Africa does not Need China’s ‘Debt-Trap’ Belt and Road Initiative to Develop
China’s intention of helping Africa prosper with its Belt and Road Initiative (BRI) faces intense global scrutiny. Japanese Prime Minister Shinzo Abe publicly criticized the initiative during the recent Tokyo International Conference on African Development in Yokohama. He warned that “In providing assistance to Africa, we [creditors, specifically in reference to China] have to take note of the debt burden of the recipient country and take care that the debt burden does not become excessive.” Abe is right; loans that African countries acquire through the BRI are staggering and current repayment strategies to China will hinder further economic development.
Since 2006, China has given more than $132 billion in state and commercial loans in Africa, tied to infrastructure assets like roads, dams, and airports. BRI loans provide an alternative to IMF and World Bank funds which are prone to government corruption. However, BRI loans are putting African nations in mountainous debt at an alarming rate.
Indebted countries that have borrowed development funds from China are now turning to the IMF for emergency loans in order to avoid bankruptcy after failing to repay China. Such a problem arises when countries rely too heavily on borrowing while their economic projections remain weak. If African countries lack the economic capacity to repay loans, they risk running into a debt-trap. China’s debt-trap diplomacy has resulted in the seizure of infrastructure assets, granting Chinese access to strategic holdings.
Luca Atkins, Deborah Brautigam, Yunnan Chen, and Jyhjong Hwang 2017. “China-Africa Economic Bulletin, Challenges of and opportunities from the commodity price slump,” Johns Hopkins University School of Advanced International Studies, Washington D.C.: CARI
However, it appears that China could be giving in to international pressure about its purported debt-trap intentions after Beijing canceled the debts owed by Cameroon and Ethiopia earlier this year. Meanwhile, Chinese loan practices lack the transparency that the international community demands. To ensure that Africa sustains economic development, African leaders must ensure that they can afford BRI loans.
Angola, for instance, is currently repaying its $25 billion owed to China with crude oil—a fair choice considering Angola’s large crude deposits. Payment without the use of currency runs the risk to unexpected shocks, such as a sharp decline in the price of global oil prices. Venezuela and Ecuador both struggled to service their Chinese loans with oil under a similar scenario; the Chinese debt-trap exacerbated the dire financial situation in both countries. If African states encounter similar economic downturns, China may opt to seize assets, similar to Sri Lanka’s Colombo port.
When Sri Lanka defaulted on a Chinese loan for the construction of the Hambantota Airport in 2017, Beijing ended up owning the country’s two major ports by converting loans into equity. Zambia suffered a similar fate when its major airport was seized for loan default in 2018, and there are concerns its national electricity company, ZESCO, could be the next target for the Chinese.
Africa should not have to depend on Chinese loans while there are alternatives to raise funds for development projects. Fixing Africa’s endemic corruption will unleash much of Africa’s lost economic potential. Corruption is rampant in Africa and there are concerns—even in Beijing—that the investments and loans made through the BRI will be prevented from serving their intended purposes in the long run. President Xi acknowledged this problem in April when he said: “China will only support open cooperation and clean governance when pursuing BRI cooperation.” The reality in Africa shows otherwise. Most of the African countries China is partnering with have long track records of corruption and mismanagement of their foreign financial assistance.
Top Chinese debtors including Angola ($25 billion), Ethiopia ($13.7 billion), Kenya ($9.8 billion) and Nigeria ($2.4 billion) are among the most corrupt countries in the world according to the latest Transparency International report—all placed below 100 out of 180 ranked countries. Significantly, in 2018, the United Nations Economic Commission for Africa (UNECA) claimed that Africa annually loses $148 billion—25 percent of its average GDP— to corruption. Meanwhile, Africa received approximately $143 billion in Chinese loans between 2001 and 2017. This means that if African countries can close the loopholes through which they lose money to corruption, the continent could have more money than it currently owes China to spend annually.
But the negative outcomes of BRI can be mitigated if Africa can focus on competitive advantage rather than securing Chinese loans. The Chinese Foreign Ministry claims that China-Africa trade has grown from $765 million to $170 billion in less than 50 years greatly due to the BRI. This should be improved. African leaders can initiate more trading agreements with China, especially as the majority of the raw materials needed by the manufacturing industry in China are in abundance across Africa.
More so, the trade war between the United States and China opens a window for African countries to pitch alternative trade agreements to China. Africa needs the consumer goods China finds hard to sell to the US, and China needs Africa’s natural resources. African leaders should utilize this leverage to ensure that future free trade agreements between China and Africa give consideration to infrastructure development to bolster free trade. Thus far, the BRI has proven to be unsustainable in the long run and to be fuelled by debt financing. A fair alternative to these loans is to trade Africa’s raw materials in exchange for infrastructure investment. By bettering African infrastructure, transportation costs can be lowered, maximizing the utility of free trade. Exchange of raw materials for infrastructure investment should be the foundational framework for Africa in the BRI, not unsustainable loans, which thus far have fueled corruption and hindered growth.