By Alonso
Soto and Mathew Hill
Dipak Patel can still recall the dizzying grandeur of his 2003 visit to Beijing’s cavernous Great Hall of the People: the rows of stern guards all the same height, the state dinner that included stewed shark fin and bird’s nest soup, and the People’s Liberation Army band playing songs from Patel’s native Zambia—even singing in one of the African country’s scores of dialects.
The
Tazara railway runs from Lusaka to Dar es Salaam, Tanzania. It
was China’s first foreign aid project. |
As Zambia’s minister of commerce
at the time, Patel had joined the delegation to cement ties
and—crucially—secure financing for big-ticket infrastructure initiatives.
While most delegates were eager
to accept anything they could get for projects such as a hydropower dam and a
50,000-seat soccer stadium, Patel urged caution. “My view was that we needed to
build a strategic partnership and think it through,” he says. “But I was one
voice in the cabinet.”
His warning went unheeded, and
Zambia started to take out loans from Chinese banks for airports, hospitals, housing
projects, and the roads connecting them. Chinese credit has grown to about a
third of Zambia’s external debt, which has surged sevenfold over the past
decade, forcing the government this year to ask creditors to reschedule loans.
Patel, now a real estate
investor, is challenging in court the legality of billions in foreign
money Zambia has borrowed without what he says was required consent from
Parliament.
“Nobody other than the government
knows the terms,” he says. The government says it didn’t need parliamentary
approval.
Patel is among a growing number
of African activists and policymakers questioning the deluge of Chinese credit;
some $150 billion in 2018, according to researchers at Johns Hopkins University
that has fuelled a debt crisis aggravated by the new coronavirus.
Nigerian lawmakers are reviewing
Chinese loans they say were unfavourable. Activists in Kenya are demanding the
government disclose the terms of Chinese credit used to build a 470-kilometer
(292-mile) railway. And Tanzanian President John Magufuli calls an agreement
his predecessor made with Chinese investors, to build a $10 billion port and
economic zone, a deal “only a madman would sign.”
While it will be tough for
cash-starved African governments to win many concessions, a wave of looming
defaults poses the biggest test ever for China’s influence in the region.
The Maputo-Katembe bridge in Maputo, Mozambique
“This has the potential to
produce the most profound change in relations since China became a major
economic player on the continent,” says Chris Alden, an international affairs
professor at the London School of Economics. “African governments and society
are increasingly asking China to come up with answers to this problem.”
Chinese lending to Africa dates
at least to the 1960s, when Mao Zedong channelled arms and training to rebels
fighting for independence from European colonial powers.
The support was limited, because
China was as poor as many African countries, but it has since grown into an
economic superpower in need of new markets and raw materials and seeking to
boost its global political standing.
In the past two decades, Beijing
has handed out loans to developing countries at a speed and scope not seen
since the U.S.-financed Marshall Plan in Europe after World War II.
In Africa, Beijing was eager to
fill the vacuum left when U.S. and European interest in the continent waned
following the end of the Cold War.
Governments there were hungry for
loans not tied to austerity programs imposed by Western financial institutions,
and China was quick to approve credit, with scant concern about the money
going to regimes accused of corruption or human-rights violations.Kenya's SGR railway
“For China, as the newest power
on the block, the only region of the world that was uncontested was Africa,”
says Gyude Moore, Liberia’s former minister of public works and now a senior
fellow at the Centre for Global Development in Washington. “When people complain
about Chinese loans, it’s not as if most African countries have a plethora of
options.”
It’s hard to
miss China’s footprint in Africa. In tiny Guinea-Bissau, the exit signs in a
government building are written in Chinese characters. In Mozambique, Chinese
money paid for a 2-mile-long suspension bridge, the longest on the continent,
which links the capital with beach resorts and neighbouring South Africa.
China helped
foot the bill for Senegal’s Museum of Black Civilizations which until recently
included Chinese art in its exhibits.
It’s become the
largest financier of infrastructure in Africa, with the likes of the China
Export-Import Bank and the China
Development Bank funding a
fifth of big projects, according to consulting firm Deloitte.
To guarantee a
quarter of that debt, African countries have effectively mortgaged future
earnings from exports of commodities such as oil, cocoa, and copper.
