Deconstructing the Lies About the So Called Africa's Debt Trap to China

China has constructed significant infrastructure projects in nearly every African nation within the last 20 years. And this has unnerved critics in the West. Africa and China may establish a more robust, all-encompassing, strategic, and cooperative alliance. A popular description of China's lending methods is called "debt-trap diplomacy," which gained traction after appearing in official documents during the Trump administration. When richer nations lend to weaker nations, purposefully piling on unmanageable debt and pressuring them to give up critical assets or give up more political clout, the so-called debt-trap is created. However, there is currently no proof that such a debt trap has been unlatched in Africa.

As with all stereotypes, there is always a grain of truth to it. But when any kind of genuine investigation is conducted, it crumbles extremely swiftly. The emphasis on debt-trap diplomacy stems from broader concerns in the West about China's influence in Africa. As we've already seen, Chinese infrastructure projects and investments have been connected to a rise in Chinese influence among the ruling class of the host nation. That might wind up serving as a kind of leverage point for China to get the governing classes or some of these nations to support China on crucial issues that affect the United States or its allies. However, China has been constructing, while the United States has concentrated its Africa strategy on aid and social services. The countries of Africa themselves stated, "We are tired of aid and charity, we want to do trade, we want to be treated like partners." The Chinese came along and said, "Great. "We don't do aid and charity, we want to do business with you."

Up to 2027, Global Gateway will mobilize $300 billion. In an attempt to confront China, the United States and Europe have responded with their own infrastructure projects, but experts from Africa remain dubious. China has ultimately been that flower-bearing guy who lives around the corner. Africa has frequently heard the warnings from the United States, Europe, and the United Kingdom to "be careful of the flowers you see out of the window, they have thorns on them." The British government's transfer of authority to Ghana was handled with dignity and without incident. African nations achieved independence from European conquerors throughout the 1950s to 1970s. Organizations led by the United States and Europe, such as the World Bank and IMF, provided much-needed infrastructure funding for Africa. But that eventually ended.

The United States and Europe kind of backed away from infrastructure in the 60s and 70s. It's something that we did very, very well for a long time in the postwar era, we built vast amounts of infrastructure worldwide. One critical area you observe in Africa, is that a lot of the railways, the highways and the infrastructure was constructed during the colonial time. Back then it was very solid. However, it's been crumbling since the former colonial governments never plow in lots of investments. Then China comes into place. Since the 1970s, Beijing started constructing the Tazara Railway, a link between the Zambian town of Kapiri Mposhi and Dar es Salaam port in Tanzania. At the time it was the longest railway in Sub-Saharan Africa, letting Zambia to ship copper, bypassing white-ruled Rhodesia and South Africa. It also gave China much required political associates. Beijing said, "We have problems, you have problems, we will help you out." And they went on board on this. And this is really some of the original seeds that China planted in Africa that subsequently came to succinctly define the division between the West and the East, as far as China's immersion in Africa is related.

China increased its investment in Africa in the early 2000s as it sought to increase its political clout and access to international markets. "Well, guess what?," the Chinese exclaimed. Right present, we lead the globe in the quick and affordable production of large-scale infrastructure. We'll lend you the money because we have extra capital and excellent contracting businesses. We are fully capable of providing services quickly and affordably." And it was truly a perfect fit in that regard. They identified the developmental stage of Africa. And they declared, "What do you know? That was us thirty years ago. A large portion of this is something we already know. You have a sizable and rapidly expanding population, but not enough infrastructure."

Furthermore, we should not undervalue the joint heritage of anti-colonial struggle in this area. As a result, you check off all those boxes, and the Chinese had a lot of logic into Africa. China is presently active in almost 35 African nations, and it has significantly improved their ports, power plants, and other infrastructure. China is thought to have spent around $340 billion on investments in Africa. Thus, this might not be as much as what China is investing worldwide. However, given the massive infrastructure gap that Africa confronts, that's a lot of money. However, there are clear distinctions between Chinese finance and the historically low interest rates and liberal terms associated with Western lending.

