What was Yellen’s visit to Zambia for? Featured
What was the purpose of US Treasury Secretary Janet Yellen’s trip to Zambia and other African countries? To address Zambia’s debt with China, to undermine China’s position in Zambia and Africa, and for what? Critical minerals!
And it coincided with International Monetary Fund (IMF) managing director Kristalina Georgieva’s visit to Zambia. What was Georgieva’s mission to Zambia? The answer was transparent in all her meetings in Zambia, including one with President Hakainde Hichilema – the media was present. From what we observed this was nothing but a PR stunt by the IMF to claim that the institution had become better and more humane.
Zambia has requested a 38-month arrangement from the IMF under the Extended Credit Facility Arrangement (ECF) in the amount of SDR 978.2 million (Special Drawing Rights) – 100 percent of Zambia’s quota. The proposed ECF-supported programme aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
To support this, the IMF is seeking extensions of maturity dates and reduction of interest payments. But there are serious challenges. Unlike the debt relief efforts of the 1990s and early 2000s, where lenders were mainly bilateral and multilateral – and all belonged to the Paris Club – today, lenders include private bond market holders.
Presently, the lenders have different characteristics and motives. And today there’s also China, which was not one of the lenders of the 1990s and 2000s. The Chinese debt is a mixed basket of private, quasi-government and government creditors. This makes it very difficult to reach a common framework.
Even when the characteristics of the lenders were similar under the Paris Club it took more than ten years to agree on the debt relief we received in the early 2000s. And how long has it taken the IMF and the Zambian government to reach a deal? They started negotiating in 2017. This complex mixture of lenders may take a long time to reach a deal or some consensus. It will certainly not be fair and just to blame China for this.
The truth is that following the “China debt-trap” narrative being thoroughly exposed as a fraud internationally, there is a new two-pronged game in town: China must bail out Western bondholders controlling the debt of many nations in distress; at the same time, the International Monetary Fund, the US, and the EU are pressuring those nations to abandon infrastructure projects financed by China in return for debt relief. In the case of Zambia, the IMF made this very clear.
This seems to be the goal of the visit by US Treasury Secretary Janet Yellen to Zambia, i.e. making Zambia an example or a template for this new push to block the Belt and Road Initiative and China-Africa cooperation, which is soundly based on building infrastructure (transport, power, water management, modern telecommunications, healthcare and education) and modern agriculture and industry. This is the way, as China proved at home, for these nations to escape the double traps of poverty and chronic debt distress. At the same time, the looting of the raw materials of African nations by the same nations’ transnational corporations continues with great vigour and malice under the guise of reforms, privatisation, and investment incentives. In the case of Zambia, the situation is probably as bad as it was in the colonial period.
The debt distress experienced by these countries predates China’s involvement through the Belt and Road Initiative in Africa and Asia and, was made worse with the outbreak of the COVID-19 pandemic in 2020 and 2021. It continued as inflation in global energy and commodity prices maintained pressure throughout 2021, and finally dramatically worsened with the outbreak of the Ukraine crisis in February last year.
The nations that rely heavily on imports of fuel, food, and fertilisers are the worst hit. Zambia is a case in point. Zambia already defaulted in November 2020 on Eurobonds (not Chinese debt service) and has been negotiating a financial assistance package with the IMF and international creditors. Zambia had resorted to borrowing heavily from international private bond markets even before the COVID-19 pandemic.
When the commodity prices plunge took place in 2014, Zambia entered a major financial crisis, pushing it to resort to borrowing from international private bond markets. In 2014, Zambia issued Eurobonds worth US$1bn, in a deal supported by the IMF and managed by Deutsche Bank and Barclays. In 2015, another US$1.3 billion Eurobond was issued. The interest rate was an incredible 9.3 per cent. Maturity time for these bonds varied between seven and 11 years. The Eurobond issuances were intended to fill a gap in the budget deficit of US$ 2 billion, and not to invest in any productive processes.
In November 2020, the country defaulted on a US$42.5 million payment on one of the Eurobonds. This was not because the Zambia government couldn’t raise this amount of money. Its advisors on debt told them not to pay it because it would make other lenders less eager to cooperate on its debt relief efforts.
For the IMF it is a matter of the same recipe being repackaged with better public relations in light of its dented image in the Global South.
The exact same mistake is being made in the new “debt relief” arrangements of the IMF, which focus on filling fiscal gaps in government finances rather than developing the economy. New loans ease emergency needs and will be consumed without any impact on improving the productivity of society. The new loans will mature sooner or later and the vicious cycle will be repeated.
