Africa as a pawn in China’s ‘debt-trap diplomacy’

Two weeks ago, I was invited by the China Development Society at the London School of Economics to speak at their “Bridging Mind Symposium”, entitled: “The true story behind Africa-China Relations”. I was in good company, with Professor Chris Hughes from LSE’s International Relations Department and Professor Machiko Nissanke from the School of Oriental and African Studies (SOAS) also speaking at the symposium.

Few relationships between countries have provoked intense debate and controversy as the one between China and Africa. Western countries, particularly the US, fret that China is aggressively active in Africa, spreading its influence across the continent. Commentators have also raised concerns about creeping neo-colonialism, accusing China of capturing Africa’s natural resources and luring the continent into debt in a largely one-sided relationship in which it is the rule giver, and Africa the rule taker!

Well, the starting point is to recognise the uniqueness of the China-Africa relations. It’s relatively new yet has eclipsed other relationships before it. As Professor Hughes pointed out, China’s active engagement in Africa started in the early 1990s, with the launch in 1996 of its “Going Out” strategy, under which it made Africa a primary target of the externalisation of its interests. A key driver was Africa’s rich natural resources, which China badly needed to boost its economic growth. Furthermore, China needed Africa’s large market for its manufactured goods. This became more imperative with the problem of overcapacity, following China’s massive stimulus after the 2008 global financial crisis. With the crisis leading to shrinking demand for Chinese products in the West, Africa became a strong target for Chinese exports. Of recent, the launch of China’s Belt and Road Initiative, under which it plans to finance and build infrastructure in more than 130 countries, has added greater impetus to China’s engagement in Africa.

But economic interests apart, there is also an ideological driver, as China aimed to spread its development model, sometimes called the China Model or the Beijing Consensus, across Africa. The China Model says that a country can combine political authoritarianism and economic capitalism; that economic development and political stability can trump sound democratic system and the rule of law. China needed the popularity of the model to validate the viability of its system and saw Africa as a fertile ground. Indeed, many African countries have embraced the China Model. For example, Rwanda combines economic capitalism and political authoritarianism, and Nigeria favours state capitalism and derogation from the rule of law; after all, President Buhari famously said that national interest supersedes the rule of law, a key principle of the China Model!

Of course, Africa needs China too! First, African governments see China as a counterbalance to the “hectoring” West. They resent the West’s “Washington Consensus”,which pusheseconomic and financial liberalisation as essential policy instruments, and prefers the alternative “Beijing Consensus”, which favours government intervention, state capitalism and slow, limited reforms!Secondly, Africa is in dire need of infrastructure investment; its infrastructure funding needs are estimated at over $1.2 trillion between 2017 and 2025. Enter China, which has long made funding and building infrastructure in Africa a strategic goal. Thus, the Yen magnet, China’s money and its willingness to spend it, is a major pull factor for Africa. Finally, China’s policy of non-interference in domestic political and social issues, such as human rights, democracy and the rule of law, suits African governments better than the West’s lecturing on these issues.

The result of the convergence of interests between China and Africa is the astronomical increase in economic activities between them. For instance, China overtook the US as Africa’s largest trading partner in 2009. Total China-Africa trade was worth $170bn in 2016. According to the African Union, 13% of extra-Africa exports went to China, compared with 6% each for the US and Germany, and 17% of extra-Africa imports came from China, compared with 7% from the US. China’s FDI inflows into Africa in 2017 were double those from either the US or the UK, with Chinese investment in Africa reaching $2.4 billion in 2016. From 2000 to 2016, China lent about $125 billion to Africa. China is massively funding infrastructure projects across Africa, from railway in Kenya and hydropower station in Ghana to rail lines, roads, bridges, airport terminals, etc in Nigeria.

