Deadline: 27 May 2021

Introduction

Over the last decade, China has emerged as a key player in global trade, aid and investment provision to Africa, largely through the strategic partnership of the Forum on China Africa Cooperation (FOCAC) and through bi-lateral ties emanating from the colonial era where China played a critical role towards the independence of various African states that have grown to support China’s revolutionary economic and industrial agenda on the globe . China’s economic growth and expansion has also been central in its engagement with the continent given its insatiable need for natural resources to meet the demands of its industrialization expansion hence its massive inroads into Africa. As a result, investment and trade between China and Africa has been on an increase with African countries heavily relying on Chinese financing to boost the development and growth of African economies. This has been cemented by China’s pledge of US$60 billion financed through the FOCAC partnership. Moreso, emerging international lenders such as the BRICS New Development Bank and the Asia Infrastructure and Investment Bank are engaged in discussions with the Chinese on investments in Africa, and lending between Chinese banks mainly the China Export and Import Bank (China EXIM), the China Development Bank, Chinese companies and African states are central to these developments.

Background and Problem Statement

Since the turn of the century China has become increasingly invested in many African states, resulting of the establishment of the Forum on China-Africa Cooperation (FOCAC). As such Chinese investment in the infrastructure, natural resources and energy sectors has substantially grown. Chinese financing and companies are responsible for the on-going construction of airports, roads and rail links. Such Chinese investment takes many forms, including (i) direct grants from the Chinese government (bilateral cooperation); (ii) interest free loans from the Chinese government through the Commerce Ministry; (iii) concessional loans; and (iv) commercial loans.

The expansion of these commercial activities in Africa has led to a shift in public policy from a narrow focus on trade and investment relations to a broad range of development issues. Chinese investments in Africa have attracted international attention and contentious debates. The bulk of the investments are debt-generating flows (lending or project finance) which impact on debt sustainability as they are tied to lengthy contracts that are seldom disclosed. Furthermore, most of the investments are being channelled towards China‘s strategic interest areas such as securing natural resources, energy and transport infrastructure. This raises sustainability issues since such sectors generate less employment compared to manufacturing which is labour intensive. The infrastructure projects funded are usually large which presents repayment problems as countries face challenges to domestically resource national coffers that enable debt repayment without disenfranchising other sectors of the economy or society. There is little, if any, participation of locals in such projects. Chinese investments are also noted as being characterised by limited transparency and accountability as a result of ineffective scrutiny and oversight on contracts, data on transactions, and or their total absence, by policy makers and political executives in African countries. Besides this, the broader public citizenry is often unaware of the state of their economies which have been plagued by mismanagement of public funds, debt stresses as a result of irresponsible borrowing and unjustified investments amongst other issues. More so, China’s investment flows include new and problematic forms of lending such as resource-backed loans, debt swaps, goods and services which are difficult to quantify and trace on productivity.

Recognising that fiscal transparency entails the publication of information on how governments raise, spend and manage public resources; governments ought to subscribe to the tenets as transparency. This is a critical element of fiscal management and accountability. It ensures that governments have an accurate picture of their fiscal position and prospects, the long-term costs and benefits of any policy changes, and the potential fiscal risks that they may face. Fiscal transparency also provides legislators, the private sector, civil society organisations (CSOs) and the general citizenry with the information needed for assessing economic development and to hold the government accountable for use of national resources. Albeit African governments being aware of all these, several African countries have failed to satisfy the requisites of fiscal transparency - the majority of them not adhering to the tenets of transparency in public expenditure. More-so, with the rise in Chinese influence through initiatives such as the Belt and Road Initiative (BRI) in which massive investments are being channelled into the African continent under opaque agreements, accountability challenges are of great concern as African governments are signing on to agreements without public consultations. Given this concern, calls for fiscal transparency have grown louder amidst allegations that the Chinese government itself is implementing debt trap diplomacy aimed at ensuring that African countries remain dependent on its aid and investments. With the wake of the covid pandemic, China as one of the largest creditors to African countries, issues of debt relief from Chinese debt have also emerged albeit the fact that opportunities for investment in vaccines have come up given the shortages and limitations faced by African countries in accessing covid vaccines. Whilst all Chinese aid and investments may not have negative effects, the ability of African economies to translate the opportunities offered by China into sustainable development and poverty reduction is highly required. This however depends on strengthening African governance and business environment whilst also influencing policy on transparency and accountability on the part of Chinese overseas investment activities.

