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Debt-trap Diplomacy and Africa’s Economy

China is a major stakeholder in Africa’s economy with a significant influence on many aspects of the continent’s affairs. [1] Recently, African countries have expressed an increasing borrowing trend from China [1]. According to research conducted as part of the Jubilee Debt Campaign in October 2018 [2], African countries already owed China $10 billion in 2010. The debt increased to over $30 billion in 2016 [2]. China’s lending to African countries is part of a large-scale overseas investment boom forming part of the country’s quest to become the world’s second largest economic superpower [3]. The top five countries in Africa with the largest current Chinese debt, are Angola ($25 billion), Ethiopia ($13.5 billion), Kenya ($7.9 billion), the Republic of Congo ($7.3 billion), and North Sudan ($6.4 billion) [4]. Growing debt to China directly impacts Africa’s economy in both advantageous and perilous ways, according to the analyses of different sources.

Infrastructure:

Growing debt to China positively affects Africa’s economy via much-needed developments in infrastructure [5]. The main types of infrastructure that these debts improve include roads, railways and ports [5]. Improved infrastructure favors internal trade, healthcare and education systems [5]. One such example of infrastructure development is the The Merowe Dam Project in Sudan. This is set to more than double the power development in Sudan, which is currently severely lacking [5].

According to the World Economic Forum, internal trade is the greatest opportunity for realizing Africa’s economic growth potential [6]. Furthermore, infant mortality rates in Africa have been reduced (falling from 740 to 410 deaths per 100,000 births) as a larger proportion of the population now has access to medical care as the result of infrastructure development [7]. Liberia, Rwanda, Malawi, and Madagascar are four countries that experienced a some of the greatest decreases, over 60%, in infant mortality in a period of time from 1990-2011 [23]. Although, this pace of infant mortality progress is still very slow everywhere apart from Eritrea, according to UNICEF [8].

In the 2015 and 2017 records of World Bank, Africa owes large sums of debt not only from China but also from other lenders [9]. Africa’s debts from multilateral lenders amount to 35%, 32% from private lenders, about 20% from China and around 13% from various other governments [9]. Higher interest rates of about 55% from the private sectors prompted Africa to go to China for loans, which is around only 17% [9]. Also, the debts owed of the African countries from China are allocated for investments on sectors needing critical development and growth and not just for consumption [10]. China in exchange just demands payment in the form of jobs, and natural resources [10]. In economic theory and practice, any country can borrow from another country to finance its economic development [10]. However, it is not always easy to find someone who will lend money even for logical reasons. The global competition on which country is best to invest money in is in fact, a country’s sign of financial strength, which is why Africa does not consider the relationship as a debt-trap [10].

Unemployment:

In the past decade, China has increased its investment relationship with African countries [13]. In 2014, China created a program known as African Human Resources Development Fund (AHRDF), which has helped to train over 10,000 Africans in various professional fields [11]. Improving the education of Africans has helped a large proportion of the African population acquire entrepreneurial skills and employ themselves, which in turn benefits the Chinese businesses that have been built in Africa [11]. China is able to ensure this educational training and decrease the unemployment rate by inviting Africans to Chinese Universities with scholarship options [12]. Unemployment in Sub-Saharan Africa has dropped from 7.88% in 2002 to 6.09% in 2018 [22]. While this educational growth continues to incur debt for the African country, however, is balanced by the fact that people are able to work to produce goods to send back to China - thus lessening the debt [12].

Furthermore, China has made investments into African human resource development programs. This can be seen in various programs that have been developed since 2010, including the China–Africa Science and Technology Partnership Plan, China–Africa joint research and exchange plan, and the China–Africa partnership to address climate change [21]. Human resource development has also been seen in agriculture and technology, where teams from China continue to go into African countries each year to further their training in these ever-changing fields [21]. While these debts to China do increase with these human resource development exchanges, it has also helped reduce the rates of unemployment in African countries, because many on the continent who have been trained through these programs seek employment in infrastructural development projects in their countries [11].

Economic Perils:

Belt and Road Initiative (BRI) is a multi-billion-dollar expansion project of China, with the aim of expanding its power all around the world through lending countries to spur its economic growth [13]. BRI is also sometimes called “Chinese Marshall Plan”. The BRI project was launched in 2013 by President Xi Jinping with the goal of improving the infrastructure of countries around Europe, Africa, and Asia in exchange of gaining global trade opportunities and economic advantage [13]. The plan consists of spearheading and investing on 60 projects around the world [14]. The initial expected cost of the BRI is over $1tn, and actual costs are even higher [14]. The risks involved for countries are expectedly high. In recent news, many countries in the BRI project have started rethinking the perils of the projects and the fact that most have repayment issues [14]. Jonathan Hillman, director of the Reconnecting Asia project at the Center for Strategic and International Studies in Washington believes that there is more to these projects than just mere financial strategy, he stated “It’s also a vehicle for China to write new rules, establish institutions that reflect Chinese interests, and reshape ‘soft’ infrastructure.” [14].

