Myths & Misconceptions: How the West biases our perception of China

By Nnanda Kizito Sseruwagi

We are interesting animals, humans. Interesting! Nobel Laurette and profound cognitive psychologist Daniel Kahneman, author of “Thinking, Fast and Slow”, has argued that our brains are predisposed to give priority to bad news. That negative perceptions stick to our psyche faster than positive perceptions. If true, nowhere has this attribute of human psychology been more manipulated and caused gross danger than in Africa. Not only has the West captured the intellect of our elite class and used it against us as a people, but it has also prejudiced our understanding, perception and relation with our more developmental partner, China.

As of 2023, China’s investment portfolio in infrastructure projects in sub-Saharan Africa totalled $155 billion over the past two decades. Whereas the West is an equally important partner for Africa, granting us diffrent aid packages into diffrent sectors including pumping money into our Non-Government Organisations where our middle-class elites find easy sustenance, regurgitate Western biases against Africa and forget about our structural-developmental needs, China comes different.

Unlike the West, China has a fresh memory of underdevelopment and knows what it takes to transform from a backward agrarian society to a modern, industrial powerhouse. It shares in Africa’s painful experience of political and economic domination by foreign countries. Therefore, where the West arrogantly lectures us on how to govern ourselves having supported our national budgets with a few dollars, China concentrates on investing immensely in more transformative projects in energy, infrastructure, communication, and others.  China’s relationship with us is more sincere because, unlike the West, they practice in Africa exactly what they practice at home. Their infrastructure spending as a share of the country’s GDP in 2021 was nearly 10 times higher than that of the United States and significantly higher than anywhere else in the world. So, we can trust their intentions in Africa when they equally spend more on our infrastructure projects. In 2022, America spent $877 billion on their military, constituting nearly 40 percent of the total military spending worldwide. However, they would conceive any other global power’s increased military spending as an act of aggression. Therefore, they do not practice what they preach and their intentions cannot be trusted.

And yet America, as the archetype of the West, still controls the global narrative of them as the good guys, and China as the bad guys. Perhaps nowhere has the West’s lies against China been more devastating than with the so-called ‘debt-trap diplomacy’ claims. One of the world’s leading experts on China-Africa relations, Professor Deborah Brautigam of Johns Hopkins University defines debt trap diplomacy as the narrative that China deliberately seeks to entrap developing countries in a web of debt to secure some kind of strategic advantage or grab our national assets.

Uganda has not been insulated from this myth. In November 2021, one of local dailies published a false story, “Uganda surrenders key assets for China’s cash” where it claimed that Entebbe International Airport and other national government assets were exposed to potential takeover by China. Elsewhere, similar allegations have been peddled by Western media. Sri Lanka has been one of the most highlighted victims of these false media stories.

Why is it easy for us to believe lies told to us about ourselves and our Chinese allies by the West? Answers might be found in “Orientalism”, a work of the great Palestinian-American academic, literary critic, political activist, and musician Edward Said. Edward articulates the practical and cultural discrimination that was applied to non-European societies and peoples in the establishment of European imperial domination. He argues that in justification of imperialism, the West claims to know more “essential and definitive knowledge” about the rest of us than we know about ourselves. They have cultural representations derived from fictional Western perceptions of us. Through the history of colonial rule and political domination, they distorted our intellectual objectivity and skewed us to be culturally sympathetic to them. To aggravate Edward Said’s observations, the British post-colonial theorist, cultural critic, and historian Robert Young questions the very concept of history and the West. In “White Mythologies: Writing History and the West”, he argues that it is difficult to write history that avoids the trap of Eurocentrism and that our history could simply be a Western myth. If unchecked, today’s prejudices against Africa and China by the West will condense into tomorrow’s history.

We therefore need to decolonize our intellects collectively as Africans. China also needs to invest more in African Think Tanks and Organisations to support the global narrative that counters Western prejudices against them. According to the World Bank, China has funded the easement of African countries’ debt burden and actively implemented the G20 Debt Service Suspension Initiative for Poorest Countries and has the highest deferral amount among G20 members. They have also not confiscated a single project in Africa because of failing to pay loans. Yet, with all these facts in their favour, Western myths and misconceptions seem to prevail.

The writer is a Lawyer and Research Fellow at the Development Watch Centre.

Are AidData findings influenced by global politics?

