“The Chinese disagree that it issues loans with the hope that its African partners default on the loans, and thereby grant it right to seize control of the valuable resources put forward as collateral. The Chinese explain that given the poor credit history of the African nations it engages with, the use of resource backed loans is the only reasonable way for it to protect its investment.”
I remember my first visit back to Nigeria in 2008 and couldn’t help but notice the excitement around Chinese food. While I was there, everyone was excited to take me to the same place, Golden Gate, a Chinese restaurant in Ikoyi. We are talking the same shrimp fried rice lunch special I get at my local Chinese restaurant in Chicago for $9 is packaged as premium food, which Nigerians pay top money for.
The more I visited Nigeria over the years, the more I noticed Chinese influence in the country. I have read many articles illustrating the role of China in the African economy and wanted to shed more light on the approach and execution. A significant source for this article is the New Africa documentary entitled China in Africa.
Over the past century, there has been a significant reduction is foreign occupation in Africa, however, over the past twenty years, China has catapulted from being a relatively small investor in the continent to becoming Africa’s largest economic partner. From roads, to railways, energy infrastructure and manufacturing plants, Chinese money and resources are flowing into the African continent like never before.
According to the China Investment Global Tracker, Chinese investments and contracts in sub-Saharan Africa over the past 15 years is over $304 billion. Below are the Top 5 countries with significant Chinese investment between 2005 and 2020:
-China Global Investment Tracker
-Lagos-Ibadan rail. Source: Alternative Africa
According to a Mckinsey study, there are over 10,000 Chinese firms in Africa, and these firms are responsible for 12% of Africa’s annual industrial output of $500 billion. These firms mostly play in the manufacturing, consulting, construction and real estate sectors. These Chinese firms have indeed created millions of jobs in Africa, about 89% of employees in Chinese companies are native Africans.
Even though there is a lot of to be applauded by this Chinese influence, the study also noted that managerial level jobs in Africa were usually left for Chinese nationals. Some Chinese employers were also found to subject workers to poor working conditions and engage in the illegal over-production of delicate resources.
The West sees the Chinese job creation and infrastructure development as nothing more than a smokescreen to cover what is really going on. For the most part, the West believes that China uses bribes, opaque agreements, and the strategic use of debt to hold Africa countries captive to China’s demands. More importantly, the Africa is a strategic play part of China’s plan for world domination, through access to natural resources and military expansion.
However, many African leaders consider China to be a trustworthy ally with a genuine interest in the continent’s prosperity. Rightly or wrongly, China is perceived by African leaders as a nation that respects the culture and sovereignty of the African nations it engages with as opposed to the Western approach which has generally been viewed as an authoritarian approach.
An argument put forward by the Chinese skeptics is the idea that African governments are selling away their futures by falling for China’s “debt-trap diplomacy”. The belief is that the Chinese government employs a simple 4-step process to entrap its African partners:
- Identify an African government that needs funding for a large infrastructure project but is hindered by its poor credit rating
- Offer to fund and execute the infrastructure project on the basis that the African government puts forward the infrastructure itself or some of its natural resources as security for the loan
- Execute the infrastructure project using Chinese labor and expertise
- Claim ownership of the completed infrastructure along with any collateral natural resources when the African government fails to pay back the loan
The Chinese disagree that it issues the loans with the hope that African countries default on the loans, and thereby grant it right to seize control of the valuable resources put forward as collateral. The Chinese explain that given the poor credit history of the African nations it engages with, the use of resource backed loans is the only reasonable way for it to protect its investment.
However, one has to question why China would even issue loans to un-creditworthy nations in the first place. Would any reasonable creditor issue a loan knowing from the start that the borrower is almost certainly going to default on the loan? Quite understandably, many observers have examined the facts and concluded that China is simply using these infrastructure loans as a means of gaining ownership of key African resources.
A Few Excerpts:
- Kenya: In late December 2018, Kenya reportedly came close to default on Chinese loans to develop its largest and most lucrative port, the Port of Mombasa. This could have forced Kenya to relinquish control of the port to China.
- Zambia: The Zambian government was in talks with China about surrendering the Zambian state electricity company, ZESCO, as debt repayment since the country has defaulted on multiple Chinese loans for infrastructure projects
- Djibouti: The country owes over 80% of its GDP to China and in 2017, Djibouti became host to China’s first overseas military base.
-Port of Mombasa, Kenya. Source: Northern Corridor Transit and Transport Coordination Authority
My personal view is that having only recently escaped the shackles of colonialism in the 20th century, one would expect African leaders to be under no illusions as to the inherent risks in signing these deals with China. However, the truth be told, many African leaders are considering the short term benefits of these loans and ignoring the long term repercussion because these leaders will most likely not be in power to facilitate the payments when the payments become due.
A more effective and strategic approach to funding infrastructure projects would be raising bonds at attractive rates to incentivize African citizens to purchase, thereby, ensuring that wealthier Africans keep their money within the continent and reducing the likelihood of a foreign power taking over the continent.
