Africa attracted more Chinese state lending for energy infrastructure than any other region last year, highlighting Beijing’s view of the continent’s growing economic and strategic importance.
In 2014 alone, Chinese companies signed over $70 billion in construction contracts in Africa “that will yield vital infrastructure, provide jobs, and boost the skill set of the local workforce.”
Many more multi billion dollar loans has flowed from China to Nigeria in the past few years.
In 2016, China offered Nigeria a loan worth $6 billion to fund infrastructure projects.
In 2017, China lent Nigeria the sum of $4.5billion to buy appropriate farming tools to boost local agriculture.
A study by Boston University academics shows that nearly one-third, or $6.8bn, of the $25.6bn that China’s state-owned development banks lent last year to energy projects worldwide went to African countries. This was ahead of south Asia, with $5.84bn.
The loans bring total Chinese energy finance in Africa since 2000 to $34.8bn. While this is well behind the $69bn lent in Europe and Central Asia, the $62bn in Latin America and the $60bn in Asia over the same period, the 2017 data illustrate Africa’s growing importance.
“China is trying to replicate its model of development in Africa to show the world that the Chinese economic model really works,” said Yu Jie of LSE Ideas, a think-tank based at London School of Economics.
The strong lending follows a 2015 promise by Xi Jinping, China’s leader, for a total of $60bn in Chinese investments to Africa by the end of this year to demonstrate what he called a “common future”. Statistics on how close Beijing is to realising the overall $60bn target are not yet available, analysts said.
As Chinese President Xi Jinping continues to push lending to developing countries, policy analysts are sounding alarm bells about the fate of smaller nations biting off more than they can chew—and the strategic possibilities opening to China as a result.
For example, Djibouti lies more than 2,500 miles from Sri Lanka but the East African country faces a predicament similar to what its peer across the sea confronted last year: It has borrowed more money from China than it can pay back.
In both countries, the money went to infrastructure projects under the aegis of China’s Belt and Road Initiative. Sri Lanka racked up more than $8 billion worth of debt to Chinese sovereign-backed banks at interest rates as high as 7 percent, reaching a level too high to service. With nearly all its revenue going toward debt repayment, last year Sri Lanka resorted to signing over a 70 percent stake and a 99-year lease to the new Chinese-built port at Hambantota.
Djibouti is projected to take on public debt worth around 88 percent of the country’s overall $1.72 billion GDP, with China owning the lion’s share of it, according to a report published in March by the Center for Global Development.
It, too, may face the possibility of handing over some key assets to China.
The immediate past United States Secretary of State, Mr. Rex Tillerson, had during his March 2018 visit to Nigeria, advised us to be careful when considering loan agreements with China.
While alluding to the fact that the union could be beneficial, he harped more on the long-term implications. Nothing can be truer than this position.
This is also true with the loans granted by the US and other western countries. However, we must realise that it has merits and demerits.
But Tillerson advised that loans from China should be weighed carefully and admitted that Washington was not trying to keep Chinese investment away from African continent.
Tillerson said China “encouraged dependency, utilised corrupt deals and endangered Africa’s natural resources.”
During his trip to Africa, the US diplomat told a news conference in Addis Ababa, Ethiopia, that African leaders need to carefully consider their agreements with China.
“We are not in any way attempting to keep Chinese ‘dollars’ from Africa. But it is important that African countries carefully consider the terms of those agreements and not forfeit their sovereignty.”
Tillerson added that Chinese investments, “do not bring significant job creation locally” and criticised how the country structures loans to African governments, saying if a government accepts a Chinese loan and “gets into trouble”, it can “lose control of its own infrastructure or its own resources through default.”
Advisedly, Nigeria should officially analyse the total gains derivable from Chinese contracts and the financial risks involved and put in place appropriate policies and instruments to mitigate against default, which could have an adverse effect on the economy.
Currently, Nigeria requires a huge capital outlay in the negotiation of her desire to position herself ahead of future challenges and opportunities.
Interestingly, China is willing to provide loans at low interest rates and less stringent requirements than those of the western countries and commercial banks.
But Xi’s Belt and Road Initiative in Djibouti, which aims to revive and expand the ancient Silk Road trade routes on land and at sea, has become the crown jewel of his foreign policy since 2013, shortly after coming to power. Government officials regularly talk up the initiative and state media outlets give it broad coverage.
But many of the projects have stalled in the early stages of planning, and the dollar amount attached is left vague.
More importantly, the countries involved are often seduced by the appeal of large infrastructure projects that are financially destabilizing. Eight of the 68 countries involved in the Belt and Road Initiative currently face unsustainable debt levels, including Pakistan and the Maldives, according the Center for Global Development’s report.
Lately, there have been growing concerns about Nigeria’s rising debt profile. The issue has also elicited debate in the country.
One of the leading global rating agencies, Standard and Poor’s (S&P) recently cautioned the country about its rising debt profile, which has led to a rise in its debt service cost.
