China's secretive lending to Africa
Ethiopian Airlines transport hub key to 'going global'
by Herbert Poenisch in Beijing
Wed 27 Mar 2019
Questions are swirling around China's financing of Ethiopian Airlines (ET), and whether it was part of the country's secretive lending to Africa.
China's footprints are visible in Ethiopia, as in other parts of Africa. This includes a recently expanded ET terminal at Addis Ababa Bole international airport and a new five-star hotel. An increasing number of Chinese travellers are transiting through Addis Ababa to various destinations in Africa, all made possible by the rapid growth and expansion of ET's network. Passengers from Beijing, Chengdu, Guangzhou, Hong Kong and Shanghai can now reach 61 destinations in Africa thanks to the carrier.
While it is difficult to obtain hard facts about Beijing's involvement, there are indications that Chinese banks, in particular the China Export Import Bank and Industrial and Commercial Bank of China Financial Leasing, have lent large amounts to Ethiopian Airlines.
According to the carrier's 2016-17 annual report, its total outstanding loans amounted to $1.5bn, or 65% of its total liabilities, net of capital. This is a healthy situation, but the breakdown into individual creditors is unclear.
Known lenders include the US Export Import Bank, JPMorgan, the African Development Bank, the Eastern and Southern African Trade and Development Bank, ING and Société Générale. ET's new Boeing 737 Max aircrafts were funded partly by the US branch of financial services firm Investec. However, the creditors whose names are listed publicly account for fewer than half of the company's long-term loans. Substantial funding therefore came from unallocated lenders, some of which are likely to be Chinese. In their annual reports, the China Exim Bank and ICBC Financial Leasing are vague on their strategies in Africa.
The China Exim Bank's priority is promoting the Belt and Road initiative. While China has never published a list of Belt and Road countries, African states such as South Africa, Zimbabwe and Ethiopia are first on the list of responsibilities of the China Exim Bank Africa office.
The China Exim Bank has deep pockets. By 2017 it had spent $37bn on overseas investment loans, $113bn on international co-operation loans and $135bn on loans supporting greater openness in addition to their trade finance.
The tragic crash of ET Flight 302 on 10 March shone a light on China's involvement in Africa. Once its causes become clearer, it may lead to a reassessment of the risks of lending to a fast-expanding airline. It is possible western creditors will react faster than their Chinese counterparts. Regardless of the extent of ET's fault in the crash, lenders will probably continue to support the airline. This is particularly true of Chinese investors as part of Beijing's 'going global' strategy; Ethiopia plays an important role as a transport hub in Africa. Any retrenchment would have a knock-on effect on China's strategy elsewhere on the continent. Chinese airlines are in no position to fill the gap if the country downscaled its commitment to ET. In addition, the airline's success has made it a profitable Chinese investment.
Herbert Poenisch is a Member of the International Committee of the International Monetary Institute at Renmin University of China, and former Senior Economist at the Bank for International Settlements.
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