While loans by
private investors from around the world still make up more than half of
Africa’s external public debt, Germany’s Kiel Institute for the World Economy
says China has lent more than the International
Monetary Fund, the World Bank, and the Club of Paris, a group of wealthy countries,
combined.
And many loans
aren’t made public, prompting suspicions that Africa’s debt to China is bigger
than estimated. The Kiel group says as much as half of all Chinese lending to
developing countries, or about $200 billion, hadn’t been reported to the IMF
and World Bank as of 2016.
The Chinese
loans have drawn parallels to the lending boom of the 1970s that led to a
crippling debt crisis across the developing world a decade later. “We’ll see a
wave of defaults,” says Christoph Trebesch, an author of the Kiel study. “It’s
just a question of whether it will be a huge wave or a small wave.”
Nondisclosure clauses mean many
loans escape public scrutiny, raising fears of money ending up in the pockets
of corrupt officials or middlemen.
A Hong Kong businessman known as
Sam Pa (he has at least seven aliases), believed to have brokered various
multibillion-dollar deals in Africa, was detained in 2015 as part of an anti corruption campaign in China. Pa’s opaque business empire, in part financed
by Chinese state-run banks, is still being unwound by prosecutors.
“If there is so much secrecy
around Chinese lending, there must be something illegal,” says Khelef
Khalifa, an activist demanding the Kenyan government provide details on debt
from China used to fund a rail link from the port of Mombasa to the capital,
Nairobi.
The Trump administration has
accused China of loading poor countries with unpayable debt to snatch up prized
assets and boost its clout with vulnerable governments. But some
researchers say fears of Chinese predatory lending are exaggerated.
China hasn’t seized property or
used courts to enforce debt payments, according to a study by the China Africa
Research Initiative at Johns Hopkins. The study’s authors say the most
frequently cited example of what awaits developing countries that default on
Chinese loans; Sri Lanka’s sale of a majority stake in a port to a Chinese
company in 2017—was a privatization and not a debt-for-equity swap as reported
by some media.
Faced with growing criticism and
a slowing economy, China has become more cautious. Its multibillion-dollar “Belt
and Road” initiative, aimed at expanding commercial ties around the
world, has tightened oversight of projects and it now gauges a country’s
capacity to repay before approving credit.
Annual loan commitments have
fallen from a peak of almost $30 billion in 2016 to $8.9 billion in 2018, Johns
Hopkins says. Chinese President Xi Jinping has vowed to cancel a small portion
of loans to governments in Africa and called on state-run banks to rework
commercial debt owed by borrowers in the region.
Debt service on Chinese lending
accounts for 60% of all principal and interest payments due this year from the
73 countries eligible for an eight-month suspension offered by the Group of 20
leading economies, the World Bank says.
It may be easier for African countries
to gain debt relief from China than from commercial bondholders, according to
Deborah Brautigam, who co-authored the Johns Hopkins study, which examined more
than 1,000 Chinese loans to the continent.
While private investors have sued
countries over defaults and workouts can entail years of negotiations, Chinese
lenders don’t have a lot of leverage over borrowers, and there’s little
evidence of penalties for non-payment.
China has written off $3.4
billion and restructured or refinanced about $15 billion of debt in Africa over
the past decade, Brautigam says. “We don’t see a lot of options for Chinese
lenders,” she says. “They can’t send in gunboats.”
Even with some
relief, Africa, facing its worst recession ever and with few other sources for
fresh loans, will likely remain deeply indebted to China for decades.
Zambia still
hasn’t paid off the Mao-era Tazara railway, a 1,860-kilometer line built in the 1970s to haul copper to
the port of Dar es Salaam in Tanzania. The railway, China’s first foreign aid
project intended to circumvent White minority-ruled Rhodesia and South Africa is
in deep disrepair, operating at a fraction of its original capacity, with few
working locomotives.
That, says Patel, the former Zambian minister, should serve as a note of caution, as the railway never met its goals and paid back on the investment. “You would have thought the government would have learned from that lesson,” he says. “If you borrow for projects that have hardly any economic return, then it becomes a liability.” - Bloomberg
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