This is a thread: Having been in the position of policymakers who negotiate such financial agreements, I am sympathetic to policymakers in Africa who have the impossible task of using very limited resources to close gaping deficits in infrastructure and social services. 1/
Borrowing carries the dual risk of closing the fiscal space while debt overhang & servicing crowd out everything else. Then there's the time issue: For governments in the tropics, there are only 6 mos. in the year, since no civil works can be done during the raining season. 2/
The 24 to 36 months it takes to develop projects create still more pressure, especially going into elections. Chinese financing, which doesn't insist on building systems, institutions and processes as conditions precedent to lending, is infinitely more practical. 3/
But large amounts of money toward poorly developed projects, with limited quality oversight in an environment without rules, systems and processes invite abuse. So just as the onus was placed on the banks during the sub-prime mortgage crisis. Same principle applies here. 4/
Which party has more power? Even in an arrangement between sovereigns, the power dynamics and leverage are so tilted, we NEED to focus on the party lending the money. This does not absolve African policymakers of their responsibility. They are just as responsible. 5/
But when it comes to lending to African governments for big infrastructure projects, China literally has no competition. The dearth of options significantly increases China’s already formidable leverage and it is clear that that advantage has, on occasion, been pushed too far. 6/
Going forward, the quality of China’s lending to Africa has to improve. The first and most important step will be transparency of the terms of lending and publishing loan documents. This would lead toward greater convergence of terms and adoption of best practices. 7/
But this is not a China problem. It is an Africa problem. Chinese lenders have shown significant flexibility in negotiations and have demonstrated willingness to negotiate when counterparties have a clear strategy and goals. So Africans need to do better. THE END
