IMANI Cautions Govt Over $3billion Chinese Loan

Bright Simmons of IMANI Ghana

IMANI-Ghana has cautioned the government against its over-reliance on the $3 billion Chinese facility to prosecute its 2012 economic programme, especially in the infrastructure area.

It said it was highly doubtful that in the short term “the Government of Ghana shall be able to satisfy the strict credit requirements of the China Development Bank (CDB) in order to secure the entire $3 billion mentioned in the government’s framework agreement with the state-owned Chinese bank”.

“We suspect that the maximum facility available to Ghana shall not exceed $1 billion over the time frame of 2012–2013. And even this $1 billion shall not come on a silver platter.

“In keeping with this opinion, which we shall back with analysis in this report, we are worried that the government’s over-reliance on this facility to prosecute its 2012 economic programme, especially in the infrastructure area, could lead to dislocations in the economy and frustrations on the part of its managers,” the IMANI Report on the $3 billion loan said.

It said in his New Year address, President Mills left all of us in no doubt about how central the $3 billion facility had become to the government’s overall economic agenda.

The report said it was important to stress that the said $3 billion loan facility had not been approved by the authority that mattered, the board of the CDB.

“What has been ‘approved’ is a ‘master framework agreement (MFA)’, suggesting in very loose language that the CDB is interested in discussing whether and how it may be viable to invest $3 billion in Ghana’s oil and gas infrastructure,” it noted.

It said the agreement was nothing more than a non-binding memorandum of understanding to set the stage for discussions, adding that the first serious product of those discussions was the subsidiary agreement now before Parliament.

That agreement, it said, had not been made public, but it followed that Parliament would seek to scrutinise it carefully with a view to aligning all its key provisions with the national interest.

“We have no doubt in our mind that Parliament shall not be rushed into rubber-stamping any vague, poorly drafted language in the agreement. After the approval by Parliament of the supplementary agreement, which concerns a reported $1 billion for the development of gas infrastructure in the Western Region, the board of the CDB shall finalise a disbursement schedule and a

milestone management process with the Ministry of Finance. All this shall take at least a few months,” it said.

The report said a notion was taking hold in Africa that Chinese money was “easy” money, pointing out that a misconception had grown regarding the rigour of credit evaluation by Chinese financial institutions of opportunities in Africa and that was leading to confusion and disappointment in many African countries when pledged moneys ultimately delayed by several years.

It said a good case in point was the $2.6 billion pledged by the China Union to Liberia for the development of the Bong iron deposits.

“Nearly three years on and two amendments later, the Chinese partners are still scrutinising the terms of the deal, with very little actual cash having been seen in Liberia,” it added.

“Let us bear in mind that Chinese financial institutions are adopting global standards of credit and risk evaluation and have, therefore, increasingly little propensity to pump money into half-baked or unready projects. Increasingly, their expectations of quality and rigour, and in particular profitability, are as high and as tough to meet as those of any financial institution anywhere on the globe,” the report said.

It said in seeking to understand the likely pace of disbursement of the $1 billion currently under serious discussion, and to assess the chances of any more money coming in from the loosely worded $3 billion non-committed ‘pledge’, there was the need to understand the CDB’s own lending history and technique.

“The CDB is reputed to be China’s fourth largest bank. Its board reports directly to China’s State Council, that country’s equivalent of our ‘cabinet’.

“It concentrates overwhelmingly on domestic opportunities in China, spending huge amounts of money in China’s back waters, away from the gleaming South-East, in search of profits within the context of the Chinese government’s determined push to develop the poorer western hinterlands and rural backyards of that country,” it said.

Of its more than $800 billion loan portfolio, the report said, only about 17.5 per cent was designated in foreign currency, suggesting a roughly equivalent proportion of foreign loans.

It indicated that the CDB’s foreign currency-denominated loans were provided to foreign borrowers in the context of the bank’s ‘go global’ strategy, a policy that blended China’s foreign policy interests with a risk diversification focus.

In the last few years, it said, the CDB’s go-global strategy had seen an overwhelming amount of its foreign loans go into what had become known as “energy-backed loans”.

Those loans achieved the combined effect of helping China secure reliable energy supplies and securing lucrative revenue streams for the CDB in new markets at the same time, it stated.

“Consider that over the past decade the bank’s foreign loan portfolio has grown more than 10-fold, and that more than half of that has been accumulated just over the last four years by way of energy-backed loans to a handful of oil-rich countries. But what are ‘energy-backed’ loans?” it questioned.

The CDB had been providing multi-billion dollar facilities for energy-rich countries such as Venezuela, Brazil, Ecuador, among others, for medium-risk oil and gas–related infrastructure for a while now, it said.

The report said those loans required the receiving countries, through their governments and state-owned oil and gas companies, to pay the principals and interests on those loans using proceeds from the sale of oil directly to preferred Chinese companies, especially the China National Petroleum Corporation (CNPC) and Sinopec.