Rakesh Sharma | Harish Puppala
Let's start our story today with Ghana, a country the size of Jammu and Kashmir in West Africa. It is one of the fastest growing economies in the world, needing more and more power each year to run its expanding economy. A Turkish company is generating part of Ghana's power supply. Another Turkish company completed the construction of Ghana's new international airport. The running of the Electricity Company of Ghana, which also happens to be the largest distributor in West Africa, is now taken over by the Meralco consortium, an entity based in the Philippines. The highest and longest flyover in Ghana, and West Africa, named for its liberation hero Kwame Nkrumah, was built by Brazilians. What's happening in Ghana is a but a screenshot of the larger motion picture being screened in Africa, where the producers and distributors of the film are mostly foreign entities. This "new scramble for Africa" has several non-western nations vying for dominance. In these African nations, several of which were erstwhile colonies of European colonial powers and the US, countries of the Middle East, Russia, Brazil, and Turkey have been increasingly jockeying for influence. In a relationship that some analysts have termed "post-postcolonial," the patterns of engagement are also beginning to change. If during the era of colonialism by European powers, the relationship between the colonising power and the colonised was regarded paternalistic, extractive, when not downright exploitative, in the 21st century, African nations with their ambitious leaders, have more manoeuvring power. The Financial Times noted that Africa-India trade jumped more than 10-fold from $7.2bn in 2001 to $78bn in 2014 — making India Africa’s fourth biggest trading partner, according to the UN Economic Commission for Africa. According to Brookings, between 2006 and 2016, the value of African imports from Russia and Turkey rose 142 per cent and 192 per cent respectively.
But in this rediscovered interest in Africa, one name stands out: China.
It goes without saying that Washington is watching the rise of the dragon in Africa keenly. King Leopold II of Belgium, under whose watch the Congolese genocide that claimed millions of lives took place, called the bounties of the continent "magnifique gâteau africain." Clearly, everyone still wants a slice of that pie. This time around, the terms of engagement are different.
The rise of China in Africa, and what it means for China, Africa, and the rest of the world are the topic of our discussion as we dig deeper into the heart of a rich, opportunity-abundant continent and the many attractions it holds for a country whose red flag and five yellow stars are on the rise. This is Digging Deeper with Moneycontrol, with me Rakesh Sharma.
2009 was a landmark year in Africa - China replaced USA as Africa’s biggest trading partner. As we noted in a previous podcast, China loaned a whopping $95.5 billion across Africa between 2000 and 2015. Currently, that number is estimated to be closer to 135 billion USD. One Quartz.com article claimed that between 2012 and 2017, “Chinese lending to sub Saharan African countries jumped to more than $10 billion a year, up from less than $1 billion in 2001, according to credit analysts at Moody’s.” The Middle Kingdom had pledged a further 60 billion USD in aid to African countries last year, including credit lines, aid and interest-free loans, development financing, import financing and other types of investments. Yesterday, a Chinese diplomat in Namibia said his country is ready to back Africa with “unwavering support in infrastructure development and financial investment…” as part of implementing the deals made at the 2018 Forum for China-Africa Cooperation. China has also become one of the main weapons exporters to the continent after Russia, USA and some European nations. China’s first overseas military base opened in Djibouti in 2017. (For those that do not know, Djibouti is a small country that is bordered by Somalia, Ethiopia and Eritrea and sits at the place where the Red Sea opens out into the Gulf Of Aden.)
China has invested billions of dollars in Africa building all those massive infrastructure projects as part of a project called the Belt and Road Initiative, or BRI - an estimated one trillion dollar plan to connect China with trade routes all over the world. The Guardian described this project as “...a 21st century Silk Road, made up of a “belt” of overland corridors and a maritime “road” of shipping lanes.” China is carrying out and/or planning construction projects in over 60 countries along these routes to bring its plan to fruition. BRI has been called many things - a state-backed campaign for global dominance, a stimulus package for a slowing economy, a massive marketing campaign for something that was already happening – Chinese investment around the world. Since its announcement in 2013, the project has morphed into a broad catchphrase to describe almost all aspects of Chinese engagement abroad. Essentially, BRI could be defined as China’s broader foreign policy in one acronym.