What, then, are the problems? Why is China’s engagement in Africa controversial? Well, it’s all about the China Model which, truth be told, makes no one, except China, happy. For instance, China’s commercial practices are at the heart of its trade war with the US. When President Trump and President Xi Jinping met recently to agree a truce, China reportedly made some concessions, which included agreeing to begin immediate negotiation on “structural changes” with respect to forced technology transfer, abuse of intellectual property rights, tariff and non-tariff barriers, cyber intrusions and cyber theft. Even China sympathisers, such as Lawrence Summers, former US Treasury Secretary, observed in his Financial Times column that China’s commercial practices “fail to meet international norms” and that China “is a threat to the existing international order”, with “a combination of increased domestic repressions, the concentration of power in one man, rapidly increased military spending and rhetoric about enlarging China’s role in the world”.

But when it comes to Africa, the issues are more about China’s dominance and power politics. Take infrastructure funding. The opacity of the financing terms and questions about the viability of the infrastructure projects are major concerns across Africa. Chinese loans are usually backed by African natural resources, such as a loan to Ghana to be paid back in refined bauxite. China’s offer to build the Mambilla hydro power plant in Nigeria at the estimated costs of $5.72 billion with Nigeria making no initial monetary commitment raised similar concerns about the real nature of such deals. Then, there is the fact that Chinese infrastructure aid in Africa is usually tied to service contracts, with over 70% of such contracts going to Chinese companies. As one Ghanaian put it, “Most Chinese projects in Africa are Chinese-built with Chinese labour and materials”. So, the prospects of technology transfer and job creation are limited. Even when Africans are employed, they are paid extremely low wages, verbally and physically abused and treated as inferiors, according to a research by Sara Hsu.

Now, when it comes to trade, virtually all of China’s imports from Africa are commodities, while over 80% of its exports to Africa are manufactured goods. Africa had a trade deficit of $34 billion with China in 2015, which was equivalent of the continent’s trade deficit with the rest of the world. Concerns about China’s dumping of subsidised and sub-standard products on African markets are widespread. Given that only about 13% of Chinese investment into Africa goes into manufacturing, some have also questioned why China, with overcapacity at home, is not involved in manufacturing in Africa to help create jobs, develop skills and increase Africa’s manufactured exports. Some African leaders, such as Kenyan President Uhuru Kenyatta, calling for a more balanced relationship, have said that China should manufacture goods in Africa and not just build infrastructure!

But the biggest issue is China’s role in fuelling Africa’s rising debt. Firstly, there is concern about the funding of unviable, inefficient projects, which prompted the Chinese president to say recently that China would be more targeted in funding projects. Then, there is the problem of absorptive and debt-servicing capacity and the attitude of China to debt restructuring. Take the case of Sri Lanka. The country built a port with $1.3bn Chinese loan but couldn’t meet up with repayments. It was forced to hand over the port, with 15,000 acres of adjacent land, to China on a 99-year lease. This provoked the new Malaysian prime minister, Mahathir Mohamad, to cancel three China-backed projects worth about $23bn.

As noted above, China lent about $125 billion to Africa from 2000 to 2016. Nigeria is one of the African countries heavily indebted to China, recently seeking an additional $6bn Chinese loan. Nigeria is, of course, also borrowing heavily from the international capital market, raising $10.2bn between February 2017 and November 2018. Professor Nissanke pointed out that the private sector (banks and the bond market) accounts for 32% of Africa’s $417bn external debt, while China accounts for 24%, suggesting that China is not the main cause of Africa’s rising debt. But one single country accounting for 24% of Africa’s external debt is hugely significant. That was before adding the $60bn pledged by President Xiat this year’s Forum on China-Africa Cooperation (FOCAC) and the massive infrastructure investment drive behind the Belt and Road Initiative, about which many African governments are enthusiastic and willing to indulge in a borrowing spree to finance their huge budget deficits and their dream infrastructure projects.

To be sustainable, infrastructure building should involve significant private sector investment. But in Africa it is almost entirely state-funded, following the China Model. Africa and China are, of course, kindred spirits, sharing the same views on many issues, including the failure to reform and a lax attitude to debt and borrowing. It’s not surprising that China sees Africa as a centrepiece of its Going Out strategy and its Belt and Road Initiative.This will, of course, drag Africa into deeper debt. But, then, it is a willing pawn in China’s debt-trap diplomacy!

Olu Fasan