A Comparative Analysis of Chinese and World Bank Loan Terms to African Countries

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Abstract:

Within the last decade, China has emerged as the single largest bilateral lender to Africa, being only comparable to the World Bank in terms of volumes. However, despite its growing presence, China has become infamous for lack of transparency in its lending practices; there is no accurate data regarding its outstanding debt stocks, debt flows, and most importantly, its lending terms and conditions. Using a set 37 original loan contracts between China and 10 different African countries, this research undertook a document analysis to study the terms and conditions of Chinese lending while drawing comparisons to the World Bank and highlighting their implications in Africa as per recent developments. The findings highlight China’s pragmatic and more commercially driven approach; Chinese loans were found to be less concessional charging higher interest and having shorter tenures and grace periods compared to the World Bank. The implications of Chinese lending were found to be mostly negative, chief among them being its contribution to Africa’s ballooning debt levels. China’s hard stance on debt relief has further exacerbated the debt burden particularly for countries experiencing economic difficulties amid the Covid-19 pandemic. African governments are therefore encouraged to reduce their reliance on foreign debt and focus on more sustainable funding sources such as domestic tax revenues.

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A Comparative Analysis of Chinese and World Bank Loan Terms to African Countries

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