Africa’s debt dances with China in the creation of the Belt Road Initiative

After all, many advanced countries have yet to fully grasp both the imperative of help African countries to develop through such investments and that substantial risk-adjusted returns can be achieved by helping the continent close its long-standing “infrastructure gap”.

How the funding works

However, that China’s funding for its BRI projects across Africa (as in other emerging markets where the program is ongoing), is mainly made up of loans to governments which are both very large and conditioned by the signatories’ commitments not to fully disclose their conditions, is a source of deep concern. Headlines in recent months on Zambia’s struggle to repay its debt burden to China only shed light on the most recent case.

Whether you applaud or criticize China’s BIS in Africa or elsewhere, especially its impacts on the debt burden of recipient countries, it is essential to assess the motivations and conduct of both sides of these countries. sovereign to sovereign financial transactions: the lender, Beijing, and the borrowing government. This would expose the questionable public policy judgments of the leaders of the African continent who choose to sign to carry such a debt. As the old saying goes: “it takes two to tango.”

Indeed, in many African states (as in other emerging markets) there are large gaps in public governance – a disjunction between the incentives of governing elites and those of society at large. These pre-existing conditions must be taken into account in assessing the roots, effects and potential solutions of the BIS emerging debt crisis in Africa.

We should not be under any illusion that BRI projects in Africa are completely altruistic. To some extent, this feature is reminiscent of previous initiatives by other countries to foster the economic development of nations – albeit largely outside emerging markets – whose economies have been ravaged by war. Think about American Marshall Plan.

Who has more to gain?

There are key elements of the BIS that clearly stand out as having only the most rudimentary cover-ups for Beijing’s pursuit of unspoken (but not hard to guess) motives, including those that benefit China more than they do. to beneficiary countries.

The BRI is China’s vehicle through which it exports excess capacity of, and workers employed by State-owned Communist Party (SOE) enterprises, to whom the Party stands firm for life. It is also what allows Beijing to access raw materials abroad to fuel the Chinese economy.

At the same time, Chinese leader Xi Jinping has been obtuse on the implementation of the BIS, exposing the program’s glaring contradictions. The most important of these is the simultaneous deployment of projects in many countries. This is in contradiction with how China has embarked on its economic reforms since 1978: gradually, in collaboration and through experimentation. These are the key ingredients that Beijing has used over the decades to encourage its own people to believe in and support reforms. Indeed, Xi’s political ambitions for the BRIs lack “Chinese characteristics”.

The evidence from Xi’s tin ear on this is arguably the most obvious in Africa. At last count, BRI programs exist in 36 (or two-thirds of) African states. This shows that through the BRI, China is focusing on the laser to try to shape Africa’s economic development in its own image.

What do Africans think?

Many Africans I have interacted with on the continent over the past two decades appreciate China’s willingness to invest there. But the the real motives of the BIS are now in question by a large part of them. They do not accept the idea that the initiative is simply a vehicle for the exercise of “soft power” by Beijing.

A growing fringe of Africans deeply regret that decisions regarding the selection and design of projects, the configuration of workers employed and the terms of financing of Chinese projects only respond to the interests of the continent’s political elite. . They thus see correctly the BRI exacerbates deep pre-existing national social and political stratification on the continent.

It is the debt financing terms between African governments and the Chinese government that are seen as particularly egregious. Currently, the African countries with the largest Chinese debt are Angola ($ 25 billion), Ethiopia ($ 13.5 billion), Zambia ($ 7.4 billion) ), the Republic of Congo ($ 7.3 billion) and Sudan ($ 6.4 billion).

The negative effects of China’s economic presence

It is bad enough that Chinese lending entities, which are owned by the government, do not disclose the terms of their loans to African countries. It’s even worse than African government leaders also agree with this. After all, the terms of loans to African countries by the IMF, the World Bank and the African Development Bank – all of which are also non-commercial institutions – are regularly made public.

I mention this because many authors mistakenly refer to the Chinese entities that make these loans to African governments and other emerging markets – the strategic Beijing banks, the Development Bank of China, and the Export and Import Bank – like “private” creditors. These entities are about as far removed as possible from global private commercial banks. They should probably be considered “official” creditors.

Worse yet is when China’s presence allows – even seemingly energized – local elites in Africa to move away from the rule of law and reverse pre-existing contracts with established foreign investors for the benefit of Beijing. .

This not only leads to massive and costly investment conflicts, but also has a lasting effect on the reputation and investment climate in the country to attract capital investment from other countries.

Djibouti is the poster child here.

He has flouted the rules of international arbitration for a settlement of investment disputes by unilaterally repealing the 30-year port concession agreement for the Doraleh container terminal that it signed in 2006 with DP World (DPW) of the United Arab Emirates and ceded the control from DPW to China Merchants.

After losing several cases in the matter, including before a tribunal composed of members chosen jointly by the parties under the auspices of the Court of International Arbitration in London, Djibouti is now taking the case to a local tribunal, arguing that domestic law the stipulations of the concession concerning international arbitration are illegal in Djibouti.

At the end of the line

Around the world, the government officials who are most revered by their populations, who are tremendously successful in initiating reforms that boost their countries’ economic growth and leave in their wake an enviable legacy as great government leaders, are those who are always on the lookout for opportunities to instill confidence by adopting transparent conduct. Any African official would therefore do well to tell official Chinese lenders that it is on this basis that they will do business with them under the BRI.

To be clear, I am not naive to think that it will be one of the few leaders of an African country – or of many emerging markets – who will be ready to do so. Many European or American businessmen are also naive or too timid not to oppose the unreasonable trade terms imposed or the supra-competitive prices charged (sometimes in the form of a demand for bribes) by foreign governments, Chinese or others.

Always, the dirty little secret of the BIS is that Beijing is much more desperate to be successful than are the potential beneficiaries. African government leaders – as well as the broader stakeholder group in each country – therefore, rather than behaving like supplicants, should not hesitate to voice their concerns and seriously negotiate with the Chinese on the terms and conditions and the objectives of the BIS.

Who knows, maybe the BIS can help them move forward with their goals and dreams of economic development.

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