A new report into the implications of China’s Belt and Road Initiative (BRI) in Africa paints an unsettling picture – but there is more than one side to the story. Felicity Landon reports.
A new ‘Issue Brief’ from the Observer Research Foundation (ORF) takes a discerning look at the nature of the Belt and Road Initiative (BRI) in the African continent, and its advantages and disadvantages for the host countries.
As report author Dr Venkateswaran Lokanathan points out, China has established a significant economic presence in most African countries over the past two decades.
“Its lucrative economic investment package, flexible political approach and focused big-ticket development projects under the BRI provide an ostensibly massive opportunity to African countries,” he writes in his report. “However, the unilateral nature of the initiative, the lack of transparency and accountability to African countries, and the absence of projects that directly benefit locals, have raised suspicions and fuelled local resentment.”
Dr Venkateswaran says there are growing concerns among African countries over a ‘rising debt trap’. According to his report, Djibouti is said to owe the equivalent of 75 per cent of GDP to China, while China owns 72 per cent of Kenya’s external debt, which stands at US$50 billion.
Over the next three years, Kenya is expected to pay US$60 billion to the China Exim Bank alone. The story around Mombasa port and the standard gauge railway (SGR) connecting to Nairobi has attracted much attention – as reported by Port Strategy last year, the Kenyan government borrowed Sh227 billion from the bank to fund the rail project and is under huge pressure to keep up the repayments.
The ORF report says Kenya’s auditor general has warned that the country risks losing control of Mombasa port if it defaults on the SGR loans from the China Exim Bank.
However, maritime economics and logistics professor Dr Hercules Haralambides, who lectures at Dalian Maritime University and Sorbonne University, takes a different view.
“A part of Western concerns on BRI consists of what has come to be known as ‘debt-trap diplomacy’,” he says. “The Sri Lankan port of Hambantota has often been used as a case in point. The practice is not unknown to certain western ‘financiers’, however, and in short it consists of extending loans to borrowers, usually under onerous terms, when one knows that the latter will be unable to repay.
“The solution is often a swap of debt with equity, i.e., in this case, the lender takes over control of the port. Whether this is the case or not, in the case of BRI investments, remains to be seen. But loans to Sri Lanka (Hambantota) were rather concessionary (two per cent), while the country’s largest debt is to Japan and not to China.”
Decisions made in the BRI framework, whether project selection or investment and financing cooperation, are all based on full consultation among the parties, says Dr Haralambides, and on the basis of carrying out due risk assessment and investment feasibility study.
“China and another 27 countries have jointly adopted the Guiding Principles on Financing the Development of the BRI, which highlight the need to ensure debt sustainability in project financing. China claims that in cases where its BRI partners face difficulties in servicing debts, China will properly address the issue through friendly consultation, and will never press partners for debt payment.”
REVOKING CHINESE LICENCES
In the ORF report, Dr Venkateswaran says there have been increasing instances of African countries cancelling or postponing BRI projects over rising debt concerns – listing examples such as the Zambian government revoking a Chinese company’s licence to operate coal mines due to poor safety and environmental compliance, the Ugandan government postponing the construction of the KampalaEntebbe Expressway, and the Sierra Leone government cancelling the US$318 million Mamamah International Airport project under the BRI. Similarly, the Tanzanian Government has pushed back on proposed lending from China for its new Bagamoyo port project.
Ports, and supporting road and rail infrastructure, are a big part of the BRI picture. Setting out the significant trends emerging from China’s BRI projects in Africa, the ORF report says: “China is investing in ports and port areas along the coastline from the Gulf of Aden through the Suez Canal towards the Mediterranean Sea. Of the 49 countries that China claims have signed Memorandums of Understanding (MOUs) of officially expressed support for the BRI, 34 (nearly 70 per cent) are located along the coast of Africa – 16 in the West, eight each in the North and East, and two in the South.”
These include, it says, Djibouti Port, three Egyptian ports – Port Sudan, Port Said-Port Tewfik, Port Ain Sokhna – Zarzis Port in Tunisia and El Hamdania Port in Algeria.
