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The collapse of China's Belt and Road Initiative in Africa (Part 2)


China’s “Belt and Road Initiative” saw the ambitious influx of around $1 trillion in Chinese loans, investment, and aid as the Eastern power vied to expand its influence in the third world. Seven years into the initiative, the outcome would have been deemed highly successful, with 147 countries either signing onto the BRI or expressing an interest to do so all while China spent heavily in a variety of lucrative ventures. Specifically in sub-Saharan Africa, Chinese investment served as “an attractive option for African countries” in the words of L. Venkateswaran with the Observer Research Foundation; such investment found itself channeled into a variety of mainly infrastructure projects, from railways in Benin to ports along the East African coast. While the BRI may have at first proven a success, however, growing accusations of China engaging in “debt-trap diplomacy” soon unfortunately became realized, as a pandemic-induced global economic slump accompanied by rising prices and interest rates saw a number of African countries buckle under the weight of burdensome debt.

Even before the pandemic, the prospects of a Chinese debt trap seemed rather evident. Sub-Saharan Africa’s public debt, as a percentage of GDP, grew from under 30 % in 2013 to just under 50 % by 2019. China owns 72 % of Kenya’s external debt, has accrued 30 percent of Ethiopia’s new external debt, and has increased Djibouti’s external debt as a share of GDP from 50 to 85 % as it provided infrastructure investment that amounted to up to 75 % of the country’s GDP. In case after case, copious amounts of Chinese investment had resultantly indebted developing African countries to the Eastern power, heavily financing discretionary infrastructure projects that have failed to provide desperately needed returns. One way of demonstrating the sheer lack of profitability of African projects receiving massive Chinese aid is by looking at the Western alternative where the market is the norm. Western nations’ terms for their investments reflect far greater the profit motive that their economies operate under, with the stricter terms and higher interest rates charged on African infrastructure projects reflecting the market price which in turn conveys the collective knowledge and assessment of the projects’ risk and returns. In contrast, China’s looser terms may have been able to woo over much of the Sub-Saharan region, but in vintage “too good to be true” fashion, such arbitrary investment only vindicated Western markets as it failed to provide returns and instead left Sub-Saharan African countries indebted. All of this, meanwhile, was before the pandemic.

In the wake of rising costs and interest rates, sub-Saharan Africa quickly encountered the prospects of a regional debt crisis. Yields on African countries’ public debts soared to over 10 % higher than US Treasury yields, while both Ghana and Zambia have already defaulted on their debts since the start of the pandemic. Ghana owes $1.7 billion in debt to the Chinese government, while China has been assigned the blame for Zambia’s current debt crisis. In total, 22 low-income African countries are currently in “debt distress” or are in high risk of it, according to the Chatham House think tank. Meanwhile from China’s vantage point, nearly 60 % of Chinese overseas loans are held by countries considered to be in financial distress, compared to just 5 % in 2010. All of this isn’t to say that China’s BRI has caused the swath of debt crises found in sub-Saharan Africa, but rather that unprofitable Chinese investment in the region not only left such countries in a far more susceptible state before the pandemic hit, but has also left them with a far more burdensome debt in the aftermath. Consequently, however, with great debt comes great leverage, implying that Chinese influence and power over the sub-Saharan region may have only grown as African countries struggled to meet their payments. Perhaps, one may wonder, if that was the Chinese intention in the first place, which was previously referred to as “debt-trap diplomacy”: the idea of luring in other countries with lavish, cheap investments which, upon their predictable lack of return, give way to massive leverage over such countries as they owe great deals of money. This is the unfortunate state for much of the sub-Saharan African region, yet if any good is to come of it, perhaps there is a learning experience to trust the wisdom of the market found under Western nations’ terms of investment.

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