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What’s the deal with…Debt-Traps in Africa

What’s the deal with…Debt-Traps in Africa

  • Inès explores the origins of the debt trap narrative which has swept Africa-China and Caribbean-China spaces

Over the last 11 years, Chinese investments skyrocketed across the African continent. Alongside this expansion, the “debt-trap diplomacy” narrative permeated mainstream media in Africa and the West alike. According to this viewpoint, China purposely seeks to ensnare African nations into a net of debt in order to gain assets or strategic advantages. 

What has been said?

Numerous western actors seem to fully embrace the “debt-trap diplomacy” narrative. At the 2018 APEC Summit, US Vice-President Mike Pence urged African nations to “Know that the US offers a better option. We don’t drown our partners in a sea of debt, we don’t coerce, compromise your independence (…)”. John Bolton, the Trump administration’s previous National Security Advisor, chimed in with this stance, affirming that China is making “strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands.” The foreign policy hawk described the Belt & Road Initiative (BRI) as “a plan to develop a series of trade routes leading to and from China with the ultimate goal of advancing Chinese global dominance”. This mindset also appears to have garnered sweeping acceptance across both sides of the U.S. political spectrum. Hillary Clinton, as early as 2011, even warned Africans about China’s “new colonialism”. 

Looking closer to home reveals that this viewpoint gained popularity amongst African communities too, with notable African political figures voicing their wariness vis-a-vis China’s economic manoeuvres in their home countries. This year, Nigerian Representative Ben Rollands Igbakpa stressed that “One will say China is not the highest creditor of Nigeria. Yes, but the worrisome part of it is that the way the Chinese bring these loans, there appears to be some under-the-table activities.” 

Ben Rollands Igbakpa speaks

Kenyan journalists and economic analysts also expressed their concerns regarding loan agreements between their country’s government and China. “The loan contract Nairobi entered into with Beijing has several clauses that heavily favour China and compel Kenya to make many compromises, with the most controversial one being the waiver of sovereignty on assets”, Edwin Okoth, a journalist for Kenya’s Nation, wrote last year in reference to the high-profile case of a China-funded railway. Meanwhile, Former Director-General of the Nigerian Institute for Social and Economic Research (NISER) Prof. Olu Ajakaiye similarly highlighted that one of the issues most recurrently mentioned by critics remains the secrecy surrounding such loans: “The projects to be financed with the loans are not well costed, and their cost-benefit analysis properly carried out. The implementation processes remain tardy and, above all, the loans are not carefully negotiated by competent, committed and ethical government officials to secure the most favourable terms and conditions for the country.” 

We’d only have to look as far as social media to find that citizens of a number of African countries and even across the diaspora also vehemently voiced their concerns about Chinese loans on social media, denouncing the “Chinese debt-trap”.

Controversial public figure Dr. Umar Johnson has been very vocal on such topics

Where did it all start?

Professor Deborah Brautigam, Director of the China-Africa Research Initiative at the John Hopkins School of Advanced International Studies, traced the root of the “debt-trap diplomacy” narrative to a meme created by an Indian pundit about Sri Lanka’s sale of a majority of shares in its loss-making Hambantota port to China Merchants Port Holdings Co. The meme misleadingly characterised the transaction as an “asset seizure”, depicting it, as Brautigam affirms, as though “the Chinese had forcibly taken control of the port when the Sri Lankans were allegedly unable to repay the Chinese loans that had financed the port’s construction”. Instead, she insists, “the sale of Hambantota was originally a fire sale designed to raise money to deal with larger debt problems”. 

In spite of this, since the birth and spread of this meme in 2017, the “debt-trap diplomacy” narrative has been enthusiastically adopted as a new, alarmist political paradigm through which China’s transactions with African countries are often considered. 

What does the data say? 

