Beware the Beijing debt trap

Beware the Beijing debt trap

By Peter Wanyonyi

As East Africa’s finance ministers simultaneously presented their countries’ 2018/19 budgets on June 14, a common theme emerged across the region: not a single country in the region can fund its own budget fully. The member states of the EAC, like their counterparts elsewhere in Africa, are living way beyond their means.

Traditionally, this has meant having to go with cap in hand to Western big-brother begging fora like the Paris Club, and making the case for loans from the lending institutions of the west, such as the IMF and the World Bank. Those organisations, however, lend money with tough conditions. They demand austerity, reductions in public sector spending, demonstrable accountability in the use of the money they lend, and credible steps towards inclusive and democratic governance. These conditions, for obvious reasons, have never been popular with African leaders.

Today, however, no self-respecting African government borrows money from the West any more. There’s a new kid on the lending block, one that doesn’t insist on the humiliating and intrusive conditions that Western lenders impose. That new lender is China, and the story of Chinese lending to Africa and to other poor regions of the world makes for concerning reading. The more one examines China’s lending habits around the world, the more alarmed one becomes when looking at Africa’s blossoming relationship with Dragon.

Let’s begin with Sri Lanka. For 26 years, the country was in the throes of a devastating civil war pitting the government – dominated by ethnic Sinhalese – against ethnic Tamil rebels who wanted to secede and form their own Tamil republic. The civil war was ruinous for Sri Lanka’s economy, and successive governments were unable to secure development and defence funds from Western institutions worried about the government’s human rights abuses against ethnic Tamils.

Neighbouring India has a large and vocal Tamil population, which made Indian lending to Sri Lanka politically unacceptable. Eventually, Sri Lanka turned to China. Over just a few years, several Chinese companies – all of them state-owned – advanced Sri Lanka the money to embark on infrastructure development, as well as to prop up the country’s depleted defence coffers. Massive ports, gleaming airports and neat roads were all built in record time – by Chinese contractors, of course.

All seemed well until the time came for Sri Lanka to repay its Chinese creditors, by which time the country owed China over $8 billion. Sri Lanka’s new airports and ports were largely empty – they weren’t generating enough revenue to sustain themselves, let alone pay back the country’s debts. Unable to secure funds any other way, Sri Lanka was forced to sign away control of its most important port to China on a 99-year lease. This paid off a mere $1 billion of its debt. Sri Lanka still has to pay China over $7 billion in loans and interest, and the only way it can do this is by signing over more and more critical infrastructure to China on century-long leases.

In another decade, there won’t be much sovereignty left for the Sri Lankan people. China will control all their ports, their roads, and their airports. It will levy the taxes it wants on the usage of these facilities, and China’s military power means that Sri Lanka will not be able to reject any of these measures. It will send in thousands of Chinese employees to oversee these facilities, and this will drive a settlement of Chinese immigrants in Sri Lanka, which will have become a colony of China.

China is rising fast as a world power, and is looking to grow its sphere of influence from South East Asia to the entire world outside of Western Europe and North America. Part of this strategy is its now-famous “One Belt One Road” initiative, a development strategy that focuses on creating connecting infrastructure covering all of Asia and Australasia, Eastern Europe, Eurasia, the Horn of Africa, and East Africa.

China is using its fat current account – a consequence of its highly successful export economy – to underwrite infrastructure development in these regions, connecting countries together and allowing Chinese companies to sell goods and services, and procure raw materials, from all the countries connected to the initiative. It’s a geopolitical initiative that also ropes in the vast energy deposits of the Middle East and the untapped resource deposits of Africa. And it intends to control it all by using the same debt-trap diplomacy that has ensnared Sri Lanka.

The tiny African country of Djibouti occupies one of the most strategic pieces of real estate on the planet. It sits right next to the Bab Al Mandab strait, the entrance to the Red Sea from the Indian Ocean. Djibouti is therefore the gateway to the Suez Canal, which is the world’s busiest trading route. This explains why the USA, France, Italy, and now China all have military bases in the tiny country.

Djibouti is also close to the oil and gas fields of the Middle East, and this fact will not have been lost on the major powers competing for a presence there. And so China, seeing Djibouti struggling to raise money for investment, has flooded the country with grants and loans on soft concessionary terms. Djibouti is unable to pay those loans back, and China has now demanded Djibouti’s national container terminal as part-payment. Even as this happens, China is offering Djibouti more loans to fund yet more projects, ensuring that Djibouti will never shake off Chinese debt.

This alarming trend is repeated elsewhere on the continent.

Kenya’s recent budget had a massive funding shortfall, and there’s no prize for guessing where that money will come from: the government will approach China for yet another loan. This on top of the massive Chinese loans that Kenya is currently unable to repay. Budget analysts predict that civil servants’ salaries will be impossible to pay given the funding shortfalls that the government is experiencing. The answer: more Chinese loans. This is also the same for the rest of East Africa, as well as for South Sudan.

The blame for this cannot be laid entirely at China’s doorstep. Equal amounts of blame must go to African leaders, who are complicit in signing their countries up to Chinese loans that those leaders then proceed to squander via their corruption cartels. It’s this corruption that made it difficult for African countries to secure Western loans in the first place, and it’s the sleaze in African countries that makes it so easy for China to move in and take over entire regions.

Eye on natural resources

East Africa is, in China’s eyes, a gateway to Central Africa – the latter has vast mineral, hydrocarbon and timber assets that China’s ever-hungry economy needs to keep growing.

The roads and railways that the Chinese are building in Kenya are not for Kenya’s benefit, regardless of official drivel: they are designed to allow Chinese companies to access Congo and other central African locations, from where raw materials can be hauled to the coasts of Kenya and Tanzania and then exported to China for processing.

Trade in itself is a good thing. But the trade that China envisages for Africa is little more than a cruel exploitation cooked up between Chinese state planners and corrupt African leaders.

With China now building military bases in Africa, Africans will not have the means to force the Chinese out of the continent when this new superpower finally decides to quit the pretence and muscle in to take over.  Sadly, for Africa and Africans, the colonialism of the West will seem like a picnic when compared to the coming colonialism of the Chinese.

The most tragic aspect of it all is that we can all see it coming. (

— The author is an information systems professional.

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