By Allawi Ssemanda

Last week a USA based research lab AidData published a Policy Brief entitled “Is Beijing a predatory lender? New evidence from a previously undisclosed loan contract for the Entebbe International Airport Upgrading and Expansion Project.” The brief analysed concessional loan agreement the government of Uganda signed with Exim Bank of China for a $200M loan to upgrade and expand Entebbe International Airport.

Media later used this brief to frame Sino-Africa development cooperation with Financial Times headlining it as; “China Lenders squeeze African borrowers even harder” while others described the terms of loan as aggressive.

The report criticised Exim bank describing its lending terms as predatory and aggressive. Some of reasons advanced for this is that the terms require Uganda government to set up a jointly owned account (Escrow) where all revenues generated from the airport will be saved and later use part of it for loan repayment once annually. The report claims this limits government’s fiscal autonomy since collected revenue from the airport cannot be used to support public services and confidentiality clauses in the agreement.

 

However, if critically analysed, AidData’s report cherry picked facts and one can argue that it is meant to strengthen Sino-Africa skepticism narrative and claims of China’s debt diplomacy often advanced by some western capitals who are arguably worried of growing China-Africa relations.

 

At face value, one can argue that Entebbe Airport loan terms are unfavourable for dictating all revenue from the airport be saved to an escrow account till completion of debt repayment. But if critically analysed, these terms are a common practice by lenders especially when it comes to infrastructure projects funding but AidData singled out China which one can argue is due to lack of understanding of common commercial practice in lending or should make their findings questionable.

In March 2021, AidData, Center for Global Development, Georgetown Law, Kiel Institute for the World Economy and Peterson Institute for International Economics jointly published a report entitled “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments,” and observed that 17% of sampled OECD official creditors use security clauses to ensure safety of their loans.

AidData claims that terms  Exim Bank gave Uganda for Entebbe Airport loan “limits the fiscal autonomy of the government”, if compared with US’ Agency for International Development terms to Liberia’s GEMAP Activities (The Governance and Economic Management Assistance Program) which compelled Liberian government to hire is international financial controllers and granting them cosignatory authority on opened Escrow account, Entebbe Airport-Exim bank loan terms are much friendly considering the fact that it is Ugandan side that has full control of escrow account.

It should also be note that, with in international infrastructure development financing market, multinational development banks, bilateral government aid agencies, commercial banks and other development financial institutions are fundamentally different in how they operate. They have different means of risk management and control and this has been so for long. What we may point at as the difference today is that these lending institutions reducing and few are ready and willing to offer infrastructure loans to developing countries. While budget constraints facing Western countries may partly explain reasons for this occurrence, fundamentally, it can be attributed to liberal market ideology that makes livelihood projects a more likely beneficiary of official development assistance (ODA).

Consequently, infrastructure development assistance to developing countries is always ignored. As the number of ODA providers reduce, commercial institutions have shown less interest to support Africa’s infrastructure, arguably due to risks involved.  This is because, infrastructure investment involves substantial capital and increased risk. Perhaps, in sprit of Beijing’s philosophy of a shard future for mankind, Chinese creditors are filling the huge infrastructure funding gap in developing countries. But to ensure safety of their sovereign loans, they always included clauses such as cross default in the contracts. Certainly, such measures are not predatory as AidData suggested but are meant to encourages the debtor country to become “responsible” borrower in the process of development financing.

Regarding confidentiality clauses which results into making loan agreements a secret, the principle of confidentiality is not Chinese creditors’ invention. It is widely practiced in international loan contracts. Many times, creditors and sovereign debtors don’t publish full details of loan contracts. International creditors including developed countries have confidentiality clauses in their agreements. They are used among others by the Organisation for Economic Co-operation and Developmen (OECD), the OPEC Fund for International Development, the Arab Bank for Economic Development in Africa (BADEA), the Kuwait Fund for Arab Economic Development and the Islamic Development Bank.

 

The March 2021, AidData joint report concluded that, “almost all OECD official creditors and non-OECD creditors have not publicly released their loan contracts.” Therefore, Chinese creditors not publishing details of loans given to developing countries alone cannot qualify their lending to be branded predatory.

