Workers stand near flags of countries participating in the Belt and Road
Forum at one of the venues of the forum in Beijing on April 27, 2019.
PHOTO | GREG BAKER | AFP
East Africa's leaders and senior bureaucrats arrived in Beijing
early this week for a meeting with their counterparts from at least
three dozen states to deliberate on Chinese President Xi Jinping’s
signature project, the Belt and Road Initiative.
And
despite concerns by mainly Western critics about the towering profile of
Chinese debt in the developing world, a few African leaders did not
leave their begging bowls behind.
Where Ethiopia hoped
to renegotiate long overdue obligations to China, Kenya and Uganda were
expected to seek financing for pending SGR projects.
In
the 2019 edition of its Africa Pulse report, the World Bank notes that
the external debt of nearly half of sub-Saharan Africa’s low income
economies had shifted from concessional to more expensive private
sources of funding. This has consequently put many of them at risk of
debt distress.
Besides the growing pile of debt, the type of debt has made a number of African economies vulnerable.
Both
China and its critics have a point. Beijing is correct when it argues
that developing countries need a helping hand to revamp the
infrastructure they need to participate more and effectively in global
commerce.
Yet Western countries that have in the past
two decades had to write off billions of dollars in bad debt owed by
African states, should not be dismissed either.
Many
borrowers from China’s seemingly bottomless well of credit are showing
signs of distress. Stories of China threatening to take over key
national institutions from defaulting states demonstrate the dangers of
unbridled borrowing from that country.
African states
are walking a tightrope with China primarily for two reasons. The
investments made don’t always bring the anticipated returns.
China itself is not a major trading partner with most of its clients.
The share of Chinese credit in Uganda’s foreign debt has expanded from just 3 per cent in 2011 to 20 per cent in 2018.
On the flipside, Uganda sold barely $50 million worth of goods to China against annual imports averaging $900 million.
While
not unique, the reality is that a sizeable proportion of Chinese loans
is often repatriated, leaving borrowing countries stuck with shells of
infrastructure.
Recent numbers show nearly 117,000
Chinese workers were employed in East Africa over the past nine years
while Chinese firms earned $41 billion in contracts from Kenya, Uganda
and Tanzania over the 20-year period to 2017.
The
dilemma of Chinese debt will only be resolved if the parties take a more
critical look at how debt generates new value to support repayment.
For instance, Uganda and Kenya have committed to a standard of SGR well beyond their capacity to generate corresponding value.
Without economic integration in Africa, some of these projects do not make sense.
For
instance, despite a fine highway they simultaneously developed to
facilitate trade back in 2011, trade flows between Rwanda and Uganda
have come to a halt because of bad politics.
If China is doing business by lending to us, we must make sure that there is value in the debt we pick up.
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