The colossal size of China’s loans to African countries with considerably weaker economies may indeed outwardly appear predatory. Chinese investments and contracts in Africa between 2005 and 2018 totalled an approximate $299 billion according to China Investment Global Tracker. Moreover, President Xi Jinping announced at the 2018 Forum on China-Africa Cooperation (FOCAC) that China would be providing an additional $60 billion in financial investment to Africa to create infrastructure and bolster innovation. In the face of relentless accusations that China is investing in Africa to expand its geopolitical, strategic and diplomatic sphere of influence, China’s Foreign Ministry spokesperson Hua Chunying insists that “not a single developing country has been mired in debt difficulties because of its cooperation with China”.  

And it seems that the data supports her assertions. According to recent findings, the “Chinese debt-trap diplomacy”, despite its widespread acceptance as conventional wisdom, stems from gross misconceptions. 

It goes without saying that the long-term viability of sizeable Chinese investments for African nations remains to be seen. However, paradoxically, no precedent seems to exist that would indicate China’s inclination to entrap its economic partners in so-called “debt-traps”. 

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While China has been investing heavily in Africa, the country’s era of economic involvement in the continent is still in its infancy. This is especially the case when compared to European countries’ colonial past and enduring financial ties with African nations, which are often notably glossed over when discussing Africa-China relations.

Researchers at the John Hopkins China Africa Research Initiative (CARI) who curated a database of more than 1000 loans from Chinese financiers to African nations concluded from their findings that “we have not seen any examples where we would say the Chinese deliberately entangled another country in debt and then used that debt to extract unfair or strategic advantages of some kind in Africa, including “asset seizures””. 

Corroborating their findings, the initiative’s director Deborah Brautigam highlights that: “The International Monetary Fund estimates that as of late January some 17 low-income African countries already were in, or were at risk of, “debt distress,” or of experiencing difficulties in servicing their public debt. We at the China Africa Research Initiative created debt profiles for those countries based on our data on Chinese loans as well as statistics from the World Bank and the I.M.F. — and we discovered that a crowd of global banks and bondholders were involved: notably, in Mozambique, Credit Suisse; or in Chad, the Anglo-Swiss mining giant Glencore. In some of the 17 countries the I.M.F. identified as vulnerable, including Cameroon and Ethiopia, China was the single-largest creditor, but non-Chinese lenders still held the majority of the debt. Only in Djibouti, the Republic of Congo and Zambia did Chinese loans account for half or more of the country’s public debt.” The fact that only three African countries owe more than half of their country’s public debt to China reveals that the allegations that China devised a malicious scheme to ensnare African countries into handing over strategic assets are groundless when confronted with actual data.

China’s economic ties with African countries remain asymmetrical and many aspects of these relationships are yet to be properly examined. Numerous African leaders expressed that they conceive Chinese direct investments as an invaluable opportunity to modernise their infrastructure and strengthen their economies. Rwandan President Paul Kagame praised China’s treatment of Africa “as an equal”, which he called “a revolutionary posture in world affairs”, and emphasised that “the Chinese bring Africa what it needs: investment and money for governments and companies. China invests in infrastructure, builds streets”. President Uhuru Kenyatta also echoed his counterparts’ optimistic outlook, saying he “appreciates” China’s support of his country’s development agenda, adding that “we are satisfied with the tremendous progress achieved in our bilateral cooperation, and continues to open up new areas of cooperation”. An Afro-Barometer survey conducted this year in 18 African countries with a Chinese presence also shows that China is overall positively perceived by these countries’ citizens. This notwithstanding, public opinion across the African continent comprises a very wide range of views regarding China’s economic involvement and loans in particular and needs to be examined on a case-by-case basis. 

China’s ever-expanding economic involvement with African countries comes with many challenges for the latter. The under-representation of Africans in managerial positions or in positions with a high level of responsibility in Chinese-owned businesses, for instance, figures as a significant issue that needs to be addressed in order to ensure these partnerships remain beneficial to all parties involved. African countries should remain wary of the predatory potential of significant loans, wherever they come from. Nonetheless, considering the lack of precedent and the fact that only three African countries owe more than half their public debt to China, the “debt-trap diplomacy” narrative remains, as of now, groundless.

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