What is important Uganda and perhaps other African countries to note is; Sub-Saharan African countries are still faced with a challenge of infrastructure funding gaps. A recent study by McKinsey and Company argues: ‘unless addressed, infrastructure deficits in Sub Saharan African countries’ key sectors will continue affecting economic growth and development stressing that “80% of infrastructure projects fail at the feasibility and business-planning stages,” describing the phenomenon as “Africa’s infrastructure paradox.”

Meanwhile, commercial loans to developing countries, have been limited for a long time. This has become a major challenge to the world economy. The main reason is that infrastructure investment and financing requires significant capital input and involve a longer payback period and hence, few creditors are willing to venture into it.

While it is important for Uganda not take loans beyond our capacity, there is nothing wrong with taking loans to support infrastructure development. As Bent Flyvbjerg, a Danish professor once observed; “Infrastructure is the great space shrinker, and power, wealth and status increasingly belong to those who know how to shrink space, or know how to benefit from space being shrunk.” So, taking loans to shrink development gaps is no bad!

Therefore, it is perhaps important before we jump to welcome China’s critics who maybe driven by international politics, maybe we should pause and ask questions like; are Chinese loans helping our countries to realise our development agenda? Do we have a better option to Chinese loans? Could Global politics be behind harsh criticism of China’s lending to African countries?

Allawi Ssemanda, is the Executive Director of Development Watch Centre; a foreign policy think tank .  Twitter: @AllawiSsemanda

 

Chinese infrastructure loans: not debt trap but catalyst for Economic Development and Growth

By Allawi Ssemanda.

Africa’s biggest challenge, especially Sub-Saharan region, is poor and aging infrastructure.  According to a recent study by McKinsey and Company, unless addressed, infrastructure deficits in key sectors such as roads and energy will continue to hinder African countries’ economic growth and development especially in Sub-Saharan Africa. The study further reveals that the region’s attempts to reduce this gap have not yielded largely due to lack of funding which leaves many planned infrastructure projects stuck at planning stages: “80% of infrastructure projects fail at the feasibility and business-planning stages,” a phenomenon the study branded “Africa’s infrastructure paradox,” stressing that despite high demand for infrastructure funding, there are few partners or investors willing to provided huge amounts needed for such projects.

Limited funding for important projects at a time when the continent has severely been impacted by the Covid-19 pandemic, the continent has less options to make an economic rebound. In 2020, the region’s DGP according to African Development Bank, fell by 3.4% which is about 7% if compared with pre-pandemic estimates.

To recover from this pandemic induced recess, African countries must include more funds in infrastructure development for any stimulus plan the continent is thinking of.  Sectors such as roads, energy, and information communications technology must be given priority for they can stimulate economic performance through supporting creation of jobs, boosting supply chain and trade. It is only through funding and investing in infrastructure that our much-hyped Africa Continental Free Trade Area will realise its anticipated goals.

It is important to note that while African countries need to close infrastructure funding gaps, Official Development Assistance (ODA) and the so-called traditional funders continue to decline. While this decline may be attributed to budget constraints in Western capitals, we cannot ignore factors like liberal market ideology that in the end makes livelihood projects a more likely beneficiary of ODA. This leaves Africa’s much needed infrastructure projects with little attention. Aware that infrastructure projects require big amounts of money and there are high risks involved, ODA providers are steadily pulling out their funding while commercial institutions consider these projects a no-go area given the risks.

On the other hand, over the last two decades, China has been providing bilateral loans to almost all African countries to cover their infrastructure funding deficits through commercial and policy loans. Arguably, such funding is vital in supporting growing of African countries economies, industrialization and employment opportunities.

Though often criticised by some western capitals branding China’s funding as “debt trap,” it is very clear that China’s funding goes beyond West’s binary aid model of “government versus markets” for it has helped reduce funding gaps and revolutionised the concept of funding developing countries’ projects on basis of mutual benefits and “equal partnerships.” This is a complete paradigm shift from where funders would dictate on how a receiving country should use availed loan.

While China seems ready to offer a hand to African countries to improve their infrastructure sector, some African countries seem swamped in what one may call western media narrative and opinion. This narrative is mainly pushed for geopolitical reasons or the need, by the west to maintain their influence over African countries. This eventually drifts the continent into unfounded old frameworks and colonial motifs. It is the fear of their wanning influence that   drive western pundits to claim, warn and make all sorts of allegations that China has hidden interests in Africa. The other example is West’s misinterpretation of Beijing’s support to African as a new ‘Scramble for Africa,’ claiming that Africa is falling victim once more to an outside global power. Maybe we should ask ourselves, why does the West brand Chinese development assistance and loans to Africa as “debt trap” and “debt diplomacy” and their own loans and assistance to Africa is considered ‘good loan(s)?’