It includes 71 countries that account for half the world’s population and a quarter of global GDP. Many countries like Panama, Madagascar, South Africa and even New Zealand officially pledged support for this mega connectivity plan. India, of course, is no fan of any such belts or roads, and has rejected BRI as part of China’s plan to advance its geopolitical agenda at the expense of smaller developing nations. Going back and forth, India has at best been equivocal about the initiative. India also fears that BRI could diminish its influence in the Indian Ocean zone, a region where it enjoys somewhat stronger sway. And, if truth be told, those fears could turn out to be true given India’s foreign policies that are perceived as wishy-washy. Because China usually has a plan, and India usually doesn’t.
By July last year, Chinese companies had secured more than $340bn in construction contracts along the Belt and Road. But, as The Guardian observed, China’s dominance in the construction sector came at the expense of local contractors in partner countries. The vast sums raked in by Chinese firms seemed to be at odds with official rhetoric that Belt and Road is open to global participation, suggesting that the initiative is also motivated by factors other than trade, such as China’s need to combat excess capacity at home.
Africa, for its part, has been growing. The United Nations estimates that by 2025 Africa’s population will exceed that of even China. Governments and businesses from around the planet are working to strengthen diplomatic, strategic and commercial ties with African nations. This creates vast opportunities. Between 2010 and 2016, over 320 embassies and consulates were opened in Africa. Turkey alone opened 26! India also announced it would open 18 embassies. (Hey, if we don’t have a cogent foreign policy roadmap, we can always follow the leaders.) Military ties are deepening as well. USA and France are lending weapons and technology to the struggle against extremism in northern Africa. China is, as we mentioned earlier, one of the biggest weapons sellers in sub-Saharan Africa and has defence-technology ties with 45 countries. Russia has signed 19 military deals with various African states. Oil-rich Arab states are building bases on the Horn of Africa and hiring African mercenaries. In 2006, Africa’s biggest trading partners were America, China and France. In 2018, that list read China, India and USA. France fell way down to seventh place. Over the same period, Africa’s trade has trebled with Turkey and Indonesia, and more than quadrupled with Russia. Trade with the European Union has grown by 41%. The biggest sources of foreign direct investment are still firms from America, Britain and France, but Chinese firms, including state-backed outfits, are pouring in. We had briefly covered this in a previous podcast. Also, investors from India and Singapore are eager to join the fray. Many countries are engaging with Africa seriously. Since 2008 Turkey’s leader, Recep Tayyip Erdogan, has paid more than 30 visits to African countries, most of them sub-Saharan. Emmanuel Macron, the president of France, has visited the continent nine times since taking office in 2017. Narendra Modi has visited eight African countries. But none of them have engaged with the continent quite like China has. China’s top officials made 79 visits to Africa between 2008 and 2018.
Chinese money leads the way
Let’s look at China’s investments in Africa. Many African countries have joined the BRI party. One of them, Ethiopia, is a curious case - it is so in love with all things China that political training programmes for Ethiopians are undertaken where members of ruling parties, labour unions and ministries head to China to meet members of the Chinese Communist Party. Ethiopia’s ruling EPRDF party has copied much of what it has witnessed in China, tightly controlling business and investment, and replicated China’s Central Party School and party cadre system. Many more African nations, which desperately want to boost infrastructure, economic growth, and global competitiveness, have increasingly turned to China for loans. Take South Africa, for instance - more than half the members of the executive committee of the ruling African National Congress have attended such schools in China, a country the ANC calls its “guiding lodestar”. The Belt and Road project’s showpiece in Africa is Kenya’s 465-kilometre railway from Nairobi to the port city of Mombasa, which opened in 2017 - the country’s largest infrastructure project since independence. There are plans to extend that network into South Sudan, Uganda, Rwanda and Burundi. China’s African protege, Ethiopia, got a 750 kilometre long electric railway from capital city Addis Ababa to the very important port in neighbouring Djibouti. The 3-billion-dollar project was financed by a Chinese bank and built by Chinese companies. Addis Ababa’s new light rail system was also funded and built by China, and is operated by Shenzhen Metro Group. Djibouti, as we mentioned earlier, allowed China to build its first overseas military base.in exchange for investments, preferential loans, a pipeline and two airports. French president Emmanuel Macron will soon visit France’s oldest and biggest foreign military base, the one in Djibouti. France has had a military presence in the nation of a million people since granting it independence it in 1977, and currently has about 1,500 soldiers stationed there. Interestingly, Macron’s visit will also take him to Ethiopia and Kenya. Mathieu Duchatel, head of Asian studies at the Institut Montaigne in Paris, said, “...he’s going there to respond to the huge infrastructure push China is making with the Belt and Road initiative.” The US also opened its own base in 2002 and has about 5,000 troops. The new Chinese base could eventually hold up to 10,000 military personnel. Interesting days ahead, what say?