The demands being made by the West on China and the type of conditions being imposed by the IMF on Zambia in return for assistance reveal several objectives that could be problematic for China and the Belt and Road Initiative:
The call on China to provide more assistance in the IMF-driven debt restructuring of Zambia implies that China contributes to bailing out Western private sovereign bond holders, who themselves are pressed by the global financial crisis.
The IMF is demanding that Zambia stop borrowing (from China without naming it by name) for important infrastructure projects.
Zambia is being pressured by the IMF to resort to “public-private partnership” in financing and building infrastructure. This means that many projects will not be achieved, as their financial yield would be deemed as too small or non-existent by private investors. Or, otherwise, certain vital strategic facilities will be privatised and owned by foreign interests.
There is a risk of asset grabbing by the same Western interests and their allies focused on strategic raw materials.
US Treasury Secretary Janet Yellen’s counsellor Brent Neiman said in a speech on September 20 last year that China’s lack of cooperation with the G-20 and the IMF on debt relief could burden dozens of low- and middle-income countries with years of debt-servicing problems, lower growth and underinvestment.
“China’s enormous scale as a lender means its participation is essential,” Neiman said in the speech citing estimates that China has US$500 billion to US$1 trillion in outstanding official loans, mainly to low- and middle-income countries. However, these numbers are difficult to ascertain and it is not clear to what projects and what countries these loans were extended.
China’s share of Zambia’s foreign debt is a mere 30 percent. The real culprits that Yellen should be focusing on are the Western private bondholders. It became obvious that the IMF’s main conditionality to help Zambia was to cut a deal first on repayment of the debt of Western bondholders.
The statements by Yellen and other American officials are being used in Western media to show that China’s unwillingness to help the IMF programmes is undermining the efforts to help poor nation with debt restructuring. But China is doing the right thing by avoiding the IMF methods and focusing instead on its own solutions.
Zambia is Africa’s second largest exporter of copper and other industrial minerals like cobalt and gold. But while the mining sector constitutes 70 to 80 percent of the country’s exports, it does not contribute more than four to five percent of government revenues, because foreign Western companies largely own the mining sector. The absolute largest of these are: Glencore PLC (Glencore Xstrata PLC), Konkola Copper Mines PLC (Subsidiary of Vedanta Resources), Barrick Gold Corp, First Quantum Minerals Ltd, Axmin Inc., Caledonia Mining Corp, Lubambe Copper Mine Limited, Trek Metals Limited (Zambezi Resources Pty Ltd).
Only one major company is Chinese, China Nonferrous Metals Corporation (CNMC).
Most of the profit from mining does not return to the country. In 2021, Zambia estimated exports were US$8.1 billion. Copper accounted for US$6.1 billion of that (76 percent of total exports). But those companies repatriated only less than US$1 billion to Zambia. These companies do not use local suppliers for the mining operations and all machinery and services are supplied from abroad. The privatisation of the mining sector was part of the liberalisation process in the 1990s agreed upon with the IMF and World Bank. These policies also made foreign mining companies largely exempt from taxation under the pretext of encouraging more foreign direct investments into the country.
Zambia external debt reached US$8,472 billion in late 2021. Eurobond holders held $3 billion of Zambian debt plus US$336 million of interest arrears at the end of 2021. British Abrdn (Aberdeen) is one of the largest bondholders, and it leads a committee of bondholders estimated to hold around 45 per cent of Zambia’s international market debt. Aberdeen and its partners were opposed to any “haircut” to the bondholders in any settlement. American giant investment fund BlackRock holds around US$215 million worth of these bonds. BlackRock has reportedly made big profits from these holdings through the years. By comparison, Zambia’s nominal GDP was reported at US$17.1 billion in December 2019.
Chinese loans to Zambia account for 30 percent of its total external debt. However, these are long-term loans with long grace periods dedicated mostly to infrastructure projects, such as airports and hydropower projects, roads, highways, telecom and digital infrastructure, hospitals, and clean drinking water management systems.
The most important results of the agreement between the IMF and Zambia’s government to be granted a zero-interest loan of US$1.3 billion with a grace period of five-and-a-half years and a final maturity of 10 years, was indicated in the reports of the IMF staff. To receive the financial support, Zambia had to accept specific conditionalities to reduce government spending, but most emphatically to stop borrowing for infrastructure projects.
The IMF staff report in September 2022 stated clearly, “Zambia is dealing with large fiscal and external imbalances resulting from years of economic mismanagement, especially an overly ambitious public investment drive that did not yield any significant boost to growth or revenues”, it asserts also that, “rapid debt accumulation on the backdrop of deteriorating economic fundamentals has led to unsustainable debt levels and subsequent accumulation of arrears. Debt contracted has mainly been for infrastructure projects in sectors such as roads, education, health and defence”. This is outright sophistry, since the most poisonous part of the debt was accumulated through borrowing in the global bond markets from mainly British and American sources. China’s credits were long term and focused on improving the physical economy and productivity of Zambia.
