The “debt-trap” narrative around Chinese

loans shows Africa’s weak economic

diplomacy

Hugging the shores of the Indian Ocean, Kenya’s Mombasa port is one of the
biggest and busiest harbors in East Africa.

By Abdi Latif DahirFebruary 5, 2019

Almost 1,800 vessels docked at the port in 2017 alone, with cargo worth over 30
million tons processed—much of it heading to neighboring or landlocked nations
including Uganda, Rwanda, Burundi, and DR Congo. Since its opening in the mid-
1890s, the seaport has developed to be a rising regional hub and a key cog in
Kenya’s growing infrastructural development.
In December, reports surfaced the prized port was used as collateral for the $3.2
billion loan that was used to construct the 470-kilometer (292 miles) rail line
between the seaside city and the capital Nairobi. In a leaked report linked to the
auditor general’s office, Kenya was said to risk losing its port if it defaulted on the
loan, with the Exim Bank of China taking over the port authority’s “escrow
account” to regain revenues. Further reports have even noted it goes beyond just
one asset that’s been put up as collateral and that “any state” possession was on
the table in the event of a non-payment.

The revelations caused an immediate furor and triggered denials from both
Chinese and Kenyan officials. China is currently Kenya’s largest bilateral creditor,
and many raised questions about the mounting risks the East African nation faces
as it borrows more money to fund large infrastructural projects.

The uproar also brought to fore the issue of “debt trap diplomacy”: a term that
has gained popularity in the lexicon of global geopolitics as China flexed its
influence worldwide. The specter of Beijing extracting economic or political
concessions from a nation unable to pay its debt obligations was first underscored
in Dec. 2017, when Sri Lanka gave 70% equity and a 99-year lease for its strategic
Hambantota port.

Since then, nations from Djibouti and Maldives to Laos and Pakistan have been
named as facing risks of debt distress, especially in the face of the multi-billion
dollar Belt and Road initiative. Last year, Beijing was also accused of taking
over Zambia’s national electricity supplier and rebuilding the Mogadishu
seaport in exchange for “exclusive” fishing rights along the Somali coast—
allegations that proved inaccurate and officials have refuted.
REUTERS/JOSEPH OKANGA
Docking at the Mombasa port.
Western leaders, drawing on these examples and wary of China’s rising financial
and economic might, have cautioned African states from taking out these loans.
Observers have also pointed to the fact Beijing offers financing with fewer strings
attached and isn’t part of the global multilateral framework for official creditors
known as Paris Club. This has raised questions about the transparency,
sustainability and commercial viability of Chinese state-sponsored lending, which
have grown tenfold in the past five years in Africa.

And with no officially-published contracts or “no written predictable rules” of how

Beijing responds to a loan default, “people are free to speculate,” says W. Gyude
Moore, a visiting fellow at the Center for Global Development. Between 2000 and
early 2019, there were 85 instances when China canceled or restructured debt
globally—including most recently in Cameroon.
The Sri Lanka port remains the only place in the world where Beijing took control
of a state asset, with observers noting that officials understood the damages
“debt book diplomacy” could bring to China. Yet Beijing’s debt relief or repayment
actions, Moore notes, remains “haphazard. It’s unpredictable. There’s nothing
written. It’s confusing.”

Growing Sinophobia
Chinese loans are currently not a major contributor to the debt burden in Africa;
much of that is still owed by traditional lenders like the World Bank. Yet Kenyan
economist Anzetse Were says the debt-trap narrative along with anti-Chinese
sentiment has intensified because African nations like Kenya not only have a
fundamental problem with fiscal transparency but also because the continent’s
past relationship with external forces both pre and post independence was one
“defined by exploitation.”

The general public, she said, remain in the dark about the deals with China. “We
don’t know how much we owe; we don’t know the terms.”

Yet that shouldn’t detract from the agency of African leaders to saddle their
nations with unnecessary debt, says Lina Benabdallah, assistant professor of
politics at Wake Forest University in North Carolina. “The problem is not
borrowing money; the problem is managing it and making sound decisions as to
how to pay it back.”

The opacity surrounding Chinese deals in Africa—besides those signed with the
US and Europe— also showcases, Were says, Africa’s weak economic diplomacy
and the deficiency in creating institutional frameworks catering to taxpayer
interests. This is especially crucial in a multipolar world where the scope of
interest and engagement in Africa is widening beyond China, the EU, and the US
to include Brazil, Turkey, India, Japan, and the Gulf states.

And with no capacity to effectively negotiate, Were argues “their agendas will
drive our response rather than our agenda meeting them with their interest and
seeing how we can both benefit.”
This is especially true of smaller nations with weak governments like Somalia,
which not only faces technical and resource constraints but also the mechanisms
to “ensure compliance, financial probity, and oversight,” says Rashid Abdi, the
Horn of Africa project director at the International Crisis Group.

REUTERS/THOMAS MUKOYA
New railway line.
Bargaining power
Because there’s no frame of reference for Chinese deals, Moore, who previously
served as Liberia’s minister of public works, says African governments can
improve their capacity to negotiate by drawing support from global litigation
services. These include the African Legal Support Facility hosted by the African
Development Bank or pro-bono entities like the International Senior Lawyers
Program. Mobilizing these resources, he adds, could improve the quality of
project selection and the process of delivering them.

Growing effective at these negotiations will be crucial as China faces an economic

slowdown, ballooning debt, internal criticism on why it was spending taxpayers’
money abroad, besides external reproach that its Africa presence was akin to neo-
colonialism. The state-funded insurance firm Sinosure, for instance, recently said
it lost up to $1 billion on the Addis-Djibouti railway.
Moore says that means the “validity and legitimacy” of Chinese loans will
continue to be questioned if done in secret, especially if a nation is committing to
an obligation for two to three decades.
“China doesn’t have to sign up to the Paris Club rules,” Moore explains. “China
can write up its own rules and publish them.”

In the meantime, Were says African citizens have to agitate for and build
technocratic governments that are responsive democratically. That’s “probably
the biggest challenge for our generation.”
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Posted by Thavam