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China’s Belt and Road Initiative: A win-win or a debt trap? The Case of African States

As the multi-trillion Belt and Road Initiative (BRI) gains momentum in Africa through a slew of big infrastructure projects, the criticism of trapping African countries in debt by Chinese lenders is also coming to fore. The total debt of African countries owed to China amounts to US$ 145 billion, while the debts to be repaid this year are US$ 8 billion.

18.01.2022 00:00
Piše: Valerio Fabbri
Ključne besede:   China   Africa   Belt and Road Initiative   Uganda   banks   debt   Export-Import Bank of China   EXIM

The infrastructure projects financed by Chinese banks have been causing several African countries to fall into China’s debt trap. This means Beijing will be able to further reinforce its influence in Africa.

China’s contribution to the investments in Africa, in 2018, was about 28 per cent indicating the increasing debt burden on the continent. This is highlighted from the fact that at least 18 African countries have been renegotiating their debts with China. Emerging local news reports from Africa suggest that China was about to seize the control of the Entebbe, the only international airport in Uganda, after the Ugandan government failed to pay back loans to Beijing. The East African nation, according to media reports, had borrowed US$ 200 million from the Export-Import (EXIM) Bank of China to expand the airport.

 

Ugandan efforts for renegotiation of the deal failed even though a Ugandan delegation comprising of the Works, Foreign Affairs, and Finance Ministries, and led by Ugandan Ambassador to China, Dr. Chrispus Kiyonga, failed in its mission of renegotiating the deal. A parliamentary probe, chaired by Ugandan lawmaker Joel Ssenyoyi, into the deal concluded that provisions in the contract, which remain non-public, were unfair & discriminatory and could be used by China to take control of the airport. The inquest also revealed that the loan agreement authorizes the lender’s say in the airport’s annual budget. Separately, the Ugandan media pointed towards toxic clauses in the loan agreement highlighting that the unfavorable provisions were not amended, would expose the sovereign assets to attachments and take-over in case of arbitration called by Beijing. The agreement also authorized the China’s EXIM Bank to inspect both the Uganda Civil Aviation Authority (UCAA) and Government Books of Accounts clearly eroding the sovereignty of Uganda.

 

While China claims to maintain the policy of non-interference in domestic affairs, upholding the sovereignty of the states, in practice, it violates the State sovereignty in this case. Uganda is not the only case in point. Several African countries like the Democratic Republic of Congo (DRC), Sierra Leone, Ghana and Kenya, fearing the loss of their national assets, have begun canceling or probing the Chinese projects and the deals related to them. It has been widely felt by these countries that terms of the commercial loans were designed to suit to Chinese interests. Recently, DRC’s President, Felix Tshisekedi, has called for a review of mining contracts signed with China in 2008, while also mounting an attack against China’s exploitative tendencies.

 

 

Several African countries, fearing the loss of their national assets, have begun canceling or probing the Chinese projects and the deals related to them.

 

 

Eyeing the natural resources of African countries, since 2010, the Chinese financial institutions have funded an average of 70 projects every year in Africa with an average value of US$ 180 million. The resource guarantee infrastructure financing focused on minerals and hydrocarbon rich African states, including Zambia (Copper), Kenya, Nigeria, Ghana, Angola, Algeria, Mozambique, Egypt, Sudan, South Africa and Tanzania. The glaring exploitation of these resources was reflected, as back as 2015, when Reuters had reported about widespread discontent in Angola for payment of loans to China through oil, leaving for it with little crude oil to export.

 

Many other African countries such as Kenya, to which China has rolled out billions of dollars in loans as part of its Belt and Road Initiative (BRI) are at the brink of losing their national assets. China owns around 72% of Kenya’s external debt. There are concerns, as pointed by Kenyan Auditor General, that China may take over the Port of Mombasa if the country defaults on a US$ 3.2 billion loan. Similarly, there is also risk of Beijing seizing control in the event of default on loans procured to finance the loss-making Standard Gauge Railway, which connects Nairobi to Mombasa. Djibouti, a country of 1 million people in the "Horn of Africa", is another example of China’s debt diplomacy. Its debt to China has risen to more than 70 per cent of its Gross Domestic Product (GDP). The infrastructure projects financed by Chinese banks have been causing Djibouti to fall into China’s debt trap, which will allow them to reinforce its influence in the country as done earlier when China established its military facility there.

 

 

Chinese investments in Africa (2020).

 

 

In the last decade, Nigeria’s debt to China grew by 136%, from US$ 1.4 billion to US$ 3.3 billion, and in 2020 the country had to shell-out US$ 195 million as debt repayment to China. In August 2020, the Federal lawmakers in Nigeria feared that the country could sign away its sovereignty in the event of the payment default of the US$ 400 million loan provided by China for Nigerian Infrastructure and Communication Technology Infrastructure Phase-II Project, signed in 2018. The concerns for loss of sovereignty were raised in view of controversial clauses in Article 8 (1) of the loan agreement signed between Nigeria and EXIM Bank of China. 

 

The China’s "Debt Trap" policy follows a similar global pattern. Madagascar, Maldives and Tajikistan are the nations reeling under Chinese debts. Pakistan, an "all weather friend" of China remains another example, which, according to a recent World Bank Report, now finds its place in the world’s 10 largest borrowers. Pakistan owes most of its debt to China. The China-Pakistan Economic Corridor project, which aims to connect Gwadar Port in Pakistan’s Baluchistan with China’s Xinjiang province, is a flagship project of China’s BRI. It has been argued by various analysts that China is using "debt-trap" diplomacy to gain access to strategic assets in Pakistan. The infrastructure projects financed by Chinese banks have been causing African countries falling into China’s debt trap, allowing the latter to reinforce its influence in the continent.

 

Under international pressure China might not consider using its coercive methods to regain its loan amount, as it was in the case of Sri Lanka, where however it is certain that the Chinese investors will put the governments on the back-foot to grab deals on their own terms. 

 

Looking at the scale of China’s lending and the institutional weaknesses of the small, developing countries, the BRI projects pose grave risks to the debt structure and sovereignty of these states. The policy of China’s cooperation with developing countries being a partnership of equals, at best, seems like a mirage, while the reality looks far different from being what is narrated as a win-win.

 

Valerio Fabri is Ljubljana based Italian journalist. He is regular contributer to portal+.

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