Bloomberg reported that the China Merchant Group had tekn Djibouti’s container port of Doraleh and planned to invest up to $15 billion over the next 17 years in order to expand energy terminals and transform it to an entry point to East Africa. Onward transit to Ethiopia will be facilitated by the train line China built to Addis Ababa last year.
The Guardian reported that Chinese infrastructure projects stretch all the way to Angola and Nigeria, with ports planned along the coast from Dakar to Libreville and Lagos. Beijing has signalled its support for the African Union’s proposal of a pan-African high-speed rail network. And Chinese presence seems to be so enmeshed at this point, you’d be hard pressed to parse Chinese investments from African development. Professor Steve Tsang, director of the Soas China Institute, told The Guardian, “If you’d like a project to be Belt and Road, it can be Belt and Road...You can fit anything into it. It’s a way of getting support for your project.” According to Winslow Robertson, a specialist in China-Africa relations, it is as much a centralised initiative as it is a brand. He said, “Who determines what is a Belt and Road project or a Belt and Road country? Nobody is sure. Everything and nothing is Belt and Road.”
The flip side
All this rush to invest in Africa has a lot of people worried. The Centre for Global Development found that Djibouti was among eight Belt and Road countries significantly or highly vulnerable to debt distress from the loans. IMF figures showed its public external debt swelled from 50% to 85% of GDP in just two years. The affected nations – Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan – are among the poorest in their respective regions and will owe more than half of all their foreign debt to China. Former US secretary of state Rex Tillerson accused China of predatory loan practices. His predecessor Hillary Clinton had warned of China’s “new colonialism”. Some governments, from Malaysia to even “all-weather friend” Pakistan, may have begun to rethink the costs of such projects. Malaysia has complained that its belt and road projects are too costly. The US$60 billion China-Pakistan Economic Corridor, or CPEC, is fiercely opposed by India because it runs through PoK. The most widely quoted example is Sri Lanka. The Sri Lankan government leased the port of Hambantota to a Chinese company for 99 years after struggling to make repayments.
Critics are concerned that China could use “debt-trap diplomacy” to extract strategic concessions – such as over territorial disputes in the South China Sea or silence on human rights violations. One example - in 2011, China wrote off an undisclosed debt owed by Tajikistan in exchange for 1,158 sq kms of disputed territory. Scott Morris, one of the authors of the Washington Centre for Global Development report, told The Guardian, “There are some extreme cases where China lends into very high risk environments, and it would seem that the motivation is something different. In these situations the leverage China has as lender is used for purposes unrelated to the original loan.”
What all this means is, as China’s Belt and Road project grows in scope, so do the concerns that it is a form of economic imperialism that gives the world’s second largest economy too much leverage over smaller, poorer countries. Take, for instance, China’s plan to set up international courts, in the cities of Shenzhen and Xi’an, the former hub of the original Silk Road, to resolve commercial disputes related to Belt and Road. Jonathan Hillman, director of the Reconnecting Asia project at the Center for Strategic and International Studies in Washington, said, “It’s a reminder BRI is about more than roads, railways, and other hard infrastructure...It’s also a vehicle for China to write new rules, establish institutions that reflect Chinese interests, and reshape ‘soft’ infrastructure.” Officials have said the courts, to be based on the judiciary, arbitration and mediation agencies of China’s Supreme People’s Court in Beijing, will follow international rules and will invite legal experts from outside China to participate. However, critics of the independence of the country’s judicial system, which traditionally answers to China’s ruling communist party, worry the courts will favour Chinese parties over foreign firms.