Given this context, AFRODAD seeks to conduct a research on the impacts of Chinese Investments on Fiscal Transparency and Debt Sustainability in Southern Africa which will enable it to engage in policy advocacy and capacity building initiatives on fiscal and debt transparency in the region. The research is aimed at ascertaining and assessing prevailing trends and the drivers and implications of non-adherence to fiscal transparency tenets by Chinese investments in five countries namely; Zambia, Mozambique, Angola, DRC, Zimbabwe. The proposal for these researches is informed by evidence that non-conformity to minimum requirements for fiscal transparency tenets at global levels has been high in low and middle-income countries, with illustrations showing this is rife in the 5 sub-Saharan African countries selected. The five countries also benefit largely from Chinese investments and for some such as Zambia, the vulnerabilities of Chinese investments have been witnessed. Coupled with increased investments from China where information disclosure is a cause for concern, non-transparency has had negative implications on public and or social accountability, policy credibility, budget implementation, public spending and debt accumulation. These are all concerns which regional policy frameworks such as the African Unions’ Agenda 2063, the Sustainable Development Goals Agenda 2030, the Addis Ababa Agenda for Action and the Southern Africa Development Community’s Vision 2050 seek to address on the continent.

Objectives of Assignment

The overall aim of the research is to assess Chinese investment trends obtained in Southern Africa and their impacts on transparency and debt sustainability. The purpose of the study is to strengthen the evidence base and deepen understanding on the economic, social and political policy impacts of Chinese investment financing in Southern Africa. This assignment is expected to increase awareness and influence reform on sustainability of Chinese investment facilities in Southern Africa and the African continent.

The specific objectives of the study are to: Examine and analyse key trends and drivers of Chinese investment in Southern Africa; Interrogate the link between Chinese backed financing and its impact on fiscal and debt sustainability in Southern Africa; Assess the challenges for Southern African policymakers in tracking Chinese loans and possible responses to the challenges; To produce a regional analytic research paper that influences reform of Chinese lending policy.

Scope of Work

Assess Chinese loans and Investments in Southern African countries analysing the size, nature and composition of Chinese loans to atleast 5 Southern African countries; Analyse the trends and drivers of Chinese loans, debt swaps and investments in Southern Africa; Analyse the impact of Chinese development finance investment instruments in Southern Africa; Assess the responses and uptake of Chinese backed loans and investments by governments in development of infrastructure and services development; Identify the policy challenges that have been arising from Chinese loans including resource backed loans and debt swaps; Propose possible policy and regulatory measures for sustainable financing from Chinese finance sources.

Results and Expected Outcomes

The findings of the research paper will supplement the already existing information on Chinese Investments in Africa in providing key information building blocks that CSOs can use to support their advocacy work and influence reform on lending policies and practices by Chinese investment and development finance institutions. These will be tailored to the needs of specific identified decision-makers, and timed to be of most influence. Hence, this will be expected to increase understanding of the negative impact of Chinese loans, debt swaps and covid recovery funds on fiscal jurisprudence, debt sustainability and human rights at national and regional level. It is also expected that the paper will result in deepened and strengthened global awareness on the magnitude and impact of Chinese financing for infrastructure development and services delivery.

Key Outputs

Study Report (25 pages excluding references, cover page and annexes); A technical and financial proposal detailing conceptual and theoretical frameworks, methodology, rationale; a work plan with timetable; budget - to be discussed and agreed and updated as required.

The synthesis report should: Be well written with references and acknowledgement of sources of materials that are referred to in the text, endnotes and bibliography at the end of the report; Have a table of contents and list of tables, glossary and list of acronyms if any; Contain an executive summary, and a section on key findings, conclusions and recommendations; Recommendations for Parliament, Governments including Chinese Embassy Officials and private sector towards sustainable Chinese financing for infrastructure and services development; These outputs should be tailored to specific events and audiences during the dissemination of findings.

Approach and Methodology

Literature Review: Desk research will be used to address all issues related to the paper

Qualitative Analysis - Interviews with key informants from the government and relevant institutions will be conducted to collect data and information on: Trends Opportunities and Challenges posed by Chinese Investments in Africa; The (positive and negative) impacts of Chinese loans on Debt Sustainability; Learning curves on Chinese Investments in Southern Africa; Policy alternatives for sustainable alternatives to financing through Chinese investment financing.

Timing

The Research Study should be completed within 30 days from the time the contract is signed between the selected consultant and AFRODAD.

Reporting

The consultant will report to both the Head of Programs and International Public Finance Portfolio lead.

Competences

The Consultant should have skills and experience in the following areas: Policy aptitude and experience on mechanisms for financing for development and human rights-based access to social services