Another example that seems illogical is Sino-Africa sceptics’ uncritical branding of China’s funding and developmental loans to Africa as “debt trap” and “debt diplomacy” which is arguably meant to undermine Sino-Africa relations and present it in a negative form. Another intriguing example is U.S.A’s former Assistant Secretary of State for Africa, Tibor Peter Nagy who on 5th October 2021 cautioned African countries to be worry about China, branding Beijing a bully by tweeting:  “China’s aggressive flying aircraft over Taiwan should be an alarm for Africa. Country Bullies are more dangerous than people bullies. Beware of their hegemonistic arrogance. Africa is 21st century’s treasure house – and should benefit Africans.” When critically analysed, one can confidently conclude that Nagy’s tweet was simply political. While heading African affairs at the State department, President Trump called African countries “s*t holes” and Nagy did not apologise to Africans neither did he resign for such disrespect, but is the same person trying to lecture Africans who they should trust!

While it is important that African countries must not take debts and loans beyond their capacity, there is nothing wrong with taking loans to support infrastructure development. As Bent Flyvbjerg, a Danish professor at Harvard University once noted; “Infrastructure is the great space shrinker, and power, wealth and status increasingly belong to those who know how to shrink space, or know how to benefit from space being shrunk.

Therefore, criticizing African countries like Uganda for taking Chinese loans to improve our infrastructure is unwise and broadly selfish. As J.P Morgan taught us, “a man always has two reasons for doing anything: A good reason and the real reason.” In Uganda’s case and other African countries’, seeking infrastructure loans the two reasons are simple – it is to shrink all our linkages and supporting other factors of production that comes with good infrastructure.

Actually, taking loans has never been bad provided debtor countries are “responsible” borrowers and meet their obligations of paying back. It is ironical that Countries which have taken over 60 years to pay their loan which helped them to take off are the ones accusing African countries of taking developmental loans. For example, it took United Kingdom 61 years to pay its loan $4.34 billion the country borrowed from the U.S and Canada in 1945. Some analysts argue it is this loan that saved U.K from financial crisis shortly after the second world war.

In conclusion, African countries should use the opportunity of China’s willingness to offer financial support to improve their infrastructure for it is one of the sure ways they will unlock their potential. The good thing is that Beijing has always been kind enough on many occasions agreeing to do debt restructuring. Also, African countries, Uganda inclusive, can invest more in infrastructure. The other sure way African countries can ensure payment of loans is through asset recycling. This enables authorities to reuse capital invested in strategic and profitable infrastructure assets like fibre optic networks, road tolls, airports and power plants. Under this arrangement, such assets can be offered to private sector investors under concession model but ensure private sector does not over exploit citizens using them.

Allawi Ssemanda is a research Fellow with Development Watch Centre, a Foreign Policy Think Tank.

 

 

Why China’s lending terms are the best African countries can get.

China’s lending terms are the best African countries can get.

 By Allawi Ssemanda

On October 28, 2021, members of the Parliamentary Committee on Commissions, Statutory Authorities, and State Enterprises (COSASE) literary roasted finance minister, Matia Kasaija who they accused of signing a $200m agreement with Exim Bank of China to upgrade Entebbe international Airport.

They reasoned that loan terms in the agreement are unfair to Uganda and puts our airport at risk should Uganda fail to pay.

Shortly after the meeting, COSASE chairperson Joel Ssenyonyi tweeted: “Today COSASE met Finance Minister who signed a $200m loan agreement with EXIM Bank-China to upgrade our airport. He admitted loan terms were unfair. China has taken over property of some countries due to unfair loan agreements. Govt officials ought to read & scrutinize before signing!”

While it is right our legislators to get concerned when they notice things not going in national interests, it is important our honourable MPs to get facts not just about Chinese loaning but all international loaning agreements. Many argued that some of the terms of the loan meant that the country was giving up its sovereign immunity to the creditor. Of course, this is not true but dancing to some Western capital’s narrative driven by fear of growing Sino-Africa relations characterised by principles of mutual respect and benefit.

