Why China–USA have ‘Ceased fire’, and Cooperating to Resolve Zambia Debt Restructuring Delay – An Analysis

• Debt deal may be imminent in days as American and Chinese envoys’ meeting resolves to stop blaming each other, but help Zambia resolve its debt burden.
• President HH De-polarises Zambia’s relationship with USA and China, in a frank Press Conference with USA Vice President Kamala Harris.
• IMF urges Zambia bilateral creditors to reach agreement on debt treatment based on financing assurances of July, 2022, so that Board approves Zambia’s access to funding.

By Mwansa Chalwe Snr

Zambians who have been closely monitoring the debt restructuring talks must have noted that the protracted delay in finalizing the deal, has all been due to the geopolitical rivalry between China and the United States of America. It must have come as a great relief to most Zambians that the USA and China have decided to cooperate by supporting Zambia in areas of mutual interest such as anti-corruption measures, strengthening the economy and in the current debt restructuring talks. The article analyses the events that must have led to this welcome development.

USA – China Confrontation over Zambia Debt deal

The USA and China relationship on Zambia’s debt restructuring has been one of conflict, confrontation and a blame game until recently. The rivalry between the two countries was reflected in the statement by Treasury Secretary Janet Yellen. During her visit to Zambia in January, 2022, she accused China of obstructing Zambia’s debt deal.

“It’s critically important to address it right away,” Yellen told the Press in Lusaka. “It’s taken far too long already to resolve this matter. I am encouraged that progress may become possible shortly, I know that the Chinese have been a barrier to concluding the negotiations.”

The Head of the World Bank, David Malpass – an American – was in agreement with Janet Yellen. He also accused China of delaying Zambia’s restructuring, and asked them to stop making unfeasible demands.

“China is asking lots of questions in the Creditors’ Committees, and that causes delays, that strings out the process,” He said in an interview with Bloomberg News. “It’s important for them to be focused on getting to an actual debt restructuring where the burden can be lightened for Zambia.”

The Chinese Embassy in Lusaka, Zambia, on the other hand, has accused Washington of meddling in the restructuring talks of a Sovereign State and in the process risking the success of the talks.

“The biggest contribution that the U.S. can make to the debt issues outside the country is to act on responsible monetary policies, cope with its own debt problem, and stop sabotaging other sovereign countries’ active efforts to solve their debt issues ,” The Embassy Statement said. “For Zambia’s debt related to China, China has been active in co-chairing Zambia’s Official Creditor’s Committee under the G20 Common Framework and working hard with other parties to seek a sustainable solution in line with the principle of common actions and fair burden-sharing. China’s efforts have made some positive progress. We look forward to U.S.’s constructive role in the process.”

Vice President Harris’ Damascene experience in Zambia – USA change of Approach

When U.S. Vice President Kamala Harris started off from Washington to Zambia, it was reported that she was going to talk about Chinese influence, debt restructuring, democracy and possibly LGBTI rights. However, when she arrived in Zambia, she must have undergone a Damascene experience. This apparent change in approach could be attributed to a number of events few days prior to her arrival.

The first issue that could explain the Vice President’s change of approach could be the Washington Post Op-Ed by President Hakainde on 28th March, 2023. President HH complained to the USA and the West, about the delays in debt restructuring. He cleverly crafted the delayed deal as a threat to democracy.

“There was initial progress to restructure Zambia’s debt and return to the path of stability. Talks have since dragged on. The resulting delays are putting pressure on the local currency, prices are once again creeping up. The International Monetary Fund says the impasse poses a threat to the economy. I would argue it is also a threat to our democracy,” He wrote. “In young democracies like mine, governments must deliver economically, if they are to retain the people’s consent. Without reprieve, many democracies will face existential pressure from the people.”

The second reason could be that prior to her arrival and during her visit, there were Zambian commentators in Op-eds who appealed to the USA to understand the depth of Chinese economic relationship with Zambia. They advised her to avoid straining Zambia’s relationship with China by word or deed. On the basis of all this, the Vice President and her team must have figured out that cooperating with China was the best strategy to help one of the USA’s prime democracy foster children in Africa.

Why China may have changed mind to Cooperate on Debt deal

For those who understand the Chinese culture and their recent geopolitical policy, it was simple to know the prerequisites for Chinese cooperation in Zambia’s debt talks. China wanted respect and recognition from the West, which is commensurate with its financial muscle and influence around the world. They also needed Zambia to realize that unlike in the Heavily Indebted Poor Countries (HIPC) initiative of the 1990s where Zambia benefited in 2000, and the West were calling the shots, the situation had changed. The West on their own, could not deliver Zambia’s debt restructuring deal.