Yet, if you were to take a general overview of the many loan forms involving Chinese lenders, you could basically divide them into three categories. Three types apply to the loans. Concession loans, which have a lower interest rate and are typically used for massive infrastructure projects, are the most prevalent type of loan; they have higher interest rates than commercial loans, which are typically supplied as aid. When scholars talk about Chinese loans, one of the most fascinating patterns we observe is the propensity to lump all three together. When you see anything like that, the first thing you should always ask yourself is: Are they comparing apples to oranges?

The truth is that, and I hope the borrowers out there are listening, 95%, if not 99%, the loan agreement is there in favor of the lenders, no matter who you deal with. This is because by the time you sign that loan agreement and you get the money, you'll have the money in your hands and the only thing the bank will have been a piece of paper. That is why the loan agreements are in their favor. In one report, which analyzed 100 Chinese contracts, it revealed that the loans are structured to give an advantage over other creditors and allows action to be taken if the borrower acts contrary to the interests of a People's Republic of China entity. There are also unusual clauses that shroud agreements in secrecy. When you look at multilateral lenders like the World Bank and the different agencies, their shareholders are countries and they're required to publish their lending and activities just to be transparent. They don't have any choice. On the other hand, when you come to commercial banks then you'll see a very different case.

Banks often are under a duty of confidentiality to their clients. I think the Chinese banks are no different. But the rush to give out loans by the Chinese has meant some of their early investments weren't as profitable as projected. So, when China stepped into the field, it was much welcomed by the developing world that there would be increased financing for infrastructure. However, with the rush to get projects off the ground, to put them into action and to begin construction, critical due diligence was often left by the wayside; financial sustainability, social and environmental sustainability assessments kind of never were done or were done haphazardly, or were simply not transparent or available to the populations. What this has ended up causing is states to take on projects that they initially thought were affordable, but unfortunately, they've been now saddled by debt.

China is coming for its pound of flesh in Uganda. In 2021, the Entebbe International Airport in Uganda, came under fire after local media reported that the airport would be taken over by China. We call this a debt-trap. After closer examination of the contract, it was found there was no debt-trap. And both sides have denied that the airport is in danger of a takeover. I think there is an assumption that certain governments are not able to look after themselves, or they're either not sophisticated enough or just simply too corrupt to look after its own interest. I think in my personal view and experience, that just simply hasn't been true. Experts say more should be done by borrowing countries to make sure loans are more favorable to their interests.

Still, the Chinese argue that the risk level is higher in African countries and greater repayment assurances are needed for loans that might not otherwise be available. Certainly, in my 20 years of experience, I've never seen a case where the Chinese bank would just say, "Look, don't read this, just sign on the dotted line." In fact, they will spend days and days and they're sitting with us, going through every line of the document and making sure the other side understands, because they know in 10 years’ time, if they don't explain this clearly, this is going to come back and haunt them. Certainly, there are issues with how China finances projects, there are issues around transparency, but I don't think this is some sort of grand master plan from Beijing in order to ensnare developing countries into debt and become further beholden to Beijing.

In Kenya and Nigeria debts to Beijing are growing. These include Kenya's $3.6 billion railway from Mombasa to Nairobi, which reportedly lost $200 million in three years of operation. And a $1.3 billion loan from the China Exim Bank, to fund Nigeria's largest infrastructure project, a 157-kilometer segment of the Lagos-Kano railway. The government itself can't afford to finance these things. The private sector isn't really stepping up, the West has not got an alternative program. So therefore, China is the only game in town and the terms of the loans are reasonable. At the same time, you have members of The National Assembly, particularly, from the main opposition party, vocally criticizing the government for what they perceive to be a lack of transparency around the management of the loans from China. They often articulate this worry that you hear in other parts of Africa, that China will try and seize Nigerian assets in the event of a default by the Nigerian government.

Nevertheless, looking closer at Kenya and Nigeria's total public debt, it doesn't appear that China's in a position to use the debt it's owed as leverage. In Kenya, Chinese loans account for about 10% of the country's $70 billion total debt. And it's even less acute in Nigeria where the Chinese debts are just about 3-4%. Subsequently, we have to focus on the data as it is, not as these narratives and the storytelling which we have these fantasies that Kenya is going to be taken over by the Chinese. One country cannot control another country just by owning 4-10% of its debt. Only a handful of countries on the African continent have a significant amount of debt owed to China. And most of them owe much more to private bond markets. Africa does not have a Chinese debt problem.

