–Analysis–
JOHANNESBURG — In December, Kenya’s new president, William Ruto, broke a taboo that pertains to pretty much every Chinese loan agreement with African governments: the secrecy clause.
Ruto’s predecessor Uhuru Kenyatta had refused to publish contracts for billion-dollar projects, citing clauses to that effect. But that caused so much public anger that Ruto made disclosure a campaign promise.
The ominous details relate to the construction of an entirely overpriced rail line from Nairobi to the coastal city of Mombasa worth $3.6 billion. The case explains why Beijing is so keen to keep such contracts confidential.
There was no legitimate construction tender, and the deal also stipulates that almost all “goods, technologies and services” will be sourced from China. Duty-free, mind you. The local economy was thus only allowed to play a minor role in the largest infrastructure project in Kenya’s history. Any arbitration proceedings may only take place in China, so protests by domestic companies would probably be futile anyway.
Waning Chinese investment
The incident shows that China’s relations with Africa are by no means as rosy as both sides have been keen to portray them. Yes, China remains the continent’s most important trading partner, still accounting for the most foreign direct investment there by far — despite the recently announced U.S.-Africa investment offensive.
In late February, Beijing will reaffirm its presence through a joint military exercise with Russia off the coast of South Africa, which had previously rejected a joint military exercise with the United States.
Some problems in China were exacerbated by Beijing’s zero-COVID policy.
But it is not only in Kenya that resentment against the rotten deals has been growing for some time.
As recently as 2016, Chinese loan commitments had peaked at nearly billion. In 2019, however, according to the China Africa Research Initiative at the Johns Hopkins School of Advanced International Studies, they had fallen to less than billion, and in the first pandemic year, the value even collapsed to billion. At the same time, direct investment has stagnated since 2018.
What lies behind this withdrawal? Some are problems in China that were exacerbated even further by Beijing’s zero-COVID policy: slow-down in economic growth, a real estate bubble and a demographic crisis due to the birth rate declining for the first time in decades.
Fear of African debt
Under the New Silk Road infrastructure program, China has granted loans totaling more than trillion to nearly 150 developing and emerging economies, making it the world’s largest creditor. But nearly 60% of China’s foreign loans are currently held by countries in financial distress, compared with just 5% in 2010. China has also slowed its lending because it fears it will not get its money back.
Many countries in Africa had expected more help from Beijing in dealing with their current debt crisis. For example, Ethiopia was reportedly forgiven only a few million dollars of its debt during a visit by Foreign Minister Qin Gang in January — merely a symbolic gesture. Several infrastructure projects on the continent are on hold; Ethiopia’s Prime Minister Abiy Ahmed, like Ruto in Kenya, blames the previous administration for the unsustainable loan agreements with China.
Only in December did Djibouti announce that it could no longer repay its debt to Beijing. This is noteworthy for another reason, since China established its first military base in Africa there in 2017, just a few kilometers from a U.S. military base. That makes the terms of a debt default relevant to Washington as well.
African comparisons with Asia
Truth be told, trade relations between Beijing and other regions are also a cause for concern. Several emerging and developing countries in Asia are heavily indebted to China. Sri Lanka is an example, where an artificial port city was built off the coast with Chinese money, which was supposed to become a flourishing business center.
But the plan did not work out, and is practically a ghost town. An international airport in the town of Mattala is considered the “world’s emptiest airport.” Both projects, financed by China with high-interest loans, drove up Sri Lanka’s foreign debt: 20% is due to China.
And after Sri Lanka failed to service its debt, China took over the Hambantota port, the largest in the country, via a 99-year lease.
Such scenarios help explain why there are always rumors that individual African countries could face similar problems. In 2018, for example, the Zambian government denied that the airport in Lusaka built by China could be handed over as collateral for unpaid debts.
Turkey stepping in
As early as April 2020, then Tanzanian President John Magufuli (who died in 2021) described a billion Chinese port project signed by his predecessor as an undertaking that could only be accepted by a “drunkard.” There has also been open criticism of Chinese construction from Ghana and Congo.
China cannot provide the same level of investment as in the past.
Uganda, meanwhile, is relying on Turkey as a partner in the construction of a railroad line that was started by China. Rwanda had also already switched from China to Turkey in the construction of a convention center a few years ago.
“China generally cannot provide the same level of investment as in the past,” says Jakkie Cilliers, of the South African think tank Institute for Security Studies. “It no longer runs current account surpluses, economic growth has slowed. There is also growing concern about the ability of African governments to service their debts.”
But Cilliers believes that the recently announced U.S. investment offensive in Africa, in particular, will ensure that the continent becomes once again a higher priority for China.