When extending development loans, many countries take seriously the issue of controlling and reducing investment risks and ensure the security of capital. This is a common commercial practice. If you study most of Chinese loans contracts, combining practices of commercial banks and official institutions, you will observe that Chinese contracts try to ensure maximum repayment of loans through their contracts.

This is done by among others setting up a revenue account(s) based on the proceeds of the project to provide additional funding for debt repayment. This approach is not meant to give Chinese institutions upper hand or to take over properties of the borrower but rather, an option to relieve pressure on the borrower’s national budget.

Actually, this is a legitimate and commonly accepted commercial practice employed to ensure the capital safety of lenders. Indeed, it was adopted by some Organisation for Economic Co-operation and Development (OECD) creditors we look up to. A March 2021 joint report by AidData, Peterson Institute for International Economics, Georgetown Law, Kiel Institute for the World Economy of Germany, and Center for Global Development concluded that seven percent of OECD official creditors sampled use contract tools and repayment security devices to ensure loan repayments.

In the context of Chinese loans, from available evidence, default clauses are meant to provide security and compel the debtor not to default their obligations. After all, this is the essence of signing an agreement. Put differently, it inclines debtor countries to manage their debts and fulfill repayments plans which makes them “responsible borrowers,” thereby earning international credibility and continue enjoying development aid and loans concessions. This improves the borrowing countries’ reputation in our competitive international development financing markets which arguably is important to their social and economic growth.

Other critics argue that by including cross-default, cross-cancellation, and stability clauses, Chinese loans put the creditor on a disadvantage side. This reasoning ignores the principle of mutual benefits and other important facts when it comes to infrastructure financing.

For the record, Chinese funding is the best deal any developing country can get to address growing infrastructure funding gaps. While traditional funder’s offers may look generous, their multinational banks prefer to fund sectors like administration, social services and the so-called democracy promotion instead of funding the much-needed infrastructure programs. For example, at first 70% of World Bank’s funding went to infrastructure but has been reducing to recently 30% despite huge funding gaps in infrastructure sectors in developing countries.

It is important to note that developing countries are faced with a shortage of funding especially in infrastructure projects which are key for development. A World Bank and McKinsey Global Institute study notes that funding for infrastructure projects such as transport and electricity is lacking and that to ensure socially inclusive development by 2030, there is a need to spend more than $3.3 trillion annually of which 60% must go to developing countries in Africa. African Development Bank (ADB) on the other hand estimates that to meet the demands of their growing population, replace aging infrastructure, African countries must spend between $130-$170b annually on infrastructure. Also, a 2017 study by World Bank – “Why We Need to Close the Infrastructure Gap in Sub-Saharan Africa” suggested that if these countries reduce funding gaps for infrastructure, the region’s GDP per capital will grow by 1.7%.

However, infrastructure investment and financing requires substantial capital and increased risk and very few traditional funders are ready to take this risk. Guided by Chinese leadership’s philosophy of a community with shared prosperity, in the last several decades, only the Chinese government and state-owned banks have shown willingness to provided a large amount of infrastructure low interest loans to low-and middle-income countries to boost their infrastructure funding gaps. It should also be noted that financing critical sectors like infrastructure in developing countries often involve a long payback period. However, this does not mean they should not try to devise devices to ensure safety of their sovereign loans. Therefore, these commonly-accepted clauses like cross default and cross cancellation Chinese creditors include in loan contracts should not be taken as tricks of loan sharks but rather devise used to ensure safety of their funds. It should be noted that the text used in Chinese loans agreements are ones generally accepted by the market and these terms are consistent with the principles of balance and of rights and obligations of parties involved.

Therefore, for COSASE chairperson Joel Ssenyonyi to castigate finance minister that he signed a bad deal with Exim Bank, the honourable Ssenyonyi is not only wrong but the MP spoke from an uninformed point. Taking the Entebbe-Exim Bank agreement as an example, it is not fair to make conclusions basing on clauses; 15.1 addressing Governing Law, 15.4 which addresses Waiver, and 15.5 that’s talks about waiver of Immunity and conveniently ignore clause 15.5 which talks about Good Faith Consultation. This clause is very clear: “The parties hereto undertake to use their best efforts to resolve any dispute arising out of or in connection with this agreement through consultations in good faith and mutual understanding…” over time, China has proved to be a brotherly country to all African countries and promotes mutual trust and benefit that by all means, it cannot avoid good faith consultation where necessary.