Also, “The People’s Liberation Army Navy has built its first overseas military base in Djibouti, which has been in use since 2017. To serve its strategic interests, China could use its influence over these ports for economic (transport of raw materials, finished goods and labour) and military (surveillance and blockade of overseas and deepsea maritime traffic) purposes in the future.”
Dr Haralambides points out that many other nations, including the US, UK, France, Germany and Italy, also have naval bases there, while the Gulf of Aden is the global hub for the illegal trade in weapons. The implications of the ‘one-stop-shop’ approach are also up for debate.
The ORF report says China is using its connectivity projects, which represent 20 per cent of its overall projects in Africa, to link its industrial and energy projects in the hinterland to its infrastructure projects along the coastline.
For example, an oil refinery in the north of Sudan is located close to the railway line connecting Port Sudan and Dakar Port. Gabes, a hub for petrochemical and phosphate industries in Tunisia, has been connected by rail to the port of Zarzis. An industrial park in Ethiopia is located near the Addis Ababa-Adama highway, which connects with the AddisDjibouti rail line connected to Djibouti port.
“This enables China to use the maritime route to transport raw materials such as phosphate, copper, cobalt, gold, iron ore, cocoa, bauxite, coal, lithium, steel, granite and marble back to the mainland, and finished goods and Chinese labour to Africa.”
WHO BENEFITS – LOCAL COUNTRIES OR CHINA?
The report asks: “Does the BRI genuinely benefit participating local countries or only serve to enhance China’s economic benefits?” It says the local population only occasionally benefits from Chinese investments, and often it loses out – being relocated, witnessing damage to the local environment or losing homes and facilities that are ‘in the way’ of developments, from mines and power plants to railway lines and ports.
Its conclusion is that so far, “BRI remains a largely unilateral Chinese exercise, with only a few instances of collaboration with third-party countries in Africa.”
However, Dr Haralambides pushes back against the idea that there is no local benefit from China’s investment strategy in Africa, stressing: “For reasons of credibility, reports like this one from ORF should be submitted to independent peer review while also providing full referencing of their claims and sources.”
He says: “China is not investing only in African infrastructure, but also transfers manufacturing activity there. By the end of 2015 – 128 industrial projects in Nigeria, 80 in Ethiopia, 77 in South Africa, 48 in Tanzania and 44 in Ghana. It seems developing Africa is much easier than developing China’s own north-western territories, and this trend is bound to continue in line with rising labour costs in China.”
Dr Venkateswaran also draws attention to financing conditions. “Financing from western countries or institutions is usually accompanied by strict conditionalities; an inconvenience for poorer African countries. Comparatively, China’s financing strategy – through a combination of grants, aid and loans (free or at low interest rates) with a generous schedule of return, particularly on infrastructure projects – is an attractive option for African countries.”
China has adopted a practical approach, not a value-based one, when dealing with political regimes across the continent, he adds: “Unlike western countries, which prefer dealing with transparent and accountable democracies, China has an ‘all-inclusive’ approach and deals with regimes without any preset conditions.”
Dr Haralambides points to a screening mechanism proposed by the European Commission in 2017 and approved by the European Parliament in February 2019. The mechanism, which mirrors similar procedures in the US Senate, aims to ensure that ‘strategic infrastructure’, such as ports, is not predatorily targeted by foreign investors.
“The ‘mechanism’ is seen as a coordinating tool at EU level, which does not intend to replace national mechanisms, or challenge member states’ prerogative to decide on investments,” he says.
“The screening mechanism has led to a 40 per cent drop of Chinese investments in the European Union in 2018, compared with 2017, to about €17.3 billion. In 2016, Chinese investments had reached a record peak of €37 billion. This ‘success story’ has been over-advertised in Brussels, but, to my view, the decline in Chinese investments is due to the cooling of the Chinese economy since 2016, rather than to a (fairly lukewarm) screening mechanism.”
Moreover, he asks, when it comes to sensitive financial matters, aid or FDI, “are other countries like the US, UK, France, Germany less opaque?”
Source: Port Strategy