The Myth of the Chinese Debt Trap in Africa

In the past two decades, China has built large infrastructure projects in almost every country in Africa. And this has made Western critics uncomfortable. China and Africa can forge an even stronger, comprehensive, strategic and cooperative partnership.

A common portrayal of China's lending practices is known as debt-trap diplomacy, a phrase made popular after being used in government documents during the Trump administration. The so-called debt-trap is created when a country lends to poorer countries, intentionally overwhelming them with unsustainable debt, forcing them to surrender strategic assets or concede increased political leverage. But so far, there's no evidence that such a debt-trap has been sprung in Africa.

Now there's always a certain grain of truth, like with every stereotype to it. But it breaks down very, very quickly upon any type of serious examination. The focus on debt-trap diplomacy is part of wider Western anxieties towards China in Africa.

We've already seen that Chinese investments and Chinese infrastructure projects have been linked to increasing Chinese influence within the host country ruling elite. That may end up becoming somewhat of a leverage point for China to push some of these countries or ruling elites to side with China on critical issues that are important to the U. S.

or to its allies. But while the U. S.

has focused its Africa strategy on aid and social services, China has been building. African governments themselves said, "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 wanna do business with you. " Global Gateway will mobilize €300 billion till 2027. Now the U.

S. and Europe are answering back with their own infrastructure initiatives to counter China, but African experts are skeptical. At the end of the day, China has been that guy around the corner with a bouquet of flowers.

To Africa, the U. S. , Europe and the U.

K. , have time and time again said, "Be careful of the flowers you see out of the window, they have thorns on them. " In Ghana the handover of power from the British government went off smoothly and with dignity.

From the 1950s into the 1970s, countries on the African continent gained independence from their European colonizers. U. S.

and European-led organizations like the IMF and the World Bank, funded much needed infrastructure across the continent. But that slowly stopped. The United States and Europe kinda 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 throughout the world. And one of the things you see in Africa, is that so much of the railways and the highways and the infrastructure was built during the colonial period. And back then it was quite solid.

But it's been decrepit because the former colonial governments are not plowing in lots of money. Enter China. As early as the 1970s, Beijing began building 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, allowing Zambia to ship copper, bypassing white-ruled Rhodesia and South Africa. It also gave China much needed political allies. Beijing said, "We have problems, you have problems, we will help you out.

" And they embarked on this. And this is really some of the early seeds that China sowed in Africa that later came to clearly define the divide between the West and the East, as far as China's involvement in Africa is concerned. In the early 2000s, as China looked to expand markets and political influence abroad, its investment in Africa ramped up.

The Chinese said, "Well, guess what? We are the best in the world now at producing large scale infrastructure, fast and cheap. And we have a surplus of capital, so we'll loan you the money, we have our great contracting companies.

We have all of this skill and all this ability to deliver fast and cheap. " And in that sense, it was really an ideal match. They recognized what Africa's development stage was.

And they said, "You know what? 30 years ago, that was us. We recognize a lot of what's going on here.

You don't have enough infrastructure, you have a large population that's growing quickly. " Also let's not underestimate there is a shared history here of anti-colonial struggle. So you tick all of those different boxes, and Africa made a lot of sense for the Chinese to come in.

China is currently involved in an estimated 35 African countries, and has made significant contributions to their infrastructure, including ports, railways and power plants. It's estimated that China has invested more than $340 billion in Africa. So compared to how much China is investing across the world, this may not be as much.

But for Africa, it's a lot of money because of the huge infrastructure gap that Africa faces. But there are noticeable differences between Chinese financing and how the West lends historically with low interest rates and flexible terms. There must be over millions of different types of loans out there.

But if you were to take an eagle's-eye view of the different kinds of loans involving Chinese lenders, then you can broadly categorize them into three different types. The loans fall into three categories. Zero interest loans offered as aid, concession loans which have a lower interest rate, often intended for large infrastructure projects and the most common, commercial loans with higher interest rates in line with what you would get from a typical private bank.

One of the very interesting trends that we see when researchers discuss Chinese loans, is that there is a tendency to bunch all three together. Well, the very first question you should ask yourself whenever you see something like that, is well, are they comparing apples to oranges? Because if you're comparing commercial loans to something available from the World Bank or one of its different agencies, then you're not really comparing like for like.

And the fact of the matter is this, and I hope the borrowers out there are listening, 95%, if not 99%, the loan agreement are 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 is 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. And that is 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. But 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.

But 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%.

So again, 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.

So take Angola out of the issue, then you have an even less serious problem in that respect. So it's 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.

There's 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 so 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. And 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. So 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.