Introduction:
China's commercial activities in Africa, such as investments,
infrastructure projects and bank lending, have long attracted scrutiny and
criticism. Critics have accused Beijing of practicing a new form of economic
colonialism to gain control of the continent's valuable natural resources by
luring unsuspecting African nations into so-called debt traps.
The meme - Chinese ‘debt-trap diplomacy’ - was born in a think tank
in northern India in 2017. This meme quickly spread through the media,
intelligence circles and Western governments.
By debt-trap diplomacy it is claimed
that China intentionally extends excessive credit to another debtor
country with the alleged intention of extracting economic or political
concessions from the debtor country when it becomes unable to honor its debt
obligations. The assumption seems to be that “China’s own economic and
geostrategic interests are maximized when its lending partners are in
distress.”
This paper will examine China's relationship with Africa to
unravel the mystery of the so called debt trap allegation with view to
verifying the authenticity of the allegation leveled against China.
Africa's
Infrastructural Deficit:
Africa suffers from serious infrastructure deficit and needs
serious investment from outside the continent to close the gap and investment
from China is one of the few ways African countries can get financing for the
infrastructure it so desperately needs.
The main types of infrastructure that these loans improve include
roads, railways, dams and ports. Improved infrastructure favors internal trade,
healthcare and education systems. Over four-fifths of China's investments are
spent on infrastructure projects in underdeveloped and developing countries.
According to the World Economic Forum, internal trade is the greatest
opportunity for realizing Africa's economic growth potentials.
China is a world leader in infrastructure development, having
undergone rapid economic growth since its reform and
opening under Deng Xiaoping due to its infrastructure-based
development strategy. Apart from extending credits, China's expertise in
infrastructure development and know-how is part of the reason for the tilt
towards China by many developing economies.
China has financed more than 3,000 strategic infrastructure
projects in Africa and extended tens of billions of dollars in commercial
loans to African governments and state-owned enterprises. China’s export of
excess industrial capacity and its model of special economic zones have
benefited the nascent manufacturing sector on the continent. An in-depth
evaluation of Africa’s economic partnerships with the rest of the world in
trade, investment stock, investment growth, infrastructure financing, and aid
concluded that no other country matches the depth and breadth of Chinese
engagement.
Much Chinese financing to Africa is associated with securing the
continent’s natural resources. Using what is sometimes characterized as the
“Angola Model,” China frequently provides low-interest loans to nations who
rely on commodities, such as oil or mineral resources, as collateral. In these
cases, the recipient nations usually suffer from low credit ratings and have
great difficulty obtaining funding from the international financial market;
China makes financing relatively available—with certain conditions.
Africa has long been exploited for its natural resources by the
West and the relationship has always been that of unequal trading partners.
China on the other hand, are newcomers trying to penetrate markets long
exploited exclusively by Westerners for over two centuries. China has been able
to penetrate the African continent by granting loans under less tenuous terms
compared to the West.
The glaring reality is that Africa sees Chinese loans as more
attractive as China treats same as business loans unlike the West which sees it
as development aid with strings attached which sometimes involves direct
interference in the debtor country's domestic affairs i.e. being forced to
restructure i.e. devalue currency or implementation of austerity measures i.e.
Structural Adjustment Program (SAP) in Nigeria or some other form of structural
adjustment that sometimes lead to social instability in the debtor country.
Problems usually arise when the debtor nation is unable to pay
back its loans in which case China may resort to realising the pledged asset.
The readily cited instance is that of the Sri Lankan port at Hambantota where
failure to service the loan resulted in a 99-year lease for $1.12 billion in
2017 and China’s control of the asset. But what is not told about this story is
the fact that Sri Lanka faced a severe shortage of foreign reserves in light of
upcoming debt servicing payments, due to the maturity of its international
sovereign bonds in early 2019. The money obtained through leasing Hambantota
port was used to strengthen Sri Lanka’s dollar reserves in 2017-18. In fact,
the largest portion of Sri Lanka’s foreign debt was international sovereign
bonds whilst Chinese loans constitute only little over 10% and most of that was
in the form of concessionary loans. In a nutshell, Sri Lanka leased its port to
China in order to settle its debt obligations not owed to China.
Evidence abounds of however of about 84 instances over the last 15
years, of China restructuring/waiving loans without taking possession of
assets, including Ethiopia’s third such restructuring. The argument for
bad-faith Chinese lending also ignores Venezuela—the single largest Chinese
debtor country where there still isn’t Chinese takeover of flagship state
assets.
Dependence or
death-trap?
The reality of Africa’s debt to China is not particularly
remarkable when taken against the aggregate of sources of Africa’s external
debt stock. A few African countries: Angola, DRC, Ethiopia, Kenya and Sudan
account for over half of Chinese lending in Africa so it's not like the entire
continent is under the threat of a take over as some have hysterically alleged.
In fact, the allegation of debt-trap in regards to Africa is
farfetched as the bulk of Africa's debt is not owed to China. There is
now research that concludes that, “Chinese loans are not currently a
major contributor to debt distress in Africa”. A SAIS-CARI report
from August 2018 found that "Chinese loans are not currently a major
contributor to debt distress in Africa.
