China’s debt colonization of Africa is well underway, as one African nation after another takes out gigantic loans from Chinese banks to build infrastructure projects that appear financially unsustainable.
Kenya is one of the most heavily indebted countries, but President Uhuru Kenyatta is in Beijing for a summit at which he will reaffirm his commitment to the Belt and Road initiative.
The Forum for China-Africa Cooperation (FOCAC) summit will be held on Monday and Tuesday, with a “shared future through win-win cooperation” as its theme. China excluded Swaziland, now known as “eSwatini,” from the summit because it still recognizes Taiwan. The Chinese insisted they did not exclude eSwatini to pressure Taiwan’s last ally in Africa to switch its allegiance to Beijing, but predicted such a switch will “come sooner or later.”
The leaders of several other African nations – including Tanzania, Burundi, Eritrea, Algeria, and the Democratic Republic of the Congo – decided not to attend the summit in person, citing issues at home that demanded their continued attention.
President Kenyatta is an enthusiastic participant in FOCAC despite mounting concerns about Kenya’s debts to China, as reported by the Daily Nation on Monday:
Today, the Chinese are the second biggest creditors to Kenya, after the World Bank. In the first two visits to Beijing, President Kenyatta secured loans that have built the Standard Gauge Railway from Mombasa to Naivasha.
In 2013, he got Sh500 billion, a huge portion of which was used to build the SGR from Mombasa to Nairobi (Sh327 billion). In the second visit in 2017, he got Sh150 billion to extend the line to Naivasha.
A diplomatic brief seen by the Nation indicates the President’s focus, besides BRI and dealing with trade imbalance, is to “secure funding for key infrastructure projects,” a sign of the determination to extend the railroad to Kisumu and on to Malaba.
The Kenyan government insists these massive loans are necessary because Kenyan taxpayers cannot generate enough revenue to fund the Belt and Road infrastructure projects. Critics wonder how Kenyan taxpayers could possibly generate enough revenue to repay those loans with interest.
“Unlike under previous regimes, the Uhuru administration has not taken on debt to finance recurrent expenditure. All new borrowings have been directed at specific programs and projects,” a Kenyan diplomatic briefing argued.
Debt incurred for infrastructure projects might be less irresponsible than borrowing money for social spending or government luxuries, but “infrastructure” is not a magic word that turns red ink to black.
The Chinese are touting a vision of African prosperity that includes a $300 billion trade volume by 2020, but also involves Chinese flags fluttering over every bit of valuable real estate on the continent, as China’s state-run Xinhua news service gushed on Monday:
In the near future, China-funded industrial parks will cover the entire industrial system, Chinese tech companies will set up numerous development bases in Africa, dozens of jointly-built agricultural demonstration centers will bring huge, historical changes to Africa’s agricultural industry, and more private companies will invest in Africa, especially in the cultural field, among others, he said.
Just in late August, Chinese mining firm Nonferrous China Africa launched production work for its greenfield project in Chambishi town in Zambia’s Copperbelt Province, which was hailed by Zambian President Edgar Lungu as an example of serious investment.
The commencement of mining, he said, was significant to the people in the town as the new project implies more business opportunities for residents.
A more well-known name would be Huajian, a Chinese shoemaker that produces for brands like GUESS and Calvin Klein. The Chinese company has already provided direct jobs to more than 8,000 Ethiopians with its two local factories.
Kenyan media obtained documents in July that showed Kenya is much more deeply indebted to China than previously admitted by the Kenyatta administration. China has become Kenya’s largest creditor by a wide margin, accounting for 72 percent of bilateral Kenyan debt at the end of the first quarter of 2018, a 15 percent increase over the past two years. China held a little over $534 billion of Kenya’s debt at that time, while the next largest creditor was France with a little under $65 billion.
One reason for the surge of Kenyan borrowing from China is that Beijing’s Asian Infrastructure Investment Bank has no requirements for fiscal reform and privatization, unlike American and European institutions like the International Monetary Fund. China is quite happy to lend enormous sums to nations that refuse to make the reforms that could make repayment of the debt possible.
Also, while the Chinese make a great deal of noise about cleaning up corruption within their own political system, they have no legislative barriers to paying bribes in exchange for lucrative contracts overseas. Financial inducements to the right officials can persuade African governments to sign contracts their population probably would not approve if the terms were made clear to them.
The resulting debt spiral is uncomfortably similar to the 2008 subprime mortgage crisis, except the bankrupt borrowers are nation-states buying railroads they cannot afford instead of fancy houses – and, unlike those distressed home buyers, African nations have plenty of valuable capital Beijing will be pleased to accept in lieu of payment.
The BBC took the occasion of the FOCAC summit to warn that Africa may have already passed the point of no return:
“This debt acquired from China comes with huge business for Chinese companies, particularly construction companies that have turned the whole of Africa into a construction site for rails, roads, electricity dams, stadia, commercial buildings and so on,” the Makerere University Business School lecturer told the BBC.
The Chinese loans come as many African countries are once again in danger of defaulting on their debts more than a decade after many had their outstanding borrowing written off.
At least 40% of low-income countries in the region are either in debt distress or at high risk, the International Monetary Fund warned in April.
Chad, Eritrea, Mozambique, Congo Republic, South Sudan and Zimbabwe were considered to be in debt distress at the end of 2017 while Zambia and Ethiopia were downgraded to “high risk of debt distress”.
“In 2017 alone, the newly signed value of Chinese contracted projects in Africa registered $76.5bn,” Standard Bank’s China Economist Jeremy Stevens wrote in a note.
“However, despite a sizeable remaining infrastructure deficit on the continent, there is a concern that African countries’ debt-service ability will soon dissolve,” he says.
China’s loans to Africa have tripled since 2012, but only a small portion of that lending follows the traditional model of outside firms establishing partnerships with local interests. The amount of leverage China is gaining over the governments of these countries is troubling, and the cost to China is greatly defrayed by the profits state-run enterprises are extracting from oil and mining operations.
“The issue that I have seen is the asymmetry of power in the negotiations of the transactions, where you are actually giving your mining rights away just because you want to build a superhighway,” African Development Bank chief Akinwumi Adesina told the BBC.
Adesina generally believes concerns about Chinese debt are overblown and sees China as “Africa’s friend,” but even so, he found China’s growing monopoly on African development troubling. If current trends continue, it will soon become impossible for African leaders to seek better terms elsewhere.
“You are only dealing with one country, how are you sure that you are getting the best deal?” he asked.
Africa’s opposition parties may be emboldened by the growing difficulties Belt and Road faces in Asia, where leaders like Malaysia’s Prime Minister Mahathir Mohamad are pumping the brakes, the opposition in the Maldives is openly charging Beijing with “colonialism,” Beijing has already seized valuable real estate from heavily indebted Sri Lanka, and some of China’s infrastructure projects gobble up half the GDP of the countries hosting them.
One of the biggest problems with accepting China as a senior partner is that Beijing constantly lies about the true state of its economy, as the political crisis in China over its trade war with America demonstrates. African leaders currently singing the praises of “win-win cooperation” might change their tunes if they wake up one morning and discover China’s currency is not quite as solid as Belt and Road salesmen claimed.