China’s Debt trap in Africa

Driven by its hegemonic ambitions, the People’s Republic of China (PRC) has started expanding its sphere of influence beyond the traditional boundaries of its immediate neighbors. To facilitate the drive towards becoming a global power, the PRC has built vast sea lines of communication, extending from the Chinese mainland to Port Sudan in the Horn of Africa, commonly known as the String of Pearls, as coined by American political researchers in 2004. The PRC’s geopolitical influence in Africa is driven by efforts to increase diplomatic relations with the African nations, expanding and modernizing military bases and increasing access to ports and airfields. With poor infrastructure, logistical challenges and political instability hampering the PRC’s efforts to secure oil from Central Asia, it has signed a number of contracts with Iran to develop its oil fields while also building a refinery, pipeline and port in Sudan for oil export.

Under the trillion dollar Belt and Road Initiative (BRI), which has been signed by almost 40 African states, the PRC has developed major infrastructure projects across the continent which include major ports, roads, highways, railways and power dams, which has resulted in the expansion of Chinese military presence to protect its investments in the region. These include the 4 billion dollar Djibouti-Ethiopia railway, Nairobi-Naivasha railway line and the Nairobi-Mombasa railway line. To address the PRC’s predatory lending practices, Brahma Chellaney, a geostrategist, coined the term debt diplomacy in 2017, saying that the PRC “overwhelms poor countries with unsustainable loans and forces them to cede strategic leverage to China”. The African nations fell for the Chinese debt trap largely because they were secured by high revenue projects even though the IMF and World Bank loans were cheaper and financed by limited government income. Also, unlike the IMF loans, in return for the disbursement of loans, the PRC loans are not tied to strict adoption of economic liberalization norms or democratic principles.

Under the ‘Going Global’ strategy formulated by the PRC in 2001, the state owned enterprises were encouraged to go global, to capture market share and gain experience, while providing the enterprises with credit lines, at market rate, on commercial terms, to facilitate their business development. In the case of targeting African nations, the support was provided by state owned policy bank China Export-Import Bank (Exim) and the China Development Bank. Such credit lines were extended to Angola, Ghana and the Democratic Republic of Congo (DRC) and were linked either to the revenues from the debtor country’s natural resource exports or to the profits from the commercial venture. The PRC’s growing strategic interest in the African nations can be gauged from the fact that between 2000 and 2017, the PRC loaned more than 143 billion dollars to the African nations with Angola, Ethiopia, Sudan, Zambia and DRC being the largest borrowers. Also, between 2007 and 2017, PRC’s leader Xi Jinping and the foreign minister collectively made 79 visits to the continent.

Combined with its anti-piracy activities in the Gulf of Aden, through which passes nearly 10 percent of seaborne traded petroleum,  and the growing presence in the Gulf of Guinea, the PRC has also built its first foreign military base in Djibouti in 2017, a nation which owes 77 percent of its debt to the PRC, and also donates patrol boats to the Ghanaian military. 21 percent of Kenya’s foreign debt is accounted for by Chinese debt and owing to the default of Chinese loans to develop its largest port, Port of Mombasa, there were reports speculating Kenya relinquishing control of the port to the PRC while many in the media argued whether the loans were worth the risk and that they could jeopardize Kenya’s sovereignty. Similar controversies arose in South Africa which owes an estimated 4 percent of its GDP to the PRC when a 2.5 billion dollar loan was granted to state electrical utility firm Eskom while another 2.5 billion dollar loan to the same firm by Huarong Energy, a Chinese state owned enterprise was found improper by the Zondo Commission of Inquiry after irregularities and corruption were found during the loan process.

Despite the PRC’s claims that the loans and infrastructural programmes in African nations are granted to suit the local interests, the fact remains that the projects are beneficial to Chinese companies who are suffering from overcapacity while also providing them access to key natural resources. For example, an industrial park in Ethiopia near the Addis Ababa-Adama highway, connecting the Addis-Djibouti railway line provides access to the maritime route for transport of goods such as coal, lithium, steel and marble back to the Chinese mainland. Moreover, the loan process is usually opaque and lacks transparency due to which some protests have  also flared up, such as in 2017 when local traders from Uganda accused the PRC of starting small businesses. Similarly, the Kenya railways launched an investigation into claims of mistreatment of workers and of “creating a small kingdom in which the Kenyan workers were discriminated against”. Fearing the debt trap, many African nations have backed out of such projects initiated by the PRC. Owing to poor safety and environmental compliance, the Zambia government revoked a Chinese company’s license to operate coal mines while the Ugandan government has stalled the construction of the Kampala-Entebbe expressway owing to concerns over the rising debt trap. Such concerns should only make developing nations in Africa more cautious and vigilant in depending upon the PRC’s investments and the motive behind it all.