Africa Awakens From Its China Naivety
The letter bearing the reference "MC/19/3" represents a novelty in Chinese-African relations. Kabineh Kallon, Sierra Leone's Minister for Transport and Aviation, explains in sober tones that, after careful consideration, no new airport in the capital city of Freetown will be built.
China had promised a loan and construction works worth $318 million. But Freetown already has an airport that, according to the minister, is "grossly under-utilized." Building a new one would make no economic sense. "I do have the right to take the best decision for the country," Kallon told the BBC.
Chinese leaders quickly tried to play down the incident. The project was merely in an exploratory phase, a Foreign Ministry spokesman insisted, adding that, as with any activity in Africa, those in Sierra Leone are always based on "win-win cooperation." This particular project should, therefore, not "be overblown as an indication of problems between the Chinese and Sierra Leonean governments."
Still, this was the first time an African country has terminated an already announced deal of this dimension. The incident reflects a growing and long overdue skepticism towards the often largely unconditional loans that arrive from Beijing.
The International Monetary Fund (IMF) currently classifies six African countries in debt distress: Chad, Mozambique, São Tomé and Príncipe, South Sudan, Sudan and Zimbabwe. Nine others are at high risk of debt distress. Since the end of 2017, the IMF has increasingly warned of rising debt in Africa. Over the past two years, governments' average external debt payments from African countries have doubled, the British activist group Jubilee Debt Coalition recently calculated, growing from an average of 5.9% of government revenue in 2015 to 11.8% in 2017. Some 32% of that debt is owed by African governments to private lenders, of which 20% is owed to China, so "its relative importance is less than often stated," according to the report.
But unlike most Western countries and institutions, China does not transmit its loans to the usual reporting systems, such as the OECD's Creditor Reporting System or the International Aid Transparency Initiative. Research from the Johns Hopkins University has shown that between 2000 and 2017, China granted loans amounting to $136 billion.
But unlike most Western countries and institutions, China does not transmit its loans to the usual reporting systems.
The reasons for Africa's rapidly rising debt are obvious. Most African economies are primarily dependent on commodity exports and urgently need investment in infrastructure. When commodity prices fell after the boom in the years 2005 to 2007, foreign exchange earnings also declined. Many countries made up for this gap with new debt (in dollars), the burden of which grew as the dollar appreciated against their own currencies. Investment in infrastructure, however, didn't lead to the calculated recovery. In some cases, because one effect occurs only in the long term, in others, because the projects didn't always make sense — like the airport in Sierra Leone.
The 2005 debt cancellation by the G8 for 18 highly indebted developing countries instantly made Africa interesting for profit-hungry investors in the private sector. This indeed creates the hope that international financial institutions will step in when states go bankrupt.
"I would have expected the IMF and the World Bank to point out the dangers of a new debt crisis earlier," says Christine Hackenesch, a researcher at the German Development Institute in Bonn. "The discussion about the high level of new debt caused by China's loans has been going on among experts since the beginning of the 2010s. Especially in small economies, questions must be asked about the sustainability of projects that cost hundreds of millions of dollars."
Djibouti President Ismail Omar Guelleh landing in Beijing on Sept. 2, 2018 to attend the Forum on China-Africa Cooperation — Photo: Xing Guangli/Xinhua via ZUMA
Meanwhile, it is becoming increasingly obvious that China's supposedly generous Africa strategy is not always producing the promised winners on both sides. The agreements for the construction of roads, airports, railways, dams and other infrastructure projects are often notoriously lacking in transparency, and the arrangements in the event of a national bankruptcy remain hidden. A look at Sri Lanka reveals how tough China's clauses can be. There, Beijing has taken control of a port for 99 years through a lease agreement.
Similar concerns are increasingly being voiced in Africa, where countries like Angola have long since had to repay their debts with a substantial share of their oil production — 90% of the country's foreign debt is held by China.
The respected magazine Africa Confidential reported that China had proposed to highly indebted Zambia to take over the international airport of its capital city Lusaka, as well as the state-owned electricity company. The governments of Zambia and China vehemently rejected this statement.
However, the fact that millions in British aid funds were embezzled in Zambia does not encourage trust. The news agency AFP also reported that the IMF had postponed payments for a billion-dollar loan because it feared that the country's debt level was higher than the officially reported $10.6 billion. In 2016, another country, Mozambique, admitted it had hidden billions in debt.
In countries such as Zambia, there's a spreading sense that they have become Chinese property.
In countries such as Zambia, there's a spreading sense that they have become Chinese property. In September, Kenyan scientist Patrick Lumumba was refused entry to the country. He had been invited by a University for a lecture on Chinese-African relations. A government spokesman explained the decision was due to "security considerations'. The state broadcaster is cautious in their reports of the incidents — 60% of it belongs to Chinese companies.
The West is also concerned about the growing debt level in the strategically important Djibouti, home since 2017 to China's only foreign military base. But Djibouti also houses army bases of the U.S., France, Italy, and Japan. If China, thanks to its debt policy, were to obtain preferential treatment in the use of the country's important infrastructure, a conflict could erupt.
For the time being, China is trying to preserve the image of an Africa policy negotiated on equal terms. Still, Beijing is well aware that the great euphoria on the continent has suffered a setback. Kenya has also rejected a free trade agreement with China because of its already enormous trade deficit. It should nevertheless be noted that at a major China-Africa summit in Beijing, which included 51 African states, new loans were secured worth a total of $60 billion.