Foreign Loan for African Manufacturing -Boon or Debt Trap?

African manufacturing has long been seen as the key to unlocking sustained economic growth and industrial diversification on the continent. With the global economy shifting and investors seeking emerging markets with untapped potential, foreign direct investment (FDI) and foreign loan investment have increasingly flowed into Africa’s manufacturing sector. However, while these inflows offer the promise of technology transfer, job creation, and infrastructure upgrades, they also raise concerns about long-term dependency and the risk of debt traps, write Editor Gentechnews, Tony Nwakaegho.

China’s footprint in Africa’s manufacturing sector is undeniable, but Africa’s relationship with China is as complex as it is consequential in terms of investment.

According to PAMA news bulletin April 2025 Edition, over the past two decades, Chinese investment has reshaped Africa’s manufacturing landscape, building industrial parks, funding factories, and promising jobs for millions, noting that this partnership is fraught with contradictions: “while Chinese capital has revived stalled industries, it has also deepened debt burdens and sparked fears of economic recolonization. Today, China funds 25% of Africa’s industrial parks and holds $140 billion in African debt (China-Africa Research Initiative, 2023; World Bank, 2023).”

Interestingly, PAMA highlighted that these investments have delivered tangible benefits such as job creation where Chinese-owned factories employ over 300,000 Africans, notably in ceramics, textiles, and construction materials (Johns Hopkins SAIS, 2023), as well as in the area of technology transfer with Partnerships like Haier’s refrigerator plant in South Africa that have introduced advanced manufacturing techniques.

PAMA stated “Africa has also benefited in the area of infrastructure development in the form of Loans that often fund roads, ports, and power plants linked to industrial hubs. For countries like Ethiopia and Zambia, the Chinese capital has been a lifeline. Ethiopia’s Hawassa Industrial Park, built with $250 million from China’s Exim Bank, employed 60,000 workers, accounting for 20% of the country’s export revenue (Ethiopian Investment Commission, 2023).”

Despite the benefits that come from such investments, critics warn that China’s largesse comes with strings attached.

“For instance, the stalled Bagamoyo Special Economic Zone (SEZ) in Tanzania epitomizes the risks associated with such mega-projects. Launched in 2013 as a billion-dollar venture with ambitious plans to become Africa’s largest Special Economic Zone, including a port, railways, and 700 factories, of which China’s Merchants Holdings pledged $10 billion while Tanzania provided land and tax breaks.

“However, by 2020 the project stalled when Tanzania balked at China’s demand for a 99-year lease, with President Samia Suluhu Hassan labeling the terms “exploitative” amid broader distrust of opaque loan conditions (Reuters, 2023).

“Consequently, Tanzania now owes China $1.9 billion, with debt repayments set to consume 12% of its 2024 budget(IMF, 2023).

“Similar concerns persist in Zambia, which defaulted on $3 billion in Chinese loans tied to mining assets, and in Kenya, where the Chinese-built Standard Gauge Railway has drained $5 billion in public funds with minimal returns.

“Also, A $622 million Chinese loan built the dam, but Ghana now diverts 30% of electricity revenues to repay debt, straining its grid (Africa Energy Portal, 2023).”

Another example cited is Zambia’s default on $3 billion in Chinese loans tied to copper mines, while Angola allocates 30% of its oil exports to debt repayments, underscoring the enormous financial pressures these countries face (IMF, 2023).

“Similarly, in August 2024, Nigeria accused Zhongshan Fucheng Industrial Investment Co. Ltd. of attempting to seize government assets overseas including presidential jets under maintenance in France despite having no contractual obligations; the dispute stems from a 2007 free trade zone contract with Ogun State that was terminated in 2015, after which Zhongshan merely erected a perimeter fence on the site, and although the company has secured over $60 million in arbitration awards in courts in the UK, US, and France, Nigeria has refused to pay and is now working with Ogun State to protect its assets from seizure,” it added.

Chinese investment in African manufacturing, PAMA noted, could be a double-edged sword that could offer short-term relief for cash-strapped economies, but the long-term costs of asset seizures, resource depletion, and eroded sovereignty demand urgent caution.

PAMA, however, cautioned that African leaders must approach deals with eyes wide open, ensuring that foreign loans are used to build factories that would contribute to Africa’s industrial growth and output, not liabilities and infrastructures that will empower citizens, not foreign creditors.

It emphasized that Africa must emulate Ethiopia’s pragmatic joint ventures and Tanzania’s bold renegotiations, not Nigeria’s concessions, adding that the continent’s factories, ports, and minerals are not collateral for loans but foundations for self-reliance.

As the African proverb goes: “When the drumbeat changes, the dance must adapt.”

“As Ethiopia’s industrial zones and Tanzania’s defiant stance show, the continent holds the power to demand fairness. The future of African manufacturing must be written by Africans, with partners who respect their sovereignty as much as their resources,” PAMA warned.