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What Happened to China Development Bank's $3bn Loan to Ghana?

Friday, March 4, 2016 13:05

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The Chinese-financed gas power plant (credit: Obrempong Yaw Ampofo)

The China Africa Research Initiative (CARI) just published a new policy brief by Thomas Chen analyzing the rise and fall of China Development Bank’s large $3bn oil-secured loan facility in Ghana. Chen’s brief traces the arc of this CDB loan facility, and the trouble it faced when the downturn in commodity prices, combined with a splurge in spending during an election year, made the Ghanaian authorities reconsider their warm embrace of the facility.

This is a hugely helpful contribution to a fascinating case. Ghana’s vibrant press has several times slammed the Chinese agreement: “Ghana Duped!” “Is China Defrauding Ghana?” What went on here? Read Chen’s brief to find out.

One of the interesting and important technicalities that the Ghana case reinforces is this: a Framework Agreement is different from a Master Facility Agreement.

A Framework Agreement simply sets out the agreed terms under which loans (or a loan facility) will be extended and repaid. In the case of Angola’s credit lines with China Eximbank, as a Japanese study noted:

26 November 2003: A “Framework Agreement” is signed between China’s Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the Angolan Ministry of Finance. This is the legal basis for the whole credit contracting process between the two states that was to follow in the period ahead. Very importantly, it was determined that the credit line could extend up to US$10 billion, until the end of the reconstruction period.

Importantly, a Framework Agreement is signed prior to any loan being committed. Ghana signed a Framework Agreement in September 2010 but this did not itself create any debt obligations. However, as Ghana found, the Master Facility Agreement signed in December 2011 did create a debt. Moreover Ghana needed to begin paying interest and substantial fees within weeks of the Facility being signed.

Although Ghana’s Ministry of Finance and Economic Planning was exceptionally transparent about the details of these agreements, few in Ghana seemed to have read the details published on MOFEP’s website. Had they done so, they would not have been so “shocked, shocked” to learn that their government had signed a fairly normal commercial loan agreement.

I’d be interested in views from our Ghanian readers. What did you think about this loan facility?

Source: http://www.chinaafricarealstory.com/2016/03/what-happened-to-china-development.html

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