US Agency to Fight BRI Debt

 

Closer Looks at Chinese Investment
How Chinese investment and debt finance impacts Africa continues to be a major source of contention. A stream of studies indicate a more nuanced reality between claims China is a benign partner in Africa’s development and claims China is driven solely by geopolitical interests.

Yu-Shan Wu, Chris Walden and Cobus van Staden of the South African Institute for International Affairs studied responses to the Belt Road Initiative and showed African governments are not necessarily passive recipients of Chinese diktats. One, they have become adept at playing off Chinese and Western donors to receive better terms. Two, over the past few years African governments are demanding Chinese investments benefit local industrialisation and skills development and training. Both concepts are now embedded in Beijing’s latest Africa Action Plans. Three, African agency regarding China is now evident in local businesses, civil society and even regional bodies like the African Union. Beijing can no longer deal only with government in its engagement. Four, increased public consciousness on debt issues has meant pushback and protests are more common than in the past. China today faces “significant financial and reputational risks” when such controversies arise.

A paper by Marina Rudyak, in the Asia Dialogue and based on a larger study for the German aid agency, iterates earlier studies in saying Chinese investment in Africa has changed from an earlier “roads for rocks” model. This resources-for-infrastructure model is now shifting to one where Beijing’s development finance is used to support the equity investments of Chinese firms. The China Africa Development Fund and similar mechanisms are today used more as “door openers” for Chinese private companies. While transport and energy still dominate the African investment portfolio in terms of money, “the largest number of projects is to be found in the areas of health, governance, social infrastructure and education.”

She notes African countries who work out strategic partnership agreements with China that outline domestic priorities and channel Chinese funding accordingly benefit the most. South Africa and Ethiopia are countries that have done well through this pattern. Kenya, Nigeria and Tanzania don’t have such agreements. Angola and Zambia are still stuck in the older resources for infrastructure model.

Field studies on the impact of Chinese investment and trade at the grassroots level are remarkably few. Linda Calabrese and Xiaoxue Weng provided some answers by studying Chinese influence on three sectors: Zambian rosewood, Tanzanian mining, and Zimbabwean and Zambian cotton.

In the case of Zambian rosewood, they found that while Chinese had initially controlled the logging and export of the valuable timber, over time Zambian locals reclaimed the logging part of the supply chain. Tanzanian mining was already controlled by South African corporate interests so the Chinese moved into niche areas like the processing of tailings. Similarly, Indian firms were already strongly present in cotton. The Chinese moved into the informal cotton sector, making cash purchases of cotton surplus to existing long-term contracts. While popular with local farmers the study concluded their actions undermined formal investments in the sector.
China in Africa’s External Debt
The Jubilee Debt Campaign released a study on Africa’s external debt and the contribution of China’s official lending. Overall, Africa’s debt problems continue to increase. External government debt payments have doubled in just the past two years from an average of 5.9% of government revenue in 2015 to 11.8% in 2017.

While exact figures are difficult to calculate, the study concludes multilateral and private lenders continue to dominate the continent’s debt profile at 35% and 32%, respectively. Between 18 to 24% of Africa’s external debt is owed to China. Assuming 20% as the correct figure, this would mean 70% of Africa’s external debt to individual governments is owed to China.

Unsurprisingly, private sector loans commanded the highest interest rates and accounted for 55% of interest payments. Extrapolating from this, the study concludes Beijing commands 17% of such interest payments. China is not overly represented in the ledgers of the 15 African countries the International Monetary Fund lists as being debt distressed – on average 15% of their debt is held by China.

Many African governments keep poor public records of their debt obligations so only 15 individual countries could be studied. Three of these countries – Zambia, Cameroon and Djibouti – had unusually high levels of exposure to China. China represented 30%, 29% and an astonishing 68%, respectively, of their external debt.

US Agency to Fight BRI Debt
The United States government created a new agency, the US International Development Finance Corporation, to directly take on China’s use of debt finance to promote its geopolitical goals. In early October, President Donald Trump signed the Better Utilization of Investments Leading to Development Act which effectively rebadged the venerable Overseas Protection of Investment Corporation as US IFDC but, notably, doubled its budget to $ 60 billion. As important, the new body will be able to make equity investments like the World Bank’s International Finance Corporation and deal in local currencies.

The Trump administration had initially planned to abolish the OPIC, a long-standing target of rightwing America as an inefficient government subsidiser of private industry. Concerns about the Belt Road Initiative led Washington to reconsider this approach. The BUILD Act not only expands US financing of infrastructure, it is part of a larger attempt to recast all US assistance, including that provided by the US Agency for International Development and the Exim Bank, to counter the BRI. For example, USAID will help least developed countries develop the capacity to negotiate aid and investment agreements with parameters that incorporate financial sustainability and global transparency norms.

Africa will be a main target of the new agency and breathe life into an US Africa policy that many believe has become overly security driven. Ray Washburne, presently head of OPIC and likely head of the US IDFC, cited China explicitly. He said Beijing was not interested in helping countries, only grabbing assets. “With the new fund, [the US] will be engaging in other countries it in a ‘businesslike manner,’ ” he said.

One way the US could improve its influence in Africa is simply for their presidents to visit Africa more often. A study shows that US presidents have made only 52 state visits to Africa in the country’s history and visited only 16 countries in the continent. Seventy per cent of Africa countries, in other words, have never had a US president visit them. No US president has visited Africa since Barack Obama went in 2015.

 

(The views expressed are personal)

Mr. Pramit Pal Chaudhuri
Distinguished Fellow, Ananta Aspen Centre
Foreign Editor, The Hindustan Times

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