“General government debt-servicing costs as a percentage of revenues are high and have increased in recent years from below 10 per cent in 2014 to our projection of over 20 per cent on average, in 2018-2021.
“The central government alone has debt servicing costs of close to 50 per cent of revenues, which in our opinion, limits fiscal flexibility. The steep increase in the ratio is due to a combination of declining oil revenues since 2014 and higher borrowing costs in the domestic market,” the agency stated.
Nigeria’s external debt rose to $18.91 billion (N5.787 trillion) as at the end of December 2017, while domestic debt rose to N15.937 trillion, bringing the total debt stock of the country to N21.725 trillion ($70.92 billion), latest data released by the Debt Management Office (DMO) had shown.
Its vulnerability notwithstanding, Djibouti like Nigeria has been keen to work with Beijing. It partnered with China Merchants Ports Holdings Company, or CMPort—the same state-owned corporation that gained control of the Hambantota port in Sri Lanka—to build the Doraleh Multipurpose Port. That project was completed in May 2017.
Earlier this month, Djiboutian President Ismail Omar Guelleh described the new Djibouti International Free Trade Zone, a $3.5-billion venture with China, as a “hope for thousands of young jobseekers.”
But the most noteworthy development in Djibouti—and the most worrying for the United States—is China’s first overseas military base, which is located 6 miles from the U.S. military’s only permanent base in Africa. From Camp Lemonnier, where about 4,000 U.S. troops are stationed, the United States coordinates operations in “areas of active hostilities” in Somalia and Yemen.
In the past year, U.S. diplomats and generals have grown increasingly concerned that the base will provide China a foothold at the Bab el-Mandeb Strait, a strategic chokepoint in international maritime trade. About 4 percent of the global oil supply passes through this waterway connecting the Gulf of Aden with the Red Sea each year.
Gen. Thomas Waldhauser, who commands the U.S. Africa Command, said in a testimony before the House Armed Services Committee in March that the United States was “carefully monitoring Chinese encroachment and emergent military presence” in Djibouti. Local relations between the two great-power rivals have become especially strained in 2018, with each lodging grievances against the other.
China, for its part, maintains that the naval facility will serve as a logistics hub for its anti-piracy, humanitarian, and emergency evacuation missions. The live-ammunition drills conducted at the base should be interpreted as “legitimate and reasonable” exercises for counterterrorism operations, a commentator told the state-owned Global Times.
But according to foreignpolicy.com, a medium that analyses international developments, satellite images of the People’s Liberation Army base may reveal its true purpose. A retired Indian Army intelligence officer noted last September that the 200-acre facility includes at least 10 barracks, an ammunition depot, and a heliport. Four layers of protective fences surround the perimeter; the two inner fences are eight to 10 meters tall and studded with guard posts. The purported logistical support base is rather a fortress that may accommodate thousands of soldiers. More than 2,500 Chinese peacekeeping personnel are already stationed in countries such as South Sudan, Liberia, and Mali.
“There is nowhere else in the world where the U.S. military is essentially co-located in close proximity to a country it considers a strategic competitor,” said Kate Almquist Knopf, the director of the Defense Department’s Africa Center for Strategic Studies.
“This is not something the Pentagon is used to,” she said.
One concern is that the Djibouti government, facing mounting debt and increasing dependence on extracting rents, would be pressured to hand over control of Camp Lemonnier to China.
In a letter to National Security Advisor John Bolton in May, Sen. James Inhofe (R-Okla.) and Sen. Martin Heinrich (D-N.M.), two members of the Senate Armed Service Committee, wrote that President Guelleh seems willing to “sell his country to the highest bidder,” undermining U.S. military interests.
“Djibouti’s now identified as one of those countries that are at high risk of debt distress. So, that should be sending off all sorts of alarm bells for Djiboutians as well as for the countries that really rely on Djibouti, such as the United States,” said Joshua Meservey, a senior policy analyst at the Heritage Foundation.
“Policymakers are becoming more and more aware of this. The challenge is that there isn’t a strong sense of how to effectively push back or compete with China on some of these issues.”
Meservey says there are simple steps the United States could take to start balancing out China’s expanding influence, including institutionalizing the U.S.-Africa Leaders Summit—a one-off event in 2014 hosted by President Barack Obama. The U.S. government should also incentivize private sector investment in Africa, he said, thus creating competition with Chinese state-backed dollars on the continent.
Other analysts believe China’s debt-driven expansion could backfire on Beijing. Jonathan Hillman, a fellow at the Center for Strategic and International Studies, said one “underappreciated dimension” of China’s predatory lending projects in Africa was the uncertainty that Beijing takes on by doling out trillions of dollars abroad.
“If these projects do not go well, there is a financial and reputational risk to China,” Hillman said.
“The port in Sri Lanka gets a lot of attention, but not too far from the port is an airport that now no plane flies into. That’s not a good advertisement for Chinese soft power or China’s strength or reliability as a partner.”
Elombah News With materials from Foreign Policy and analysts opinions
