China’s vast investment in Africa hits a snag in Congo

PARIS: China’s investment strategy of throwing money at developing countries appears to have hit a snag in the Republic of Congo as the central African nation is seeking an International Monetary Fund (IMF) bailout.

While the funding it provided to Congo wasn’t part of the Belt and Road Initiative (BRI), which China was promoting this week, it serves as a cautionary tale of the trouble Beijing could face with its plan for massive investments in maritime, road and rail projects across 65 countries from Asia to Europe and Africa.

When the plunge of global oil prices in 2014 blew a hole in the Congolese government’s finances, it was China that stepped in to help.

But despite the recovery of oil prices, the country, also known as Congo-Brazzaville, has had trouble getting back on top of its finances and has asked the IMF for help.

The IMF places conditions on its loans to force governments to take measures to boost their finances. In addition, as the IMF can only lend if it judges that a country’s debt load is sustainable, a bailout may be accompanied by a restructuring of government debt.

“It’s certainly the first time China has found itself confronted with this kind of situation,” said a specialist in relations between China and Africa who asked her name not be used as the discussions with IMF were still underway.

“The Republic of Congo is seeking IMF protection in order to avoid a possible default on its payments,” she added.

“China, which holds more than a third of its foreign debt, is not really comfortable with that.”

Julien Marcilly, chief economist at Coface, a firm that provides payment insurance for French companies, said that China “went full-tilt on lending in recent years, often to countries which produce and export raw materials, in particular oil.”

It is only now that “Beijing is beginning to realise that problems can build up”, in particular after Venezuela defaulted.

The situation is all the more worrying as the Republic of Congo in 2005 was one of the countries that benefited from an international debt relief initiative for the world’s poorest countries.

Its foreign debt was bought down from 119 per cent of annual economic output to just 33 per cent.

But like other oil-producing nations, Congo-Brazzaville took a beating from the 2014 plunge in oil prices.

“It was an expected and very brutal drop in prices, which was ironically linked to a slowdown in China,” noted Marcilly.

The drop in oil prices meant the nation’s economic output dropped by 50 per cent. As a consequence, its debt as a percentage of gross domestic product (GDP) soared to 110 per cent in 2017.

About one-third of the country’s debt is in Chinese hands, or about US$2 billion, said the specialist in relations between China and Africa.

The Congolese government reached an agreement with IMF negotiators a year ago, but the terms need to be approved by the IMF’s governing board. — AFP