Then there’s the argument that many investments merely funnel the money back to China. One analysis claimed, “Often Chinese policy banks make money available for a particular project in a recipient country on the condition that Chinese companies execute the project...So, for a large part, the money flows from Chinese policy banks to Chinese construction companies..The railroad is being built, the highway is being built. Maybe it will never be used, but those construction companies reached their goal.” A report by The Economist indicated that as many as 10,000 Chinese companies could be operating in Africa, 90% of them privately owned. Many reported earning “juicy returns, in some cases enough to pay back investments in less than a year.” Many said they planned to keep investing because of the plentiful opportunities to make money. Is it just me, or does that sound worryingly similar to the statements from a century or two ago when certain other nations went around the world promising fantastic trading opportunities?
If we look at the scenario dispassionately, the fact is that, as of now, the Sri Lankan port and Tajikistan remain the only places in the world where Beijing took over state assets. Observers noted that officials understood the damages “debt book diplomacy” could bring to China. Yet Beijing’s debt relief or repayment actions, according to W Gyude Moore, a visiting fellow at the Center for Global Development, remains “haphazard...unpredictable. There’s nothing written. It’s confusing.”
Africa’s problem with debt
For all the allusions to neo-colonialism, it is also well worth our time to looking at the struggles African nations have had with loans. One Deutsche Welle report says, “In 2017, the International Monetary Fund identified nine low-income sub-Saharan states, including Cameroon, Ethiopia and Zambia, as countries at high risk of debt distress. According to the IMF, six more countries are deep in debt: Chad, the Republic of Congo, Eritrea, Mozambique, Southern Sudan and Zimbabwe. They are considered Highly Indebted Poor Countries (or HIPCs), able to benefit from debt relief under the Western group of most industrialized countries G8's HIPC Initiative. So far, the initiative has approved debt reduction packages totaling $76 billion for 36 countries, including 30 in Africa.” Approximately 35% of Africa’s debt is owed to institutions like the World Bank.
Annalisa Prizzon, Senior Research Fellow at the British think tank Overseas Development Institute, observed that, “China is the largest moneylender for only three of these countries: Djibouti, DR Congo and Zambia.” She added that China was not primarily responsible for the debt crisis in Africa. Lucy Corkin, business manager at Rand Merchant Bank Africa, pointed out that Beijing regularly pardons a certain amount of debt at the triannual China-Africa Cooperation Forum. While they may not be huge sums, they do have positive effects on diplomatic relations. She said, “In most cases if there is exploitation, it occurs in terms of the relationship or the responsibility and the lack of responsibility that is shown by the African governments to their own people.” She added, “African governments are the ones that go to China to seek these loans and then they will negotiate the terms for it.”
As for China, the National People’s Congress spokesman and former foreign affairs vice-minister Zhang Yesui refuted all talk that the Belt and Road project lacks transparency and creates debt traps for participating countries. He said, “China attaches great importance to the problem of debt sustainability and will neither force others to cooperate on projects nor create any traps. Obviously, like other international cooperation initiatives, there will be some difficulties, problems, risks and challenges during the implementation of the Belt and Road Initiative. However … with continued overall improvement, I believe that the Belt and Road Initiative will certainly bring better development and even more rewards to participating nations.”
Harry Verhoeven, convenor of the Oxford University China-Africa Network, said, “Beijing has in reality been stung by the mounting criticism in Africa, South America and the West about the unexpectedly high financial and political cost of its infrastructure diplomacy in general, and BRI in particular.”
Also, let’s face it - there is nothing wrong with infrastructure investment or promoting global connectivity. The Asian Development Bank estimates that Asia alone needs about $26 trillion of investment in infrastructure until 2030 in order to sustain current growth rates. According to the International Monetary Fund, a lack of adequate infrastructure is one of the biggest hurdles for growth and development in Africa and Latin America. So, China’s BRi is only filling huge gaps that exist in many places. International development banks, like the African Development Bank and the World Bank, have limited funds that are not enough to finance all necessary infrastructure development. Western commercial banks cannot provide risky loans anymore since the economic crisis. Frans-Paul van der Putten, who works with a Dutch international relations think tank named Clingendael, said, “China’s role is crucial here...Not only is it an alternative source of financing, it is also a really big one.”
