Critics, as expected, followed the recent loan request by President Mohammed Buhari of Nigeria, to the Chinese government, to be used in ICT infrastructural developments.
The criticism is understandable bearing the fact in mind that this is a government that few weeks back, decided to convert to Naira, and distribute among the poor, the recovered former maximum dictator, Gen. Sani Abacha loot. Most of the genuine critics were of the opinion that it’s far better to have invested the recovered fund on infrastructural development, than to borrow to do same after throwing a free party.
Moreover, bearing in mind that most economic experts are not at home with our $22b USD debt, which some expert argue our economic growth can absorb. To those who share contradicting opinion, distribution of the Abacha loot is like giving the poor fish for a day, while infrastructural development is like teaching them to fish.
Be that as it may be, I want to take a general critical look at the Chinese loans to Africa and compare it with the Western aid. Listening to the attached video was one of the motivating factors that influence this research.
Of recent, African countries have shown a healthy appetite for Chinese loans but some experts now worry that the continent is gorging on debt, and could soon choke. But, left for me, with the way the loans are being structured and attached to visible projects that contributes directly to economic growth and social development, I don’t think there’s anything to fear. This is unlike most of the western loans that comes with so much string conditions without any visible economic activity to show for it.
Take for instance, the Entebbe-Kampala Expressway that the Chinese loan help facilitate. Today, it’s something of a tourist attraction for Ugandans, nearly three months after it opened.
The 51km (31 mile), four-lane highway that connects the country’s capital to the Entebbe International Airport was built by a Chinese company using a $476m (£366m) loan from the China Exim Bank.
It has cut what was a torturous two-hour journey through some of Africa’s worst traffic into a scenic 45-minute drive into the East Africa nation’s capital.
Uganda has taken $3bn of Chinese loans as part of a wider trend that Kampala-based economist Ramathan Ggoobi calls its “unrivalled willingness to avail unconditional capital to Africa”.
Like the Makerere University Business School lecturer told the BBC.”This debt acquired from China comes with huge business for Chinese companies, particularly construction companies that have turned the whole of Africa into a construction site for rails, roads, electricity dams, stadia, commercial buildings and so on,”
No doubt, the Chinese loans are coming at point when as many African countries are once again in danger of defaulting on their debts more than a decade after many had their outstanding borrowing written off.
At least 40% of low-income countries in the region are either in debt distress or at high risk, the International Monetary Fund warned in April.
Chad, Eritrea, Mozambique, Congo Republic, South Sudan and Zimbabwe were considered to be in debt distress at the end of 2017 while Zambia and Ethiopia were downgraded to “high risk of debt distress”.
But, the point they failed to point out is that, unlike the the Chinese loans that are being invested directly in infrastructures that can aid economic growth, it’s difficult to trace the use made of most of loans from the western societies. Most of the loans are attached to bogus non existing projects and most times never leave Europe. And, when they does, the politicians always find a way to repatriate the funds back to their private account in the western world. Why the nation is left with the debt servicing. That’s why when the debts become unproductive, it’s payment schedule are not met, it will naturally began to choke the borrower.
“In 2017 alone, the newly signed value of Chinese contracted projects in Africa registered $76.5bn,” Standard Bank’s China Economist Jeremy Stevens wrote in a note.
“However, despite a sizeable remaining infrastructure deficit on the continent, there is a concern that African countries&debt-service ability will soon dissolve,” he says.
The Chinese model has many high-profile defenders on the continent, including the head of the African Development Bank (ADB) Akinwumi Adesina, a former Nigerian Agriculture Minister.
“A lot of people get nervous about China but I am not. I think China is Africa’s friend,” he told the BBC.
China is now the single largest bilateral financier of infrastructure in Africa, surpassing the ADB, the European Commission, the European Investment Bank, the International Finance Corporation, the World Bank and the Group of eight (G8) countries combined.
Unlike most of the western loans, The impact of the money China is pumping into Africa is conspicuous all over the continent, from shiny new airports and roads as well as ports and high-rise buildings that are also creating much-needed jobs. In Nigeria, just recently, the President commissioned the Abuja Metro Station and the massive expansion of the nation’s international airport at Abuja is nearing completion.
In fact, a McKinsey and Company analysis found that the amount of loans Beijing had made to Africa had tripled since 2012, including an outsize $19bn to Angola alone in 2015 and 2016.
