China “Traps” Africa with $143 Billion Loan

At the 2018 China-Africa Cooperation forum, President Xi Jinping committed Africa and China to the future of globalisation, investing $60 billion in Africa’s financial and infrastructural development

President Xi’s investment aims to foster sustainable economic growth in Africa, with a focus on industrialization, infrastructure, financial services and trade and investment facilitation. 

In 2005, China’s total investment in Sub-Saharan Africa totalled $210 million. In 2018, this figure had risen to $21.34 billion. Figures charted by the The American Enterprise Institute (AEI) reveal that the value of China’s overseas investment and construction worldwide since 2005 is approaching $2 trillion.  A four-year study by investigators at SOAS (School of Oriental and African Studies), University of London, credited “China’s bold overseas expansion policy” as one of the reasons for China’s investment in Africa. 

“China’s rapid economic growth has created a series of pressures which has forced the country to engage more closely with a number of low and middle income countries (LMICs). China’s growth has depleted scarce domestic natural resources, and so part of its ‘Going Out Strategy’ encourages overseas investment to access natural resources such as energy and minerals.” 

The study suggested that China’s investment in building hydropower dams in Malaysia, Cambodia, Ghana and Nigeria was a “programme that mostly aims to serve a Chinese agenda”. In these countries, The Exim Bank of China partly or fully funded the buildings of hydropower dams to provide electricity for local citizens.  Despite these findings, a new study by the SOAS revealed positive findings about China’s investment in Africa. The study – carried out in Ethiopia and Angola – discovered that “Chinese firms contribute to training and skill development at least as much as other firms in the same sector.”

According to Afrobarometer, in a poll of 56,000 people across 36 African countries, 63% feel very positively about China’s increasing presence in their countries.  

A quarter of China’s $60 billion investment will go to Nigeria, a nation aptly named, “The Giant of Africa”. The Brookings Institution, a non-profit public policy organization in Washington, D.C., reported that: “in recent years, Nigeria has received relatively large funds from China for railways.”

China is funding “two major standard-gauge rail projects”. One, a coastal railway from Lagos to Calabar – two major cities in the nation – brings hope that it would foster peacekeeping in the Niger Delta region.  According to The Brookings Institution, the Nigerian government hopes that peacekeeping in the Niger Delta region would improve oil investments from foreign powers (including China). 

The investment in railways is not limited to Nigeria either, with the majority of China’s investment in the continent going towards transport and energyLast year, China completed construction of the first light railway in sub-Saharan Africa. The $75 million Addis Ababa Light Rail was built with Chinese technology and is currently operated by Chinese experts. China’s state-owned Export-Import (Exim) Bank provided 85% of the funding.

The same year, Ethiopia witnessed the construction of the inter-national Ethiopia-Djibouti railway. (85% of Ethiopian exports and imports are transported via the Port of Djibouti.) It is East Africa’s first electrified railway, constructed and operated by Chinese companies: the state-owned China Railway Group Ltd and China Civil Engineering Construction Corp. 

During the construction of the Ethiopia-Djibouti railway, Zhang Zongyan, CEO of China Railway Group Ltd, met with Croatian president, Kolinda Grabar-Kitarović to discuss the development of large infrastructure projects in Croatia, including railways. 3000 miles away, in Pakistan, China also signed an $8.2 billion railway project, constructing a double track from Karachi to Peshawar: The ML1 Project. It was signed under the China-Pakistan Economic Corridor, a framework of “regional connectivity” towards “economic regionalization in the globalized world”. Under the CPEC,China will be linked to Western Asia, South Asia and the Central Asian Republic through improved road, rail and air transportation systems. 

On the other side of the Atlantic, the US government has accused China of “setting death traps for developing nations”. In Africa, the Institute for Security Studies (ISS) has warned African governments of the same trap, based on Chinese loans awarded between 2000-2017.  “Despite the different Chinese approach (on giving or lending money with no apparent strings attached), the number of sub-Saharan African countries in debt distress or facing high risk of debt distress rose from seven in 2013 to twelve in 2016,” according to a report published by the ISS. 

Africa is $143 billion in debt to China. With no future plans on how to pay it back, African governments may have to give their oil and transport to China to pay off their loans. Angola, for example, has signed off future oil production to China to repay its $42 billion loan. 

Facing China’s “trap”, African governments are resorting back to the Western-headed IMF, finding China’s loans and promises for sustainable economic growth to be just as oppressive as the West’s.