The negative effects of Chinese financial loans to Africa’s economy include fear of losing local companies to those Chinese with strong buying powers [13]. Debt from China has also promoted illicit trade among China and African countries [14]. Such imports are cheap because of China’s cheap labor and are thus preferred for locally manufactured goods. Examples of cheap imports from China include clothes and electronics. Trade between African countries and China has also affected ties between African countries and other continents, especially Europe and North America. According to Brautigam, Chinese loans are prone to misuses and have promoted the levels of corruption and fight for power in African countries [13].

Over four fifths of China’s investments are spent on infrastructure projects in underdeveloped and developing countries. Africa owes China around $40bn, which makes it to the top 4 borrowing countries [14]. Forecasts of the International Monetary Fund (IMF) show that economic growth rate of China will fall to around 6.2%, which is around 0.4% from 2018 of 6.6% [11]. The reason for the possible decline is the increasing trade disputes of China and US. Another is the sudden increase of debts in the past decade, which was used to fuel infrastructure programs [14]. Africa fears the slow growth of China, as this may result to impending government infrastructure projects.

Evaluation from all walks of life

Debt-trap diplomacy refers to the strategy used by China to lure or trap developing or underdeveloped countries like Africa to borrow money to be used for much needed infrastructure projects [15]. Many said that there is no debt-trap diplomacy but a simple tactic to financial strategies [16]. In the past, many countries have taken and tested innovative and new ways and concepts to increase financial gains from trading partners. The ability of the country to utilize its resources to increase its wealth is not at all bad. However, as many experts see it, the dependency of the developing countries like Africa to China in exchange of opportunistic loan offers is a sure way to deny the people of its sovereignty and self-sustaining growth in the longer-term scope [16].

Domestic and international views and voices on the so-called “debt trap diplomacy."

Although the money invested by China in Africa may help it close the gap for its infrastructure needs, the practice is questionably unethical as China slows down and expands elsewhere across the globe, it just leads Africa to swelling debt and fear of losing of local jobs if China chooses to relocate [17]. The rising debt of developing nations in the world from China has become a part of the economic growth history [18]. The far-reaching approach of China in promoting its lending history is said to be dramatic [18]. Studies of economic experts in the practices of China found that the patterns of China’s bank lending are purposefully done to trap governments and gather strategic opportunities for China [18]. Indian strategist Brahma Chellaney explains that “It’s clearly part of China’s geostrategic vision” [19].

Africa’s loans to China are in exchange for long-term high value resources of the country that includes ports and minerals that most likely end at exploitation of the natural resources by the African government, and the Chinese government through giving them advantage of access to utilize the country’s resources [19]. Most importantly, China was allowed to interfere with the country’s economy and gain strategic advantage in Africa and other host countries [20]. Jonathan Hillman, director of the Reconnecting Asia project for the Center for Strategic and International Studies states “If it can carry goods, it can carry troops” [18].

In response to the negative responses from other Western superpowers, at the recent Forum on China-Africa Cooperation (FOCAC) in September of 2018, there was overwhelming African political support of the continued relationship with China. South Africa’s Cyril Ramaphosa stated that “In the values that it promotes, in the manner that it operates and in the impact that it has on African countries, FOCAC refutes the view that a new colonialism is taking hold in Africa, as our detractors would have us believe.”[24] Kenya’s president Uhuru Kenyatta spoke on his appreciation for the Chinese support in the infrastructure development and Botswana’s president Mokgweetsi Masisi exclaimed, “To China, her president and citizens, we admire and hold you in very high regard!” [24]

[1] Buckley, L. (2018). China Going Global – in Africa. Retrieved from https://www.iied.org/china-going-global-africa

[2] “Africa’s growing debt crisis: Who is the debt owed to?” (2018). Jubilee Debt Campaign. Retrieved from https://jubileedebt.org.uk/wp/wp-content/uploads/2018/09/Briefing_09.18.pdf

[3] Partington, R. (2019, January 05). Fears grow in Africa that the flood of funds from China will start to ebb. Retrieved from https://www.theguardian.com/business/2019/jan/05/africa-fears-grow-flood-funds-china-start-to-ebb