The visit by USA Vice President Harris, and her conduct during the visit, where she did not publicly criticise China for delaying the Zambian deal, unlike Treasury Secretary Yellen, must have been welcomed by the Chinese Authorities. Furthermore, in her press conference, she made it clear that she did not come to Zambia for Chinese bashing.

“Let me make it clear. Our presence here is not about China. It’s about the independent understanding of the intertwined histories of our nations and our mutual commitment to democratic principles, and the recognition of what it means to make smart investments,” She said when asked about Chinese influence in Zambia.

On the other hand, President Hakainde Hichilema’s recent rhetoric has been very positive towards China. He has bent over backwards to allay the critics’ perception that he is pro-west, given that he has travelled to Washington several times, New York, London, Brussels, Edinburgh and not once to Beijing, since he came to power.

“The contextualisation that if USA and Zambia share a lot in common, strong bi-lateral relationship, historical relationship, and then they are doing things against China, is actually wrong. Completely wrong,” He said when addressing a Press Conference with US Vice President Kamal Harris at State house. “I have said before; when I am in Washington, I am not against Beijing. Equally, when I am in Beijing, I am not against Washington.”

Furthermore, in recent weeks, in a supposedly bid to assure and convince China that Zambia is still an “all weather friend”, President HH has consistently invoked the importance of the relationship dating back to the Kenneth Kaunda and Mao days. He did this when he commissioned the Chinese built $2billion, 750+12 Mega Watts at the Kafue Lower Gorge Power station, as well when he awarded Fifty (50) young Zambian innovators, $1,000 for their innovation under an information communication technology innovation fund named after him, supported by the Chinese firm, Huawei Technologies.

The HH administration has also demonstrated that it has continued having business deals with Chinese companies by awarding a Chinese Consortium, Macro Ocean Investment a US$650 million deal to build the dual carriageway road. And recently, Zambia’s state-owned Zesco signed an energy deal with Integrated Clean Energy Power Company Ltd (CiEG) to produce 2,400 Megawatts of renewable energy worth $3.5 billion.

The events of the past four weeks, must have undoubtedly softened the Chinese attitude towards Zambia’s Debt talks. China has achieved its two core foreign policy objectives relating to Zambia’s debt restructuring. There is no excuse for China to continue procrastinating in signing the Official Creditors Committee Non-Binding MOU, because Zambia has demonstrated in a very practical way that it is still China’s close friend.

Competition, Cooperation and not Confrontation

President Hichilema wanted to de-polarize Zambia’s relationship with the two super powers. During the press conference with US Vice President Kamala Harris, President Hichilema said he was committed to working with both the US and China without conditions. He asked the world’s two largest economies to work together for the benefit of the mankind.

“What we expect of America and China, are the leading economies, number one, USA and number two China, is to help us keep our world safe for everybody. Keep peace, stability which would allow us to focus, for example, like us to focus on economic reconstruction agenda,” He said. “Essentially, for now we are expecting the USA, as we have done in our conversations to support us on resolving this debt overhung. Equally, when we meet China, we are asking China to assist us to resolve our debt burden.”

One of the major achievements of Vice President Kamala Harris’s visit which is not apparent, is that she has essentially unlocked the Zambia debt deal, and defined the kind of relationship that Zambia will have with the two superpowers. The meeting of the Chinese Ambassador to Zambia Mr. Du Xiaohui and USA ambassador to Zambia Mr. Michael Gonzales, three days after she had left, is clear evidence of that. And the USA Embassy posted a statement of the two envoys’ meeting.

“Ambassador Gonzales today met with PRC Ambassador to Zambia Mr. Du Xiaohui to discuss collaboration on areas of mutual Interest, such as anti- Corruption measures and strengthening Zambian economy. The United States shares President Hichilema’s vision of seeing Zambia engage positively with all partners committed to collaborating to benefit Zambian people. The U.S. and China both seek to support a strong and vibrant Zambian economy,” the USA Embassy wrote on social media. “Ambassador Gonzales reiterated the imperative of a quick conclusion of debt restructuring negotiations to buoy Zambian economic growth, and he reaffirmed the United States’ commitment to working closely with all bilateral creditors toward a successful conclusion as soon as possible”

There are number of areas that the USA and China can collaborate in Zambia, in spite of their economic competition. The current debt restructuring is one but anti-corruption, climate change and illicit financial flows are the others.