On many occasions, despite legally binding treaties with borrower countries, through good faith consultations, China has always re-negotiated with African countries and accepted debt restructures, and on several occasions, Beijing has out of goodwill and wish written off debts to many African countries. In 2020 for example, China cancelled the Democratic Republic of Congo’s interest-free loans estimated to be over $28M that had matured. In March 2021, researchers at Johns Hopkins University noted that between 2000 and 2019, China wrote off accumulated arrears of 94 interests’ free loans for African countries that totaled over 3.4 billion USD. All the above shows that despite offering loans with default clauses, China considers African countries close allies and is not interested in seizing their properties but ensuring borrowing countries join China in growing and developing together so as to realize Chinese leadership philosophy of a shared future with shared prosperity.

Therefore, Ssenyonyi’s claim that “China has taken over property of some countries due to unfair loan agreement,” lacks ground truth and is hearsay driven by Beijing fear in some Western capitals who are worried about growing Sino-Africa relations. Of course, their concern is not that they so much love their former colonies in Africa, their fear is due to geopolitical reasons and knowing that empowered Africa can’t stand their failing hegemony. Even if there are countries whose property were seized which is not true, Uganda is different with different financing needs and our development structures are sufficiently diverse and heterogeneous. Comparing us with little rumoured little variety reduces the validity of his conclusion.

Whereas Indira Gandhi taught us that questioning is the basis of all-knowing, it is not to question endlessly but to use those questions as a means of advancing towards a big and better answer. The arguments critics advance against default clauses are negative energy and full of pessimism. Arguably, important questions at this time should be how should Uganda maximise the nearly complete mega airport to its advantage but not fronting pessimistic questions. Quoting Keith Yamashita, a renowned consultant of top companies in his book A More Beautiful Question, Warren Berger argues that questions that show pessimism are a danger to progress.

This he adds has unintended negative consequences such as what he described as diminished questions. Berger argues that for countries to progress and innovate, leaders should avoid small questions and think in an expansive manner with bigger questions.

In this context, examples of bigger questions are: How should Uganda maximise expanded Entebbe Airport? Why are we borrowing? What is in it for Uganda and Ugandans if we borrow money from China to support our needed infrastructure? For that matter, I will recommend the honourable members of COSASE to read Warren Berger’s A More Beautiful Question.

The writer is the author of Global Governance and Norm Contestation: How BRICS is Reshaping World Order

Twiter @AllawiSsemanda

Seven Years of China’s Belt and Road Initiative: How are Developing Countries Benefiting?

By Ssemanda Allawi.

In 2013 – seven years ago, Chinese president Xi Jinping gave a set of speeches where he announced the proposal of the now famous Belt Road Initiative (BRI). Xi delivered the first speech about BRI during his visit in Kazakhstan, elaborating his desire and vision of restoring the ancient silk road which offered routes from Peoples Republic of China, through Central Asia to the far Europe. In October, 2013 during his speech to Indonesian parliament, president Xi announced his maritime silk road concept to Indonesians to facilitate trade and ease movement of goods and services.

In the seven years of the project’s implementation, BRI has registered considerable achievements seeing over 29 International Organisations and over 71 countries sign or joining it. This means that more than a third of global GDP and more than two thirds of world’s population are part of the project!  This means that upon completion, the project will make the world’s largest market easy to access and traverse on both road and sea which are key in transportation and mobility of goods and services.

However, this is not without critics especially from some parts of western world with the U.S leading critics of the project with claims such as lack of transparency from Chinese authorities especially its financing while others branding the project is part of what they call China’s debt diplomacy.

However, research indicates that claims of lack of data on funding of the projects are largely wrong as a number of studies and research work  have given a clear view  of funding of this project.

Critics of China and BRI project in particular have often claimed the project is too expensive and will see developing countries fall in what they call China’s “debt diplomacy” with some western capitals branding the project Beijing’s debt trap. Many of critics have always cited Sri Lanka’s Hambantota which was leased to a Chinese firm for 99 years to help repay the country’s debts. The claims that Hambantota port was seized by China are also ambiguous considering the current state of the port if compared to how its state before the Chinese firm invested in it.