In the 2015 and 2017 records of World Bank, Africa owes large sums
of debt not only to China but also from other lenders with the debts owed to
China constituting just 20% o the total debt stock. Africa's debts from
multilateral lenders amount to 35%, 32% from private lenders, and around 13%
from various other governments.
Higher interest rates of about 55% from the private sectors
prompted Africa to go to China for loans, which is around only 17%. Also, the
debts owed of the African countries from China are allocated for investments on
sectors needing critical development and growth and not just for consumption.
China in exchange just demands payment in the form of jobs, and natural
resources. In economic theory and practice, any country can borrow from another
country to finance its economic development. However, it is not always easy to
find someone who will lend money even for logical reasons. The global competition
on which country is best to invest money in is in fact, a country's sign of
financial strength, which is why Africa does not consider the relationship with
China as a debt-trap.
Between 2008 and 2018, Chinese FDI in Africa rose from $7.8
billion to $46 billion, according to official data. China could have expanded
its trade with Africa and maintained its access to raw materials without
committing nearly $200 billion in bilateral loans and FDI but it did anyway and
Africa is grateful for this much needed investment.
China's role in Africa's infrastructural development is not lost
on Africa as the instances below will buttress.
China is financing the new capital of Egypt, New Cairo.
In an interview, Gen. Ahmed Zaki Abdeen, who heads the Egyptian
state-owned company overseeing the new capital, criticized American reluctance
to invest in Egypt, saying: “Stop talking to us about human rights,” he
says. “Come and do business with us. The Chinese are coming — they are seeking
win-win situations. Welcome to the Chinese.
Also, in response to the negative responses from other Western
powers, at the Forum on China-Africa Cooperation (FOCAC) in September 2018,
there was overwhelming African political support of the continued relationship
with China. South Africa's Cyril Ramaphosa stated that “In the values that it
promotes, in the manner that it operates and in the impact that it has on
African countries, FOCAC refutes the view that a new colonialism is taking hold
in Africa, as our detractors would have us believe.” Kenya's president
Uhuru Kenyatta spoke on his appreciation for the Chinese support in the
infrastructure development and Botswana's president Mokgweetsi Masisi
exclaimed, “To China, her president and citizens, we admire and hold you in
very high regard”.
Western fear
of China's rise:
Every few years in the West – in the media and in political
circles – there is a moral panic about the rise of China. Africa often plays a
central role in this: as a supposedly predatory China is counterposed against
representations of hapless and powerless African victims. This is primarily the
reason why China is now routinely accused of “debt-trap diplomacy,” (paywall)
or intentionally “miring supposed partners, particularly developing countries,
in unsustainable debt-based relations.”
Trade between African countries and China has also affected ties
between African countries and other continents, especially Europe and North
America. The West wants to counter balance the influence of China in Africa and
a lot of propaganda has been deployed to achieve this by painting China as a
predator preying on a hapless people.
Human emotions, including negativity bias, prime us to think in
certain ways and Africans have been primed by Western propaganda to see the
Chinese as predators rather than as development partners.
The language of “debt-trap diplomacy” resonates more in Western
countries, especially the United States, and is rooted in anxiety about China’s
rise as a global power rather than in the reality of genuine concern for Africa
or other developing economies. As Evan Feigenbaum of the Paulson Institute
think tank writes, treasury secretary Steven Mnuchin has counseled countries
against taking Chinese money, warning it will lead countries into a
debilitating cycle of debt, and asset-stripping. The US Department of Defense
accuses the Chinese of predatory economic practices.
Infact, former National Security Advisor, John Bolton, claimed in
a statement to unveil the new U.S. strategy for Africa that China is poised to
take over Zambia's national power utility due to the government's failure to
settle outstanding debts. The Zambian government however refuted this and
officially requested the U.S. government to retract the
"misinformation" in John Bolton's statement over China-takeover-assets
allegations insisting that Zambia has not offered any of its assets as
bilateral or multilateral loans and that there were no state enterprises at
risk of being repossessed.
Conclusion:
The relationship between China and Africa is strictly business.
China offers loans and African countries themselves then decide what they offer
as collateral. So if your government decides to give up a port or farmland to
get a bigger loan, and then fail to pay back the money, don’t blame the lender.
African countries enter these agreements by their own volition. To
suggest that China is colonising Africa is to suggest that Africans are too
stupid to know what they are signing, that they don’t understand business.
Africans are not stupid. There is simply a lot of corruption in Africa. That is
the problem not that they are utterly stupid.
The accusations that China is colonising Africa is not correct.
The simple fact is that China is setting up trade infrastructure in Africa by
investing in Africa. China's thinking seems to be to improve the purchasing
power of Africa for the benefit of China's industrial output. This ought to be
a win-win situation if well taken advantage of by Africa.
In a nutshell, there is really no debt-trap per se rather what we
have is more of a dependency. Africa is highly dependent on China for its
finance which in itself forebodes trouble. As many experts see it, the
dependency of the developing countries like Africa to China in exchange of
opportunistic loan offers is a sure way to deny the people of its sovereignty
and self-sustaining growth in the longer-term scope. So Africa needs to wean
itself of over dependence on Chinese loans while implementing policies to
stimulate their internal economies.