Quartz noted that in recent years, countries like Cameroon, Tanzania, Ethiopia, and Botswana have all sought to have their debts restructured or written off, with varying degrees of success. But Beijing’s actions - taking over land in Tajikistan and the Hambantota port in Sri Lanka in exchange for the waiving of outstanding debt - are definitely cause for concern. And countries that have held power in the last few centuries - Western European countries and the USA - are keeping a close watch.
Last August, several US senators wrote to Steven Mnuchin, the Treasury secretary, and Mike Pompeo, secretary of state, accusing Beijing of "weaponising capital" in Africa, by using debt to create an economic world order in China's image.
The Trump administration has been trying its bit to cosy up to Africa. It backed a big expansion of the Overseas Private Investment Corporation, a private sector focused development agency whose lending limit is to be more than doubled to $60 billion. It even found rare bipartisan support in the House. The supporters of this Act, called BUILD (Better Utilization of Investments Leading to Development) are explicitly linking national security to China's growing influence in Africa. Analysts, however, have noted that America is not going all in yet simply because it is still concentrating on the threats in Africa, and not the opportunities.
Britian is still the second biggest investor in Africa, not least due to its history with the continent. It is still one of the biggest aid donors to Africa. But analysts have noted that London has become diplomatically disengaged with Africa. “Poor Mrs May really has a lot of catching up to do,” said Mark Malloch Brown, a British diplomat and former deputy UN secretary-general under Kofi Annan, as reported by the Financial Times. The rise of China did not just creep up on them, but murmurs of the rise were just never taken seriously enough. And now there has been attempts at correcting their blase attitude, although it is safe to say Theresa May's dancing may not have been the best route to reassert Britain's relevance.
The other European powerhouse, Germany, has launched something called the "Marshall Plan with Africa," pledging public money to companies investing on the continent. “We are going to create more security for ourselves and we will put an end to trafficking,” said German chancellor Angela Merkel, launching a scheme that has been slow to get off the ground. Kwasi Prempeh, executive director of the Center for Democratic Development in Accra, also points out how the development of Africa and Europe's investments there could be connected to immigration taking place from Northern Africa to Europe, specifically Germany. He says: "They’re thinking: ‘If we can get these countries to be economically viable, either through direct investment or aid, then maybe we can stem the flow'" It is perhaps in this regard that Volkswagen has committed to assemble 5000 cars in Ghana. It is perhaps also in this vein that France has sought to articulate a new vision for the continent. As FT notes, "Whether driven by fear or a sense of commercial and diplomatic opportunity, the wider variety of actors has presented African leaders with greater choice."
Howard French, a professor at the Columbia School of Journalism and an expert on Africa, said to FT, " "At the end of the cold war, the west very much withdrew and stopped asserting its interest in Africa. It has taken all this time for the vacuum that this created to draw in a panoply of new players. China is the most obviously important, but Malaysia, India, Vietnam, Turkey, Brazil, Russia and the Gulf states have all been drawn in."
China leads the pack thus far. But not without obstacles. Civil society groups across Africa are asking for checks and balances, accusing many leaders of cutting corrupt deals helping them line their pockets in projects that they deem bad for their respective countries. Accusations of lack of transparency in loans from China and other countries are often brought up by critics who also say that the projects thus financed do not/cannot make sufficient returns to pay back the underlying debt, thus also pushing these countries into an ever-worsening debt trap.
Africa's theme for this century has been one of growth. We do not yet see a big improvement in living standards across the continent, but there are several numbers to indicate robust growth, and hopefully eventually, better living standards in the coming decades. Of the world’s top 10 fastest-growing economies in 2018, according to the World Bank, six were in Africa, including Ethiopia, a country of 105m people where China, Turkey and the Gulf states are all active. From 2018 to 2035, the UN predicts that the world’s 10 fastest-growing cities will all be African. With a median age of just 19, the continent’s population is expected to double to more than 2bn by 2050 and to double again by the end of the century.
And China, more than any country, knows these numbers well.