Washington has also been very critical of BRI project and generally China’s funding of infrastructure development in different parts of the world claiming that many of Beijing’s clients are  pariah states

However, some of these claims seem to be political with Washington screed of China’s growing relations with the rest of the world which they see as one way of antagonising U.S’ strategic interests. A case in point is citing Beijing’s growing relations with African state of Djibouti. In 2018, U.S’ top military commander in Africa, Marine General Thomas Waldhauser told U.S’ House Armed Services Committee that China’s state-owned China Merchants Port Holdings owning shares in Djibouti’s meant that U.S military could face “significant” consequences. Djibouti is one of many countries China considers part of its Belt Road Initiative.

In regard to Beijing’s infrastructure assistance going to undemocratic states, this is largely wrong. Most of Beijing’s borrowers are democracies with countries such as South Africa, Tanzania, Brazil, Kenya, and Tanzania. Other democratic countries that that have benefited from China’s infrastructure loans include United Kingdom (UK). China is a major investor in UK’s Hinkley Point Nuclear power plant in Somerset.

Therefore, despite critics of BRI, it can be argued that the project so far is a success. Indeed, in 2019, a study by World Bank entitled; “Belt and Road Economics: Opportunities and Risks of Transport Corridors” analysed transportation projects along the BRI routes and concluded that benefits to recipient countries and the entire world would benefit from the project. In Kenya for example, as a result of Belt Road Initiative project, the country built a 470 km railway line from Kenya’s capital, Nairobi to the coastal city of Mombasa which shortened travel time from 10 hours to five, created over 46,000 jobs and helped the country’s GDP by 1.5%.

Despite the study reporting more cases of policy impediments than infrastructure impediments – such as customs delays, bureaucracy, red tape, imports tariffs and corruption which increase trade costs, the study is a proof that BRI will play a significant role toward both social and economic development of the world.

From the above and findings of this study, it is evident that improving investment climate is a key complementary when it comes to supporting and investing in infrastructure sector. This can be realised through deep trade agreements such as the proposed Africa Continental Free Trade (AfCFTA). On Global scale, agreements such as BRI, AfCFTA and the recently reached trade liberalisation agreement between China and ASEAN, Australia, South Korea, New Zealand and Japan can help to eliminate tariffs which sometimes are barriers of trade.

Therefore, critics of infrastructure development should not look at infrastructural development in lenses of competition but rather putting in place facilities to aid trade. In particular, those criticising BRI branding the project a debt trap or debt diplomacy should reconsider their exaggerated claims. For example, countries that do borrow funds from China have also on many occasions borrowed from the so-called traditional donors or World Bank, IMF as well as other private bond holders. This means these countries diversify their sources of finances and thinking that they are beholden to China is ignoring key and glaring facts.

However, whereas it is very hard to present facts of the so-called debt diplomacy, there are genuine concerns when it comes to debt sustainability especially to African countries. However, these concerns should not only be tied to borrowing from China but rather all relevant lenders. This is because, unlike domestic debt, foreign debt has to be serviced using exports and this way, there are clear limits that point at how much borrowing developing or poor countries may take and continue to thrive.

In addition, the impact of Covid-19 pandemic on global economies feared to cause recession has should serve as a warning that many developing countries may find it hard to sustain their debts. Almost all countries that were projected to continue with a positive economic growth curve before covid-19 now are IMF analysis shows these countries projections were negatively impacted by covid-19 which has caused negative impact on countries exports and affected their GDP growth and hence, raising questions if these countries can sustain their debts. Indeed, many of China’s clients in Africa are in debt distress.

Early this year, China joined G20 in offering developing countries debt relief as a way of helping countries affected by Covid-19 pandemic recover. Among countries to benefit from this plan include 40 from sub-Saharan region. Despite this effort, debt moratorium alone may not be a magic bullet for Africa and other developing countries. Debt restructuring or write-downs. The challenge is that such arrangements often are done through the Paris Club of which China is not a member. However, if China wants to write-down debts on some African countries and developing countries in general, it can since it has done it before

On the other hand, the US announced a new development finance institution, also known as U.S. Development Finance Corporation (USDFC) to compete with China in offering infrastructure funding to development countries.  Though this is a positive development, this initiate alone will not bring swiping changes. Most of developing countries prefer to use Chinese funding when it comes to infrastructure funding. Though they may look generous, traditional funders and their multinational banks prefer to fund sectors such as administration, social services and the so-called democracy promotion instead of funding the much-needed infrastructure programs. For example, at first 70% of World Bank’s funding went to infrastructure but has been reducing to recently 30% despite huge funding gaps in infrastructure sectors in developing countries.

