Coronavirus Has Created Economic Openings for China in Africa

April 13, 2020 Topic: Coronavirus Region: Africa

Coronavirus Has Created Economic Openings for China in Africa

What can the United States do to help so that African states don't have to depend on conditional Chinese debt diplomacy?

Introduced in 2018 along with the BUILD Act, PROSPER Africa is an attempt to increase trade between the United States and SSA. Under this plan, the U.S. government facilitates transactions by providing blended financing tools, loan guarantees, technical assistance, and market intelligence. It also acts as a lobbying service for U.S. businesses, working to reduce regulatory barriers where they exist. The BUILD Act, in turn, created the U.S. International Development Finance Corporation (USIDFC)—a merger of previously existing Overseas Private Investment Corporation and the Development Credit Authority. The USIDFC provides direct loans and equity investments to American companies setting up operations in Africa as well as loan guarantees to local banks helping them de-risk some of their loans.

These two programs are still fairly new and have yet to finance much trade or investment. Over the coming decade, these should help reinvigorate U.S. trade with African countries and make the United States more competitive with China. Nonetheless, Chinese influence will remain, and will continue to grow as long as African countries find it difficult to mobilize and build up domestic capital. The U.S. government needs to work with American financiers and African banks to address this serious domestic capital shortage, if it wants to minimize Chinese influence.

The coronavirus pandemic is causing serious problems world over, but the economic and political consequences may be more severe in Africa than elsewhere. A tanking commodities market coupled with severe domestic financial crises puts many African countries in a vulnerable position vis-à-vis foreign powers, leaving them open to be taken advantage of by governments such as China seeking to acquire valuable strategic and economic assets. This is not in the interests of the United States: Washington needs to take a much more aggressive approach and engage with both the American private sector and African governments to ensure financing is available for necessary projects. Helping these countries develop effectively will likely be the key to minimizing Chinese influence in the continent.

Sean Pawley is the director of Nekhbet Resources, Ltd. He is starting Seshat Bank in Rwanda to address the many issues he’s had with risk management in the financial sector.