What is the likelihood of a Zambia restructuring Deal soon?

At the moment, there is a generally cautious optimistic outlook about Zambia getting a deal in the coming days or weeks. This is after the two major powers – USA and China – undertook to cooperate on the country’s debt restructuring. And this week’s World Bank and IMF Spring meetings are pivotal to the Zambia’s debt restructuring deal.

The World Bank President David Malpass stated in an article prior to the commencement of meetings on 10th April, 2023, that he will be strongly advocating for the speed resolution of Zambia’s case.

“Resolving the impasse in debt restructurings, especially for the world’s poorest countries, is going to be at the center of discussions. The Spring Meetings will provide an opportunity to achieve progress on individual country cases. On Zambia, I am looking for a good outcome of next week’s Official Creditor Committee meeting. If we could get an agreement on Zambia’s restructuring next week, this would provide great relief and growth impetus for the people of Zambia and would give a clear signal of progress on the G20 Common Framework,” He wrote in an article on 9th April, 2023.

There are three possible scenarios as to what will transpire regarding Zambia’s debt deal at the IMF/ World Bank Spring meetings. The first scenario is that the Chinese delegation could have been authorised by their superiors in Beijing before the left, to sign the outstanding non-binding Memorandum of Understanding (MOU) after some negotiations.

The second scenario is that they will not sign the MOU, but will provide a conditional commitment to signing the deal at later date to placate stakeholders. They will defer signing to a later date, after making further consultations when they get home. The strategy is to ensure Zambia engages them directly at an appropriately senior level in Beijing, like Sri Lanka and Ghana before they sign.

The third and worst case scenario is that the Chinese will continue with their intransigence. They will say that Zambia’s multilateral creditors, including the World Bank and the IMF – where USA is the majority shareholder – should also write down their loans. This stance was reiterated by the Chinese Foreign Affairs Ministry Spokesperson, Wang Wenbin, on Monday 10th April, 2023 in a media briefing.

“We urge the United States to shoulder its responsibilities and make greater efforts to promote the substantive participation of multilateral financial institutions and commercial creditors in addressing African debt issues,” he said.

If the second and third scenarios crystallize, then a physical visit immediately after the spring meeting is an absolute necessity, and should be the deal clincher. The Finance Minister should lead a powerful delegation to Beijing as matter of urgency as that is what China would have been waiting for.

Physical meetings, in their backyard, is how you get important deals consummated with the Chinese. Unfortunately, remote control, Zoom or phone calls or sending junior staff to important deals such as this one, are never taken serious by the Chinese. Seniority matters with the Chinese. The trip should be preferably done quietly without media announcements. Any announcements should be after all is agreed. The recent Saudi Arabia-Iran Deal and the Sri Lanka deals, are examples of how China operates in deal making.

The proposed trip to Beijing is by and large a diplomatic and not a technical one. In July, 2022, all sovereign creditors agreed in principle to cooperate on debt treatment, and made financing assurances to Zambia and the IMF. The trip should also be used as a precursor to a State visit President Hakainde Hichilema in the coming months by for the purpose of recalibration of the two nations’ relations.

Conclusion

The current approach of over reliance on third Parties, who never borrowed the money, to lobby on Zambia’s behalf with the Chinese, in order to clinch the deal, like the Finance Minister disclosed, and seems to suggest in his News Diggers interview, is a wrong approach.

“We have done everything that we negotiated that were are going to do. We did not take into account that these other people who made commitments, they will not honour their side of the commitment. They are now asking questions here and there, and we are pushing hard. The IMF is helping us, the World Bank is helping us, and the Donors are helping us,” Dr. Musokotwane said when asked why government missed the first quarter of 2022 deadline for the debt deal.

Zambia needs to take charge of its restructuring deal in terms of engaging the Chinese, at an appropriately senior level, if the current impasse is to be sorted out soon. What has been playing out in terms of Chinese delaying tactics, was long foreseen by those in the know, whose advice has been ignored by this administration at great cost. One underestimates the Chinese leadership at your own peril. They have quality and smart political leaders at all levels based on meritocracy.

Mwansa Chalwe Snr is a Chartered accountant and Author. He is an independent financial commentator and analyst. He is the author of : https://www.amazon.com/CHINA-WEST-BATTLEGROUND-AFRICA-Geo-Economic Competition/dp/9982913174 Contact:[email protected]