China Could Demand Mineral Assets In Exchange For Debt – EIU

The internationally respected Economist Intelligence Unit (EIU) has raised the prospect of China demanding access to Zambia’s mineral assets in exchange for debt. More than $3bn has been borrowed from Chinese lenders including China Exim Bank and the China Development Bank. 

The EIU pointed to the Government’s “erratic approach to economic policy” as a key barrier to securing an IMF programme, which might help it to tackle its debt.  In total Zambia owes international creditors an estimated $12bn. 

The lack of an IMF programme has led the EIU to forecast that China will demand access to Zambian mineral assets in exchange for any deals.

The EIU said the prospect of such a deal may increase following elections in 2021.  

“Although Mr Lungu has proven unwilling to do any such thing before the upcoming elections, which would damage his political support, given Zambia’s popular resource nationalism, his administration has been laying the groundwork for potential expropriations afterwards, and Zambia’s business environment has declined sharply so far in 2020,” the EIU writes. 

While the EIU notes that such a move would be unpopular, both domestically and with Western countries, it writes that “should Mr Lungu succeed in his re-election bid, we believe that his control of the security services would allow him to repress any demonstrations against this course of action.” 

It also projects that China and Zambia will announce a bilateral debt-restructuring programme in advance of the 2021 polls to try and boost the Government’s standing. 

The analysis follows a default earlier this month when the Government failed to make an outstanding Eurobond payment worth $42.5 million that was originally due for repayment in October. The subsequent 30-day grace period came to an end on Friday 13th November. 

The EIU identified elections and Chinese debt as key risks facing the country. It also stated that the key challenge facing the country if it wants to escape debt distress is to resolves its bilateral debt with China. 

“Zambia’s large volume of bilateral debt to China is ultimately what has pushed the country into debt distress rather than its Eurobond payments, and although Zambia was awarded US$139.2m in debt service suspension by the G20, this did not cover its bilateral debts with Chinese state-affiliated commercial lenders,” the EIU writes.