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Africa, Latin American Countries Have Massive Oil-Backed Debt To China

African and Latin American countries have accumulated at least $152 billion in debt to Chinese banks, backed by oil and other mineral resources, a study from non-profit the Natural Resource Governance Institute has revealed.

Chinese loans represented 77 percent of the total $164 billion in resource-backed loans taken out by African and Latin American countries between 2004 and 2018. While the size of this debt load may not be that worrying in itself, spread across 52 loan deals inked by 30 sub-Saharan African countries and 22 Latin American states, the fact that little detail about the terms of these loans has been made public is worrying, the NRGI report notes.

Of the total 52 loan deals, 38 were made with Chinese state policy banks, seven were made with commodity trading companies, four were made with other Chinese state companies, one came from South Korea, another from Russia’s Rosneft, and the last one from Nigeria, the report said.

“While these loans have often provided much-needed infrastructure, such as roads and hydro-dams, in many cases they have led to crippling levels of debt and the risk of losing collateral that is itself worth more than the value of the loan,” the lead author, David Mihalyi, said. “Urgent changes are needed and that starts with transparency. Borrowers and lenders must allow for greater scrutiny of lending terms to ensure that these loans are sustainable and serve the interests of the people and the countries they are supposed to benefit.”

China has over the last decade emerged as the largest importer of African mineral resources, its economy driving a constant rise in demand for these resources while domestic supply falls. The country is also investing heavily in Latin America with a focus on natural resources. The size of the loans granted to countries in these two key regions further highlight the size of China’s bet on international expansion, one of whose aims is securing the long-term supply of vital natural resources.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on February 27 2020 said:
    Being the world’s largest economy based on purchasing power parity (PPP), China is not only the world’s largest crude oil importer but also the largest importer of African mineral resources.

    The important point for the Natural Resource Governance Institute to realize is that the 30 sub-Saharan African countries and 22 Latin American states who signed deals with the Chinese government or Chinese banks using their oil and mineral resources as collateral did so voluntarily because they can’t secure soft loans from western sources or from the World Bank or the International Monetary Fund (IMF) without having tough and sometimes crippling conditions imposed on them.

    China’s policy of financing infrastructure projects in developing countries is helping countries grow economically by enabling them to secure cheap finance which they wouldn’t otherwise have secured from most western sources.

    This policy is part and parcel of China’s One Belt One Road initiative (BRI) seeking to bolster trade relations with countries of the world.

    Critics have described the plan as a strategic ploy to enhance China’s military power outside its borders or as a plot to ensnare countries in debt traps that eventually force them to hand over strategic assets.

    China retorts by declaring that the primary focus of the BRI is to build much-needed infrastructure in places where such investment has long been neglected. China contrasts the intentions of the BRI with those of the post-second war Marshall Plan which had clear geopolitical and ideological objectives. In contrast, the BRI is an initiative for international economic co-operation.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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