20 January 2018

Africa Should Think Twice About Accepting China's Aid

By Ibrahim Anoba

A recent report on Chinese loans and aid published by the College of William & Mary found that Beijing has disbursed $350 billion across the world since 2000. Out of that substantial figure, Africa received $94 billion, including $3 billion in the form of foreign aid. While China remains secretive in most of its dealings in Africa, its financial assistance has increased in a similar way to how U.S. funds to Africa grew in the 1980s, a process that created economic problems for the latter. Much of the continent is still recovering from the burden of U.S. foreign loans, and contemporary Chinese activities could condemn it to carry a new and similar debt load. It also threatens to increase corruption and build African economies dependent on China.

Chinese loans are triggering slight market improvements in Kenya, Ethiopia, and Nigeria as transportation projects move trade by reconnecting formerly isolated communities to big markets. In return, however, these countries receive an enormous debt profile as aid and loans increase.

What complicates this debt scare is that China provides little information about most of its loans to the continent, and this makes it difficult for observers to track their impact and utilization. It also means average Africans would not have accurate knowledge of debts incurred by their governments until they have to repay China, which could become burdensome. But judging from Official Development Aid (ODA) data, it is obvious beneficiary countries would owe more to China than what is expected.

For example, China recently completed the $3.8 billion Nairobi-Mombasa railway project in Kenya -- but upon completion, Kenya still owed 85 percent of the total cost. While this is the first phase of a region-wide undertaking, it is unclear how a country with an unconvincing economic projection like Kenya will repay China without any financial hardship.

Heavily indebted recipient countries including Ghana, Cote d'Ivoire, and Nigeria could face similar problems since they have all received an average of $3.2 billion in aid from China recently. This would commit key African powerhouse economies to transferring large amounts of their revenue directly to China over the next few decades -- the modes of and timelines for repayment are unclear.

Not only does Chinese aid affect the development programs of African countries, but it could also reduce Africa to a mere tool for Chinese domination of the global economy. Instead, these countries should learn from the history of Chinese dealings in other parts of the world. 

China has flooded Ecuador with similar aid since 2009, with the latter having to repay in oil. The oil repayment was part of China’s strategy to meet its rising energy needs, while the result for Ecuador is a $7 billion debt -- more than one-tenth of its national GDP as of last summer. Likewise, Venezuela received $63 billion from China between 2007 and 2014 - 53 percent of all Chinese loans to Latin America. It was easy for former Venezuelan President Hugo Chavez to agree to service the debt in oil at that time -- oil sold for $100 per barrel. But when the oil market started crashing in 2014, the costs obviously multiplied.

Ironically, contemporary African beneficiaries of Chinese financial assistance similarly struggled to service debt incurred from the United States, the IMF, and the World Bank in the late 1990s until the 2005 Multilateral Debt Relief Initiative (MDRI). Corrupt leaders misused an overwhelming portion of aid and loan funds, which until recently culminated in an annual loss of $150 billion in Africa due to corruption. And with China dealing mostly in secret with leaders, Africa could be nailed to yet another fold of corruption. 

But even if China could tightly monitor its finances to ensure effective usage and work with regimes to service debt, Africa’s economy would still grow to depend on China, as it did before with the United States.

Until the 2008 recession, the continent enjoyed numerous diplomatic benefits from its attachment to the United States, while neglecting potential economic negatives. In most African beneficiary countries, the United States was the biggest economic partner -- more so than neighboring African states. This unhealthy connection left the continent helpless during the early days of the financial crisis, with no capacity to sustain itself. Key U.S. aid and loan beneficiaries including Nigeria, Ghana, and Kenya nearly collapsed during the crisis. It is surprising how Africa has yet to learn from this scare. 

An economy dominated by state-owned monopolies like China places similar concerns on Africa economies’ ability to immediately recover in case of an unexpected economic shock. And if African states do not rethink China’s rapid and indiscriminate integration into their economies, the gradual development level they sweat to sustain could be dealt a devastating blow. 

Ibrahim B. Anoba is the Acting Executive Director of African Liberty Organization for Development. He is a Young Voices Advocate and can be engaged on Twitter @Ibrahim_Anoba. The views expressed are the author's own.

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