It cited Angola and Zambia as unbalanced partners with China in Africa.
“In Angola’s case, the government has supplied oil to China in exchange for Chinese financing and construction of major infrastructure projects – but market driven private investment by Chinese firms has been limited compared with other African countries,” the firm said.
Africa has made significant new gains in trade, investment and financing arrangements with China, says Ghanaian investment analyst Michael Kottoh.
“There are several truly win-win deals African nations have closed without the typical onerous conditions associated historically with doing business with western countries,” says Mr Kottoh, whose advisory firm Konfidants counsels international clients.
“But there is a sense in which China is obviously the bigger winner – simply because it has the upper leverage in most negotiations.”
McKinsey projects that revenues for Chinese firms in Africa could hit $440bn by 2025. Left for me, this is equally a good development, because the revenues are going to be generated from vibrant economic development growth that will lead to economic activities. In the first, the nation’s involved will first of generate revenue for herself, create employments and room for further expansion and economic development.
But, that not withstanding, there are areas where the negotiations are not too favourable. Even Mr Adesina agreed that: “The issue that I have seen is the asymmetry of power in the negotiations of the transactions, where you are actually giving your mining rights away just because you want to build a superhighway.
“You are only dealing with one country, how are you sure that you are getting the best deal?”
The other low side is the fact that China does not have a Foreign Corrupt Practices Act like the United States, or similar legislation in other Western countries that criminalise bribes paid overseas in exchange for contracts.
Even though Nobel Prize-winning economist Joseph Stiglitz calls the Western criticism of China’s work in Africa “sour grapes,” he admits that there are corruption concerns.
“Every project whether it comes from the west or China needs to be evaluated against the rate of returns,” he told the BBC in Nairobi but added that it was up to the continent’s governments to be more transparent.
Mr Ggoobi also says there are greater concerns over the environmental effects of Chinese investments, “particularly given the poor, weak, corrupt regulatory institutional infrastructure in Africa”.
In 2015, the China Africa Research Initiative at the Johns Hopkins School of Advanced International Studies sounded alarm bells that African countries might be unable to repay Chinese loans “due to fluctuating commodity prices and decreasing absorptive capacity”.
“We find that Chinese loans are not currently a major contributor to debt distress in Africa,” they now say in a new briefing paper ahead of the 7th Forum on China Africa Cooperation Summit this week in Beijing.
Today, China has the lion’s share of African debt but the countries are borrowing from many other sources internationally so it is not single-handedly to blame for indebtedness.
When the summit last met, in Johannesburg, China promised $35bn in concessional foreign aid loans among other credit lines to Africa.
What has not improved is what Standard Bank calls a “significant trade deficit with China” since 2014. It says only five African countries have a trade surplus with China. And, just recently, Nigeria made a currency swap deal with China and from indications emerging from the few activities carried out so far, it’s yet to ascertain to whose advantage the deal is. Though some economic experts see it as a win-win deal.
Mr Ggoobi wants China to help Africa build institutional capacity to attract and host viable investments using avenues like special economic zones and industrial parks to shore up the continent’s export-focused manufacturing.
So far, China has only paid lip service to such long-term support that would wean African countries off their dependency on the Asian tiger. This was exactly the same way western aids and loans was tuned to.
Djibouti last month launched the first phase of the Chinese-built free trade zone billed as Africa’s largest but it is seen as just another piece of the jigsaw puzzle as China revives old trade routes in its Belt and Road Initiative which targets 60 countries.
Ugandans might enjoy soaring above the swampy Nambigirwa Bridge on their new expressway, but there are real fears that they could end up drowning in Chinese debt.
The other low side is that the Chinese does not care what type of government that is in place as they made it a policy not to intervene on the internal matters of the African nations.
This is a clear distance from the western world that picks deep interest and go to a long extend to mingle in nation’s internal issues as a by condition for aids and loans.
In recent memory, Obama threatened and had to stop aids to Nigeria under the President Goodluck Jonathan administration, because his request for the government to send a bill for Same Sex Marriage and homosexual equality was rejected by President Jonathan. That was the beginning of President Obama’s soar relationship with President Obama with Hillary Clinton as Secretary of State spearheading it.
Listening to this video and weighing all the coins, I think in my personal opinion, Chinese loans are far better than western aids.
©Peter Agba Kalu
