Lower export prices for commodity-driven African economies have seen them struggling to repay loans, casting doubt on the absorption rate of the new tranche of loans announced last week by China, creating a financial dependency between China and individual African countries.

China's President Xi Jinping announced a $60 billion funding package for African countries during the recently held Forum on China-Africa Co-operation (FOCAC), at a time a number of countries are still having trouble absorbing the Chinese loans on offer from the last summit.

READ: China pledges $60 billion in development support for Africa

In July 2012, African leaders trooped to Beijing for the fifth Forum on China-Africa Cooperation, where China promised more than $20 billion in loans and grants. Then, the ministerial committee released two documents, the Beijing Declaration and Beijing Action Plan (2013-2015).

Despite the rise in the funding package, the trade between Africa and China slumped 18 per cent in the first nine months of 2015, the largest decline in China’s trade with the world’s continents.

Zhong Jianhua, China’s special representative on African affairs, said that China’s economic support to Africa is important despite the slowdown in its own economies.

“We are at a stage where we need to support African growth and dreams. This is why we are offering this funding assistance to these economies,” Mr Jianhua explained.

At the 2006 event, Beijing announced $5 billion worth of financing, which was doubled to $10 billion at the 2009 summit. In 2012, the funding was increased to $20 billion and is now 12 times more, just a decade since the start of the forum.

But despite the rise in the funding package, the economic climate of the continent has changed over the past decade.

The Chinese economic slowdown has changed sub-Saharan economic fortunes. The declining prices for commodities like oil and copper have seen countries like Angola, Mozambique and Zambia struggle to repay their loans.

President Xi Jinping promised to cancel the overdue portion of interest-free loans provided to low income African countries.

“We will cancel outstanding debts for Africa’s least developed countries in the form of zero interest loans that mature at the end of this year. We will also set up a new China-Africa Industrial Co-operation Fund with $10 billion,” Jinping said.

However, the cancellation will only apply to a special category of zero-interest foreign aid loans that countries are unable to pay. The headache of repayments on these loans still lingers on most countries.

Loan repayments

President Xi said that China will provide $5 billion of grants in zero interest loans and $35 billion in preferential facilities, export credit and concessional loans.

Currently, Africa owes China more than $30 billion in loan repayments, with South Africa, Angola and Nigeria among the countries with the highest debts to Beijing. In the East African region, Kenya leads with more than $1.3 billion borrowed from China since 2008.

For countries like Zimbabwe and Zambia, the aid rebates will come as a relief because these countries have been struggling to repay their loans.

In July, Zimbabwe Vice President Emmerson Mnangagwa was in Beijing in a bid to strike a deal for more aid but China was adamant on a repayment plan for loans worth $1.5 billion Harare had received from the Asian economic giant over the past few years.

But on his stopover in Harare, President Xi Jinping also did not provide the financial bailout the country wanted, instead choosing to give an energy sector-related loan. Zimbabwe has been unable to pay more than $470 million in loans advanced top it from 2012.

Zambia, on the other hand has received more than $410 million in loans in the past three years, but its commodity slump is making it difficult to repay them, with Finance Minister Alexander Chikwanda saying that part of the discussions they had in South Africa with China were on how to renegotiate the repayments.

“We sought to renegotiate repayment of existing debts to China since our economy has been hit by lower commodity prices,” Mr Chikwanda said.

The Chinese economic slowdown has exerted pressure on several African economies resulting in a mismatch between inflows and outflows, sending their fiscal deficits high as they seek to borrow to bridge the shortfall.

Martyn Davies, managing director for Emerging Markets and Africa at Deloitte, said that most African countries agenda at the summit was their growing debt to China and how Beijing’s domestic stimulus could re-ignite commodity demand to help pay off the loans.

“We have often seen Chinese loans linked to commodity arrangements. Most African countries, therefore approached the summit through bilateral talks to have these loans restructured or even loan moratoriums,” Mr Davies said.

Despite the gloom, some of the key benefits from the summit was that China will expand the renminbi settlement and currency swop operations with African countries.

Two weeks ago, the International Monetary Fund announced the inclusion of the Chinese currency in its global currency basket. The approval shows the Yuan’s importance as a global currency, and will be a game changer for Africa, whose trading volumes with China are predicted to reach $385 billion by end of this year.

Dr Robert Mudida, an economist and lecturer at Strathmore Business School said Africa was going to be one of the greatest beneficiaries of this move by the IMF due to the loans it has with China for its multibillion dollar infrastructure projects.

“We are going to see a lot of Yuan-denominated loans being negotiated. This means that the current exchange losses these countries suffer when changing to dollars and making payments in dollars will be eliminated,” Dr Mudida said.