African governments may soon find themselves buried deeper in Chinese debts if a proposal by a leading Chinese banking conglomerate sees the light of the day.
Hong Kong Mortgage Corporation (HKMC) has tabled a proposal to buy African infrastructure debts from the Chinese government starting next year, repackage them into securities and then sell them to investors.
Proponents of the idea argue that should the plan be implemented, it will allow Chinese financiers, developers and multilateral development financial institutions extra liquidity that it can loan out to finance more infrastructure projects.
“This initiative we believe will help ‘recycle’ commercial banks’ capital to be redeployed into other greenfield infrastructure projects, besides enabling wider capital markets participation in infrastructure development under the Road and Belt initiative,” said HKMC Greater China chief executive Helen Wong.
However, critics claim the new proposal could prove to be a poisoned chalice as it could mire African countries in more debt.
The plan, which is still being developed, will see more than 90 firms including project developers or operators, commercial and investment banks, multilateral development financial institutions, asset owners and managers and professional service firms from Hong Kong, mainland China and overseas joining as partners.
Some of these firms already have current projects and infrastructure loans in the region, which puts the region’s debts into the basket set for “securitisation.”
The plan to securitise and sell the Chinese debt to investors comes at a time when many African nations are seeking to restructure their debts with Beijing or get friendlier loan terms with more grant packages as they struggle with a rising debt dilemma.
Some of Sub-Saharan African countries likely to fall prey to this ‘new debt trap’ are countries already highly indebted to China such as Kenya, Ethiopia, Zambia, etc.
Latest data from the China-Africa Research Initiative at Johns Hopkins University shows regional economies owed China and its institutions more than $29.42 billion as at April this year in infrastructure loans, which have been tapped over the past 10 years to build transport, communication, manufacturing and energy sectors.
The data shows that Ethiopia leads the region with a $13.73 billion debt to Beijing, followed by Kenya at $9.8 billion.
Uganda owes $2.96 billion; Tanzania owes $2.34 billion. Rwanda, Burundi and South Sudan owe $289 million, $99 million and $182 million respectively.
Zambia is reportedly in talks with China over acquiring its main power company, ZESCO after defaulting on loan repayment.