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Africa, China, and the Debt Trap Dilemma

By Emraan Ansari

 

As China emerged from its economic isolationism in the early 1990’s, Beijing targeted Africa as a key figure in its quest for economic dominance. Recently, Chinese investment in Africa has soared, with critics accusing Beijing of setting “debt traps” for sub-Saharan countries. China has approved billions of dollars in loans to sub-Saharan Africa, with repayment structures that threaten the stability of African economies. Sub-Saharan nations often have little choice but to accept the loans offered by China, even if it means jeopardizing their future.

Beijing identified nations south of the Sahara as being ideal for heavy Chinese investment due to their dire need of modern infrastructure, and lack of available financing. At the time, many African nations were partnered with Western countries, but these relationships were primarily exploitative, where natural resources were being removed from the African continent without appropriate reciprocation. Beijing stepped in at a time that many African nations felt as if they were being exploited, and China’s eagerness to build economic relationships helped open the door for collaboration between itself and Africa. To help build the rapport, China offered African nations massive loans to finance infrastructure projects. President Xi Jinping promised an investment of over $60 billion in Africa last September. This came on the heels of a 2013 pledge, in which Beijing also allocated $60 billion. While many of the loans handed out by China had low interest rates, there were strings attached that made accepting the money potentially problematic.

The most notable clause China insisted on during the loan negotiations was using state assets such as ports, mines, and refineries as collateral in the case of a default. Beijing has also dictated that African governments, not private firms, act as guarantors for the loans. This has become standard practice for China, who have also employed these tactics in their dealings with Asian nations. In the case of Sri Lanka, when a Chinese-funded port became insolvent, the Sri Lankan government was forced to turn it over to a company belonging to the Chinese state. This gave China a foothold in the Indian Ocean as it looked to increase its presence in the region. Observers warn that China is using a similar strategy in Africa, pointing specifically to the Mombasa Port in Kenya. Reports surfaced that the port, one of East Africa’s biggest and busiest, was used as collateral for a $3.2 billion loan given to Kenya to finance a railway project between Nairobi and Mombasa. If China were to take control of the port in similar circumstances to the one in Sri Lanka, it would give the Chinese Navy access to another strategically vital region. Experts have likened China’s approach to a neo-colonial strategy, in a region where colonial history still shapes everyday life. In constructing infrastructure, Beijing uses strictly Chinese labor and materials. This means that instead of developing a native workforce for sub-Saharan projects – which would lift the local economy – China is boosting its own economy. Additionally, in the case of South Sudan, the government in Juba is providing China with 30,000 barrels of oil per day to use on a road-building project. Therefore, the South Sudanese government is losing money from oil revenue on a daily basis in addition to being saddled with foreign debt. Guy Scott, the former agricultural minister in Zambia, was quoted as saying the current Chinese activities in Africa are worse than those carried out by the Europeans during colonial times. While China has claimed that its goals in Africa are strictly related to development, these predatory tactics call that into question, and beg the question as to why Beijing is so keen to invest in Africa.

One potential answer to this question is that China is intent on forming relationships in sub-Saharan Africa in order to advance its agenda in international organizations. Experts have argued that China is trying to “buy votes” at the United Nations and other international forums.

By doing this, China is able to gain support for some of its more controversial policies, such as its incursions into the South China Sea, and dealings with Taiwan and Hong Kong.

Another explanation for China’s heavy investment in sub-Saharan Africa is Beijing’s desire to venture into the African energy sector. Investments in Angola and Nigeria, two oil rich countries, encompass roughly one quarter of all Chinese investment. China recently invested $16 billion into Nigeria’s oil industry, as Nigeria attempts to increase its oil production by over a million barrels a day. This investment comes as domestic oil production in China is down due to geological decline and environmental degradation. As a result, experts believe that by 2030 up to 80% of China’s oil supply will be imported. Beijing hopes that by striking deals with oil rich nations now, they will be able to secure oil imports for less expensive prices when they need it in the future.

A final explanation into China’s interest in Africa is the profit margins that are available for Chinese firms. This rationale is not as sinister as the theory that China is looking to engage in lending projects to increase their regional influence, or to protect themselves from an oil shortage, but there are underlying similarities of duplicity. Former research analyst at the Center for International and Strategic Studies Mark Akpaninyie initially coined this practice “crony diplomacy”. This argument is predicated on the basis that a high level of corruption and bureaucratic incompetence in sub-Saharan Africa has created an environment where Chinese firms can take advantage of countries to profit tremendously. Due to the undersupply of financing for much-needed infrastructure projects, Chinese firms are able to take advantage of asymmetrical information to lock developing, and often poorly led, countries into bad deals. As a result of this, these Chinese firms accrue major profits from lopsided agreements. This theory operates under the belief that the Chinese government is not actively seeking to destabilize sub-Saharan Africa, but is merely being negligent while its firms do irreparable damage to African economies. Regardless of whether the Chinese government is actively playing a part in this process, the destabilization of sub-Saharan economies as a result of Chinese loans is a great concern.

Moving forward, if policymakers deem Africa to be strategically vital for Western interests, they will have to work to mitigate Chinese influence on the continent. To this point, there has not been much movement in the West to combat the debt traps being laid by China, but there are steps that can be taken that would address the situation.

Most prominently, international lending organizations such as the World Bank must make it easier for sub-Saharan nations to borrow money for infrastructure projects. Currently, the stringent conditionality on Western loans is pushing African nations toward the Chinese debt traps, as Beijing is willing to overlook societal shortcomings that the West is not. If it becomes easier to borrow money, sub-Saharan nations would be more willing to negotiate loans with the West as they wouldn’t have to use national property as collateral.

Another policy solution is for Western governments to mandate their oil and gas companies who work in sub-Saharan Africa to take serious environmental protection measures. Food and water contamination from foreign oil companies is a significant concern in Africa, and if Western companies can show they are committed to extracting oil cleanly and without doing significant environmental damage, they will have an advantage on their Chinese counterparts. In 2018, an Amnesty International Report accused Shell of being egregiously negligent in their work in Nigeria, particularly regarding the pollution of the Niger Delta. If Western oil companies were to demonstrate their commitment to protecting the sub-Saharan environment, their proposals to African governments would become more attractive than those coming from Chinese companies.

A final policy solution to combat Chinese influence in Africa is for Western firms to employ the local workforce on infrastructure projects. As previously mentioned, Beijing mandates that a majority of the workforce on their infrastructure developments are Chinese nationals. If Western firms invested time and money into training and employing the native labor force, the local economy would grow as a result. Additionally, this would again make Western firms more attractive than their Chinese counterparts when negotiating with African governments over prospective infrastructure deals.

In summation, while there can’t be any debate over the necessity of infrastructure projects in sub-Saharan Africa, the predatory practices architected by China are keeping African countries trapped in a poverty cycle. Lopsided negotiations threaten the sovereignty of African nations, and opaque governmental processes mean that ordinary Africans are burdened with debt for generations. Compounding this, China spreading its influence into Africa has security implications for the West, where policymakers must act to curtail Beijing’s power. If China is able to continue to wield its influence unchecked, the damage done to sub-Saharan Africa will be extraordinarily difficult to undo.

NIF USA

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