reasons why they have 18 different financiers.
You’ve said that your findings don’t necessarily mean Zambia’s total debt is bigger than reported, but that more of that debt is to Chinese lenders than has been reported. Is that right?
It can fit within that envelope. The only problem is that when we look at ZESCO (Zambia’s state-owned power company. If ZESCO has debt which isn’t guaranteed [by the government], that should be counted. I don’t know what’s going on with ZESCO but I suspect there’s more debt. You can see it in Zesco’s books, they have more debt than reported by the Ministry of Finance as guaranteed debt. (The Finance Minister has since clarified that the government has guaranteed US$1.57 billion of the debts of state-owned enterprises. The latter owe another US$195.71 million which is not guaranteed by the government).
How will the various Chinese lenders work together in the debt restructuring?
I wish we knew how it worked on the Chinese side. What we do know is that the Ministry of Finance and the Central Bank take the main role with any restructuring. So they are the ones who would be represented at the Common Framework [a new process set up by the G-20 countries for restructuring countries’ sovereign debts]. We know that the Chinese are only regarding China Exim Bank and Cidca, the Chinese foreign aid agency, as official creditors. So those are the ones that would be negotiating.
But all of the other Chinese banks are in the same category as the [foreign] bondholders, they’re commercial creditors. So the Chinese [government] are not probably going to organise all the private commercial actors.
Will Chinese lenders end up writing off some of their loans to Zambia?
I suspect they will. I suspect they aren’t willing to admit that yet. You know in the Paris Club these initial negotiations can drag on for years. The Chinese banks haven’t had this experience before. China Exim Bank has, but not very many times.
[Professor Brautigam said that Chinese lenders would want the full debt from Zambia to be repaid over a longer period, rather than writing off some of the debt.]
You know, they’ll give extra time for repayment. They may extend the grace period, and if Zambia can pay the interest during these restructuring periods, that would be enough from their perspective. And then they’ll hope that the copper price goes up, up, up.
I think they’ll be likely to agree quickly.