This has been the demand of the IMF since the previous government started its negotiations in 2017. It led the government to cancel a large number of projects mostly agreed with China, but whose loan disbursements were not yet made. Some of the Chinese projects cancelled are:
• A major highway – the US$1.2 billion Lusaka-Ndola dual carriageway funded by China Jiangxi Corporation. Zambia has engaged China Jiangxi to cancel US$157 million in undisbursed loans.
• Digital projects, such as Smart Zambia phase II (US$333.2 million), which was being implemented by Huawei Technologies and funded by China Exim Bank. Digital terrestrial television broadcasting systems in Zambia phases II and III.
• Zambia asked China Exim Bank to cancel US$159 million of funding for the building of Chalala army barracks in Lusaka.
• FJT University under the Ministry of Education.
• Rehabilitation of Urban Roads phase III under the Ministry of Infrastructure and Urban Development.
Given the conditionalities imposed by the IMF and Western partners on Zambia and other countries to cancel vital infrastructure projects, mostly with China under the BRI, it is not reasonable for China to participate in these programmes.
When 77 percent of Zambia’s population do not have access to clean drinking water, 60 percent do not have access to electricity, 46 percent do not have access to the internet, and the roads are in a bad shape, it is unfathomable how cancelling all these infrastructure projects will lead to any improvement in the country’s economy. There is no evidence supporting the IMF staff assertion that these infrastructure projects “do not yield any significant boost to growth or revenues”. It is a basic fact of economics that improvements in infrastructure lead to direct and indirect increase in the productivity of the economy by creating efficient transport networks, lowering the cost of production through abundant electricity and transport facilities, and increasing access to markets.
The other risk resulting from this policy is that the government will be allowed to continue non-productive public spending, such as payment of public employees and disbursements to mitigate the globally induced inflation. This will increase the non-productive financial burden. At the same time, the IMF conditionality of lifting government subsidies on fuel will lead to an increase in the cost of production of most commodities.
China will be pushed back as a partner and the Western-controlled multilateral partners, like the World Bank, will assume the major role through assistance measures that are directed as social programmes to deal with effects of poverty rather than dealing with the causes. This will keep the country, where over 60 per cent of the population is under the poverty line, in a permanent state of poverty and reliance on aid programmes from the West.
If this push in Zambia succeeds in achieving the goals set by the United States and its partners, it will be used as a template elsewhere, where it will become the precedent and standard.
The attempt to pressure China to make concessions to the IMF and other financial institutions is intended to help bailout the private interests in the US and Britain, which are themselves facing huge risks due to the current Trans-Atlantic financial and banking crisis. The other goal is to block BRI projects, especially in the least-developed countries with large mineral reserves.
China is recommended to make public its position on “no bailout” of private interests, with loans to those countries not made to benefit the people but to make profit in times of crisis. China must make it clear that its loans to those countries, especially for the building of vital infrastructure, are “qualitatively” different to the Western loans, because China’s projects lead to an increase in the productivity of the countries and their ability to refinance their debt. Western loans in times of crisis are intended to pay old debt (especially to private interests as argued by the IMF itself). This kind of credit policy puts developing countries in a real debt-trap and vicious spiral, as they are not given the opportunity or permission to invest in productive projects.
China should, otherwise, continue its well-known and documented debt-forgiveness and rescheduling in a case-by-case manner. China’s loans for vital infrastructure projects must continue because China has become the creditor of final resort for such important investments to pull nations out of poverty. In the worst case, China may shift to “investments” in infrastructure rather than financing and constructing through loans, and secure the mineral resources it needs for its industrial development through win-win cooperation with mineral-rich countries.
African nations have to take control of their natural resources in a fair and organised manner. The neocolonial methods have to be exposed and ended.
African nations need to abandon the primitive economic process of exporting raw materials. These raw materials, if processed and manufactured into products inside the countries will add value in many orders of magnitude to the raw materials extracted. The recent case of Zimbabwe banning the export of raw lithium and entering a joint venture with a Chinese company to build a lithium-ion battery plant in the country is a revolutionary move. It has the potential to reconstruct the relationship of the whole African continent with the rest of the world.
The age of exploitation of nations through colonialism and neocolonialism has to end and be replaced by the win-win concept manifested in the Belt and Road Initiative.
President of the Socialist Party