Angola weights about a third of all Chinese debt in Africa. As such, take Angola out of the issue, then you have an even less serious problem in that respect. It is very important that we narrow down this problem to be what it is. But it only takes one bad deal to affirm Western fears. In the Democratic Republic of Congo, a controversial method of borrowing based on future natural resource revenue, has meant some projects have fallen victim to corruption. Congo has a very, very significant mining industry. It's Africa's biggest producer of copper, it's by far the world's biggest producer of cobalt. Cobalt is a key ingredient in the rechargeable batteries that power electric vehicles. You hear politicians talk about Congo saying that, "We are to cobalt as Saudi Arabia is to oil." However, up until now at least, the benefits to government revenue and the benefits to the population at large, have been rather limited. In 2008, China and the Democratic Republic of Congo, agreed that Chinese companies would finance $3 billion worth of infrastructure and build a $3.2 billion copper and cobalt project, whose tax-free profits would repay both investments.

China with the help of these mines has now come to dominate an industry at the heart of future technologies. And leaked documents reveal millions of dollars that flowed from Chinese entities, including the multi-billion-dollar mining project, to the family and associates of Congo's then-president Joseph Kabila. If the example of Congo applies elsewhere, these companies operate with a real deliberate lack of transparency. And if they find a willing partner in a government, as they did in Joseph Kabila's government, this lack of transparency can extend to and really envelope the relationship between the state and these mining companies. There is a lot of anxiety in the West over China's involvement anywhere really, because it's a strong number two to the US. And being a superpower and China having very strong links with Africa, setting up a lot of logistical supply chains in Africa, preparing to expand its trade and take it to the next level, is worrisome. Cause whatever happens in Africa or whatever happens in Asia, ultimately can affect the world order.

Yes, there is a lot at stake. Ideology may also be on the line. Countries that receive help from the U.S. or European multilateral development banks, often require values that fall in line with democratic nations. Anti-corruption, good governance, transparency, participation, inclusion, these are things that really matter. We should want projects that are beneficial to the populations, that don't negatively affect them. And hence, while it may hinder the U.S. in being able to lend to certain countries, I don't necessarily think that's a bad thing. When countries in Africa take help from China, they're expected to side with, or at least not participate in the condemnation of China on key issues, including Taiwan and allegations of forced labor in Xinjiang. On these sensitive red line issues, and Taiwan is certainly one of them, this is where the political relationship becomes more evident and much more important. Africa, more than almost any other region in the world, tends to vote as a block in major international organizations. And tends to express itself as a group, if not the whole continent.

Again, this is the political symbolism that's becoming increasingly important to China from a region like Africa, that is so important to the Chinese, much more so in many ways than the resources, which again, aren't as important to China, simply because they can buy the resources now from any number of other places. But getting this kind of political support is very important in today's geopolitical environment. We want to show that a democratic, value-driven approach can deliver on the most pressing challenges. While the U.S. and Europe haven't attempted to try and match China's investment on the continent, they have started work to offer alternatives. The EU's Global Gateway aims to supply €300 billion globally between 2020 and 2027. And Build Back Better World or B3W from the U.S., aims to address the infrastructure needed in developing countries.

Democracies are messy. Things take time in democracies. Accordingly, while authoritarian regimes such as China are able to speed up the process, are able to get things done quicker, that doesn't mean it's of a better quality. And I think that's really where the U.S. and others and through the B3W initiative, can really make a difference, is by actually developing and building high quality infrastructure. We believe in the nations of Africa, in the continent-wide spirit of entrepreneurship and innovation. Yet skeptics of U.S. and European-led projects say they're aimed at specifically targeting Chinese influence, rather than working with African countries as business partners. And they lack specific information that have many wondering whether or not they'll result in significant action in Africa.

When you talk to the Chinese, they'll tell you that, "We have come along way with Africa both culturally and economically, we have had similar problems as Africa and we want to help them grow because they were in a position where we were." In Africa, the Africans will tell you, "We need the money. We have a huge infrastructure gap. And it doesn't matter whether the money is blue or red, as long as it can do the job, we will accept it." When we talk to some of the economists that follow China and the African governments, they will tell you that there has been benefit for these projects overall for Africa. How they have been done, the terms as well as how these projects have been got, is another story.

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