It is important to note that developing countries are still faced with shortage of funding especially in infrastructure projects which are key for development. A study by World Bank and McKinsey Global Institute found that funding for infrastructure projects such as transport and electricity is lacking, noting that to ensure a socially inclusive development by 2030, there is need to spend more than $3.3 trillions annually of which 60% of this must go to developing countries in Africa. African Development Bank (ADB) on the other hand estimates that to meet demands of their growing population, replace aging infrastructure, African countries must spend between $130-$170 billion annually on infrastructure. Also, a 2017 study by World Bank “Why We Ned to Close the Infrastructure Gap in Sub-Saharan Africa” suggested that if these countries reduce funding gaps for infrastructure, the region’s GDP per capital will grow by 1.7% and hence. All the above shows that any infrastructure assistance to developing countries should not be underestimated and hence, the view that BRI project is a positive initiate for developing countries world over.

In conclusion therefore, as studies have indicated, BRI project has more benefits if compared with challenges it may bring. Instead of critiquing the project largely to Geo and Global politics, China’s critics especially the U.S should back the project and where possible embrace and support new trade agreements such as AfCFTA to improve trade and investment climate in developing countries than only negatively criticising funders that fund developing countries projects. Also, the U.S may champion calls to reform the The Bretton Woods institutions and offer attractive alternative funding to developing countries, reduce their anti-China rhetoric and instead participate with China whenever there are efforts to offer debt relief.

Damaging Lies: Sri Lankan Port Deal With China not a ‘Debt Trap’

By Ssemanda Allawi and Ntende Trevor

Damaging lies: Sri Lankan port deal with China not a ‘debt trap’

In December 2017 Sri Lankan government agreed to lease their major southern port Hambantota which was built by Chinese, a development that caused discussion with several analysts inventing the so-called China’s debt diplomacy while others referred to it as China’s debt trap with some critics claiming that China forced Sri Lankan government into this deal after Sri Lanka failed to pay what critics described as Chinese huge loans.

Since then, China’s critics have always given Sri Lanka as an example arguing that the country was forced to lease its port to pay back Chinese loans, a claim that lacks facts.

Indeed, Sri Lanka’s ministry of Finance’s chair of Public Private Partnership Unit Thilan Wijenighe confirmed that $1.131 billion loan from China was not spent in funding Hambantota port related activities but Sri Lankan government used these funds to boost then failing state reserves as a preparation not to default paying external debts Sri Lanka owed to several western entities.

Put differently, before leasing of Hambantota port, China accounted to just 10% of Sri Lanka’s external debt of which most of these loans are concessional with a long-term payment plans, while the other over 40% of other borrowings was from other ‘traditional’ development partners like World bank and with a short time recovery which distressed Sri Lanka government as opposed to Chinese concessional loans.

In particular, the $1.31 billon China loaned Sri Lanka through Export-Import Bank of China, 90% of this loan was concessional at 2% interest rate and was meant to be recovered in 15 – 20 years. Therefore, it is not logical that to argue that Sri Lanka was forced to lease the port to pay its debt when the loan still had over ten years to be recovered.

Indeed, Sri Lankan government later explained that it was only for commercial reasons that Sri Lanka Ports Authority decided lease 70% shares of its Hambantota port to a Hong Kong based China Merchants Port Holdings since Sri Lanka Ports Authority alone would not manage to make the port realise set economic targets. At the time Sri Lanka Ports Authority decided to lease its majority shares, the port was operating in loses.

Cars parked at Hambantota port, Sri Lanka. Courtesy photo.

Figures from Sri Lanka Ports Authority shows that before its takeover, Hambontata was making losing over $80 million annually and since the deal to was made with China Merchants Port Holdings, the loss reduced by a half in a period of one year and the port has been consolidating its roll on-roll off (RoRo) business doubling the number of vehicles that go through it

DWC

Development Watch Centre

Kampala - Uganda

ADDRESS

Plot 212, RTG Plaza,3rd Floor, Office Number C7 - Hoima Road, Rubaga

CONTACT

+256 703 380252

info@dwcug.org

FOLLOW US
© DWC - All rights reserved - Cookies Policy - Privacy Policy