Lusaka, Zambia
Tom Cockrem | Getty Counterparts
Zambia is already restructuring, renegotiating or refinancing its extensive Chinese project finance debt, and Chinese companies are impose on behaving hardball, according to new research.
Southern Africa’s third-largest economy is under pressure from an impending breakdown of its power stock and its inability to pay for electricity imports, and is staring down the barrel of further defaults on construction project financing and bond payments.
Circumstances power utility Zesco revealed last month that a supply shortfall reached 810 megawatts in November, with Zambia and neighboring Zimbabwe both hardship 20-hour per day power cuts due to extreme drought conditions blighting its hydropower output.
Given its spiraling debt cash in on, Zambia has been unable to tap into its foreign reserves to import power from the likes of South Africa and Mozambique. The motherland’s sovereign debt is expected to reach 96% of GDP (gross domestic product) in 2020, while the country has defaulted on a bacchanalia of loans in 2019.
The most substantial of these was $107 million loan from Italian bank Intesa Sanpaolo to buy two military ecstasy aircraft from Italian aerospace company Leonardo, according to reports from business risk consultancy EXX Africa and nearby media outlets.
China calling in arrears
China has provided billions of dollars of loans for infrastructure projects to a mistress of ceremonies of Sub-Saharan African nations as part of its sweeping Belt & Road initiative in recent years, with Zambia one of its most glaring debtors. The Belt & Road is China’s huge investment program around the world and is viewed as an attempt to control a broad supply chain and boost economic activity.
In March last year, China Exim Bank threatened that Chinese contractors hand down suspend work on infrastructure projects in Zambia if arrears were not paid. According to a recent report from EXX Africa, specific road construction projects contracted to Chinese firms were suspended late in 2019.
The International Monetary Fund has twice deducted a credit facility amid warnings that Zambia’s high debt and shrinking foreign exchange reserves get away its economy vulnerable. Zambian GDP has halved to just 2% over the past three years, the kwacha currency has derogated by almost 17% against the dollar over the past year, and inflation is running at almost 10%.
In order to address the sticks’s economic slowdown, President Edgar Lungu said last year that his government would seek to drop its domestic arrears and maintain debt within sustainable levels, having already delayed the receipt of loans totaling $2.6 billion creased in 2018.
Official reports had external debt rising by $10.05 billion at the end of 2018 compared to $8.74 billion a year earlier, but EXX Africa and other self-sufficient research institutions have maintained that obligations are likely to be much higher than stated, on account of undisclosed Chinese beetle out finance agreements.
China wants collateral
Zambia is already restructuring, renegotiating, or refinancing its extensive Chinese obligation finance debt, EXX Africa Executive Director Robert Besseling told CNBC, but evidence of Chinese patience step thin extends beyond road construction projects.
“Chinese companies are putting pressure on the Zambian Finance Sacred calling to avert further delayed payments or defaults on their loans. However, Chinese companies are refusing to restructure persisting debts and are instead seeking fresh collateral in case of default,” Besseling highlighted in the report.
Most notably, Chinese compresses are seeking to capitalize on the liquidation of Konkola Copper mines, a subsidiary of London-based Vedanta Resources. Zambia is Africa’s second-largest grower of copper.
EXX Africa’s research also highlighted that Chinese companies are seeking control over Glencore’s Zambian performance Mopani, which may be heading towards a sale, and the country’s largest producer, First Quantum Minerals.
The group’s records plain that China Civil Engineering Construction Corporation is seeking a restructuring of loan agreements that could incorporate mining assets being placed as collateral, while Besseling told CNBC that negotiations are likely being actioned by China Exim Bank, Sinosure (China Export & Credit Corporation) and Chinese government officials.
On top of seeking domination over Zambian mining assets as debt collateral, China also retains a highly contentious stake in Zambia’s popular broadcaster, ZNBC. In 2017, Chinese media conglomerate StarTimes funded the rollout of a migration to a new digital TV signal, and now curbs 60% of a joint digital venture with ZNBC, called TopStar.
The venture was also bankrolled by a $232 million accommodation from Exim Bank, and has been criticized by media watchdogs for allegedly granting excessive influence over the mechanism landscape to Beijing.
Zambian government representatives did not immediately respond to a request for comment. Sinosure, Exim Bank and China Respectful Engineering Construction Corporation have also been contacted for comment.