‘Debt colonialism’ accusations on B&R ring false

By Wu Dongxu Source:Global Times Published: 2018/8/12 20:03:39

Illustration: Xia Qing/GT



 

In recent years, there has been an avalanche of negative reports about the Belt and Road (B&R) initiative, many of which are focused on the debt implications for countries involved. Some Western and Indian politicians and commentators have begun using the term "debt colonialism" to describe China's lending practices in Africa. However, the debt issue should be viewed objectively, rather than through a political agenda.

Trade between two free parties must be mutually beneficial. Otherwise, one or both parties would not enter into the agreement. There are no reports of China forcing countries to take loans. Quite the opposite, African leaders have praised China's B&R initiative as a tremendous opportunity. The former Ethiopian prime minister Hailemariam Desalegn said the B&R falls perfectly in line with Africa's vision to achieve industrialization and sustainable development. Uganda hailed the initiative as empowering and liberating. Even the IMF has supported the B&R initiative, with the opening of the China-IMF Capacity Development Center. The countries taking the loans believe they will benefit from them.

Poor countries need finance for development. Without basic infrastructure, their economies cannot develop beyond subsistence agriculture. Without borrowing money, they cannot build infrastructure. Researchers from Boston University and Johns Hopkins University compiled a database of Chinese outbound loans from 2000 to 2015. In Africa, China lent at least $95.5 billion during this period. Chinese loans were generally below market rates with long repayment periods. Concessionary loans to finance Africa's infrastructure gap, made at the request of these countries, appear to be in their best interest.

China only owns a small proportion of total African debt. According to the Center for Global Development, private creditors - not the Paris Club or China - hold much of Africa's debt. According to S&P, roughly $325 billion of sub-Saharan Africa's total $450 billion in debt is private.

But is China, and more specifically the B&R, driving the increase in African indebtedness? According to the World Bank and IMF, exchange rate depreciation, residuals, and the primary deficit were the key drivers of public debt in sub-Saharan Africa.

To finance the increase in debt, African countries have turned to the international financial markets. International investors' appetite for high-risk, high-yield African debt is strong. In March 2018, Senegal received nearly $10 billion in orders for a $2.2 billion eurobond.

Clearly the B&R plays only a small part in Africa's debt problems, and critical infrastructure investment is one of the last things Africa should cut. It is also unreasonable for China to bear full responsibility for perceived problems associated with the B&R, when companies from many countries have participated in the project, including GE, Caterpillar and Honeywell.

Another accusation often thrown at China is the "land grab" argument. Researchers at the International Food Policy Research Institute looked into every reported case of Chinese firms buying African farmland, which if true would amount to 1 percent of all farmland in Africa. What they found was astonishing. The total amount of land actually acquired by Chinese firms was only about 4 percent of the reported amount.

A complaint often levelled at China is that Chinese construction projects do not provide employment for the local population. However, surveys of employment for Chinese projects in Africa repeatedly find that three-quarters or more of the workers are, in fact, local.

An often neglected aspect of China's engagement with Africa is the role Chinese aid plays. China's role as a donor is expanding globally. Increasingly, alongside loans and FDI, China is providing grant resources for low income countries and helping through multilateral mechanisms like the World Bank's International Development Association (IDA). In the last funding round for the IDA in 2016, China emerged as one of the largest donors.

It is therefore no surprise that when McKinsey interviewed more than 100 senior African business and government leaders, nearly all of them said that Africa-China opportunity is greater than that presented by any other foreign partner.

It is hard to see what is wrong with infrastructure projects initiated by African and Asian countries at their own free will, which have been won by Chinese companies through open and transparent bidding. And of course, Chinese companies do not win all the bids; many are won by European and American companies. Do these non-Chinese projects in Africa and Asia also constitute "debt colonialism"? The China-Africa relationship is driven by a shared destiny. It might be complicated at times, but it cannot be described as neo-colonialism.

The author is general manager of the Foreign Investment Department at Beijing-based Transcontinental Management Consultancy, an affiliate of Gezhouba Group. bizopinion@globaltimes.com.cn



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