[4] Chiwanza, T. H. (2018, October 02). The Top Ten African Countries With the Largest Chinese Debt. Retrieved from https://www.africanexponent.com/post/9183-here-are-the-top-ten-countries-in-africa-bearing-the-largest-chinese-debt

[5] Bosshard, P. (2007). China’s role in financing African infrastructure. International Rivers             Network, 14. Retrieved from https://www.internationalrivers.org/sites/default/files/attached-files/chinaeximbankafrica.pdf

[6] Makhubela, K. (2018). Africa's greatest economic opportunity: Trading with itself. Retrieved from https://www.weforum.org/agenda/2018/01/why-africas-best-trading-partner-is-itself/

[7] Youde, J. (2010). China's health diplomacy in Africa. China: An International Journal, 8(1), 151-163.

[8] Young Child Survival and Development. (2018). Retrieved from https://www.unicef.org/esaro/5479_maternal_newborn_health.html.

[9] Brautigam, D. (26 April 2019). Is China the World’s Loan Shark? New York Times. Retrieved from: https://www.nytimes.com/2019/04/26/opinion/china-belt-road-initiative.html

[10]. Qintong, Z. (22 November 2018). Debt-trap diplomacy is a fallacy. Retrieved from: https://moderndiplomacy.eu/2018/11/22/debt-trap-diplomacy-is-a-fallacy/

[11] King, K. (2007). The Beijing China-Africa Summit of 2006: The new pledges of aid to education in Africa. China Report, 43(3), 337-347.

[12] Bräutigam, D. (2018). U.S. politicians get China in Africa all wrong. Retrieved from https://www.washingtonpost.com/news/theworldpost/wp/2018/04/12/china-africa/?utm_term=.ed22438ab4fa

[13] Brautigam, D. (2009). The dragon's gift: the real story of China in Africa. Oxford University Press.

[14] Elliot, L. (7 December 2017). China's debt levels pose stability risk, says IMF. The Guardian. Retrieved from: https://www.theguardian.com/world/2017/dec/07/china-debt-levels-stability-risk-imf

[15] Gopaldas, R. (21 February 2018). Lessons from Sri Lanka on China’s debt-trap diplomacy.” Institute for Security Studies (South Africa). Retrieved from: https://issafrica.org/iss-today/lessons-from-sri-lanka-on-chinas-debt-trapdiplomacy

[16] Zafar, A. (2007). The growing relationship between China and Sub-Saharan Africa:             Macroeconomic, trade, investment, and aid links. The World Bank Research Observer, 22(1). 103-130.

[17] Partington, RJ. (5 January 2019). Fears grow in Africa that the flood of funds from China will start to ebb. The Guardian. Retrieved from:  https://www.theguardian.com/business/2019/jan/05/africa-fears-grow-flood-funds-china-start-to-ebb

[18] Kuo, L. and Kommenda, N. (30 July 2018). What is China's Belt and Road Initiative? The Guardian. Retrieved from: https://www.theguardian.com/cities/ng-interactive/2018/jul/30/what-china-belt-road-initiative-silk-road-explainer

[19] Akpaninyie, M. (12 March 2019). China’s ‘Debt Diplomacy’ Is a Misnomer. Call It ‘Crony Diplomacy.’ The Diplomat. Retrieved from: https://thediplomat.com/2019/03/chinas-debt-diplomacy-is-a-misnomer-call-it-crony-diplomacy/

[20] Fernholz, T. (8 March 2018). Eight countries in danger of falling into China’s “debt trap”. Quartz. Retrieved from: https://qz.com/1223768/china-debt-trap-these-eight-countries-are-in-danger-of-debt-overloads-from-chinas-belt-and-road-plans/

[21] King, K. (2010, September 23). China–Africa human resource development: Partnership or one-way? Retrieved from https://www.pambazuka.org/governance/china–africa-human-resource-development-partnership-or-one-way

[22] International Labour Organization. (2019, April). Unemployment, total (% of total labor force) (modeled ILO estimate). Retrieved from https://data.worldbank     .org/indicator/SL.UEM.TOTL.ZS?locations=ZG

[23]African Leadership for Child Survival. (2012). Africa Key Facts and Figures for Child Mortality. Retrieved from https://www.usaid.gov/sites/default/files/documents/1860/Africa Key Facts and Figures.pdf

[24]Dahir, A. L. (2018, September 05). "Satisfied" and "inspired": All the ways African leaders praised their alliance with China. Retrieved from https://qz.com/africa/1379457/china-africa-summit-african-leaders-praise-relations-with-beijing/