Mozambique: China debt forgiveness ‘shows interest in keeping influence’ – NKC

China’s decision to forgive debt owed to it by Mozambique, equivalent to €32 million, shows its interest in maintaining influence in countries that are rich in natural resources, NKC African Economics, the Africa offshoot of UK consultancy Oxford Economics, said in a note to clients on Wednesday.

“In recent years, Chinese loans have helped to finance major construction projects such as the Maputo Ring Road and the Maputo-Katembe Bridge,” writes NKC analyst Gerrit van Rooyen in the note. “There has been a general slowdown in Chinese investment in Africa since the downturn in commodity prices in 2014, which has also coincided with China’s rebalancing away from investment-led growth towards consumption-based growth. 

“Nevertheless, Beijing remains interested in maintaining its influence in resource-rich African countries like Mozambique,” he stresses.

China has recently pardoned ¥244.6m ($32 million) worth of debt owed to it by Mozambique’s government, citing the need to alleviate the adverse effects of the Covid-19 pandemic.

“The pandemic provides China with an ideal opportunity to build goodwill on the continent by providing African governments with Covid-19 emergency support,” notes van Rooyen.

As well as Mozambique, which saw around 2.2% of its debt to China forgiven, Angola has also managed to restructure its debt from Chinese creditors, with payment holidays this year and next year, worth more than $6 billion (€5.1 billion).

“The latest debt forgiveness from China represents only about 2% of the debt the Mozambican government owes China, but Maputo will happily accept,” the NKC note reads. “The Southern African country is saddled with public sector external debt of about 90% of GDP, external arrears estimated at over $1bn, and faces a triple challenge of Covid-19, tropical storm damage, and terrorism in Cabo Delgado.”

According to NKC African Economics, the Maputo government is counting on support from creditors such as China, the Paris Club of international creditors, the International Monetary Fund, the World Bank and the European Union to raise $700 million to address the adverse economic effects of the pandemic. It has already received $324 million from the IMF during 2020 and, at the end of that year, another $200 million from the World Bank and EU.

Added to these sums is debt relief from the Debt Service Suspension Initiative (DSSI), which releases $250.2 million until June, and which could be extended to the end of this year or until 2022.

According to the latest figures presented by Adriano Maleiane, Mozambique’s minister of economy and finance, in parliament in November, debt owed to China totals around $2 billion, or 16% of Mozambique’s total public debt of around $12.37 billion.

Most of the China debt, $1.97 billion, is owed to that country’s Exim Bank and was used mainly to finance the building of roads and bridges, including the Maputo ring road, the suspension bridge over Maputo Bay and roads to the south.

Several civil society organisations have criticised the opacity of the government’s contracts with China and the Centre for Public Integrity (CIP) in October published a study that called it “frightening”.

At the time, Maleiane played down such fears, saying: “I don’t have that drama.” 

He said that the terms of the debt owed to China were normal and that the government had made it a priority to secure soft loans.