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The Myth of the Chinese Debt Trap in Africa - YouTube
Channel: Bloomberg Quicktake: Originals
[2]
In the past two decades,
[4]
China has built large
infrastructure projects
[6]
in almost every country in Africa.
[9]
And this has made Western
critics uncomfortable.
[12]
China and Africa can
forge an even stronger,
[16]
comprehensive, strategic
and cooperative partnership.
[19]
A common portrayal of
China's lending practices
[22]
is known as debt-trap diplomacy,
[24]
a phrase made popular after being used
[26]
in government documents during
the Trump administration.
[30]
The so-called debt-trap
is created when a country
[32]
lends to poorer countries,
[34]
intentionally overwhelming
them with unsustainable debt,
[37]
forcing them to surrender strategic assets
[39]
or concede increased political leverage.
[42]
But so far, there's no
evidence that such a debt-trap
[45]
has been sprung in Africa.
[47]
Now there's always a
certain grain of truth,
[49]
like with every stereotype to it.
[51]
But it breaks down very, very quickly
[54]
upon any type of serious examination.
[58]
The focus on debt-trap diplomacy
[60]
is part of wider Western
anxieties towards China in Africa.
[65]
We've already seen that
Chinese investments
[68]
and Chinese infrastructure projects
[69]
have been linked to
increasing Chinese influence
[71]
within the host country ruling elite.
[73]
That may end up becoming
somewhat of a leverage point
[76]
for China to push some of these
countries or ruling elites
[78]
to side with China on critical issues
[80]
that are important to the
U.S. or to its allies.
[84]
But while the U.S. has
focused its Africa strategy
[87]
on aid and social services,
China has been building.
[91]
African governments themselves said,
[92]
"We are tired of aid and
charity, we want to do trade,
[96]
we want to be treated like partners."
[98]
The Chinese came along and said, "Great.
[100]
"we don't do aid and charity,
[101]
we wanna do business with you."
[103]
Global Gateway will mobilize
€300 billion till 2027.
[109]
Now the U.S. and Europe are answering back
[111]
with their own infrastructure
initiatives to counter China,
[114]
but African experts are skeptical.
[117]
At the end of the day, China has been
[119]
that guy around the corner
with a bouquet of flowers.
[125]
To Africa, the U.S., Europe and the U.K.,
[129]
have time and time again said,
[131]
"Be careful of the flowers
you see out of the window,
[133]
they have thorns on them."
[143]
In Ghana the handover of power
from the British government
[146]
went off smoothly and with dignity.
[149]
From the 1950s into the 1970s,
[152]
countries on the African continent
[154]
gained independence from
their European colonizers.
[158]
U.S. and European-led organizations
[160]
like the IMF and the World Bank,
[162]
funded much needed infrastructure
across the continent.
[166]
But that slowly stopped.
[169]
The United States and
Europe kinda backed away
[171]
from infrastructure in the 60s and 70s.
[174]
It's something that we did very, very well
[176]
for a long time in the postwar era,
[178]
we built vast amounts of infrastructure
[179]
throughout the world.
[181]
And one of the things you see in Africa,
[183]
is that so much of the
railways and the highways
[185]
and the infrastructure was built
during the colonial period.
[188]
And back then it was quite solid.
[190]
But it's been decrepit
[191]
because the former colonial governments
[193]
are not plowing in lots of money.
[196]
Enter China. As early as the 1970s,
[199]
Beijing began building the Tazara Railway,
[202]
a link between the Zambian
town of Kapiri Mposhi
[205]
and Dar es Salaam port in Tanzania.
[208]
At the time it was the longest railway
[210]
in Sub-Saharan Africa,
allowing Zambia to ship copper,
[214]
bypassing white-ruled
Rhodesia and South Africa.
[217]
It also gave China much
needed political allies.
[221]
Beijing said, "We have
problems, you have problems,
[225]
we will help you out."
[226]
And they embarked on this.
[228]
And this is really some of the early seeds
[232]
that China sowed in Africa that later
[236]
came to clearly define the divide
[240]
between the West and the East,
[243]
as far as China's involvement
in Africa is concerned.
[247]
In the early 2000s, as China
looked to expand markets
[250]
and political influence abroad,
[252]
its investment in Africa ramped up.
[256]
The Chinese said, "Well, guess what?
[257]
We are the best in the world now
[259]
at producing large scale
infrastructure, fast and cheap.
[263]
And we have a surplus of capital,
[265]
so we'll loan you the money,
[266]
we have our great contracting companies.
[268]
We have all of this skill
and all this ability
[270]
to deliver fast and cheap."
[272]
And in that sense, it was
really an ideal match.
[275]
They recognized what Africa's
development stage was.
[279]
And they said, "You know what?
[280]
30 years ago, that was us.
[284]
We recognize a lot of
what's going on here.
[286]
You don't have enough infrastructure,
[288]
you have a large population
that's growing quickly."
[291]
Also let's not underestimate
there is a shared history here
[295]
of anti-colonial struggle.
[297]
So you tick all of those different boxes,
[299]
and Africa made a lot of sense
for the Chinese to come in.
[303]
China is currently involved
[305]
in an estimated 35 African countries,
[307]
and has made significant contributions
[309]
to their infrastructure,
including ports, railways
[313]
and power plants.
[315]
It's estimated that China has invested
[318]
more than $340 billion in Africa.
[321]
So compared to how much China
is investing across the world,
[325]
this may not be as much.
[327]
But for Africa, it's a lot of money
[329]
because of the huge infrastructure
gap that Africa faces.
[334]
But there are noticeable differences
[336]
between Chinese financing
and how the West lends
[339]
historically with low interest
rates and flexible terms.
[343]
There must be over millions
[345]
of different types of loans out there.
[347]
But if you were to take
an eagle's-eye view
[350]
of the different kinds of loans
involving Chinese lenders,
[353]
then you can broadly categorize them
[356]
into three different types.
[358]
The loans fall into three categories.
[361]
Zero interest loans offered as aid,
[363]
concession loans which
have a lower interest rate,
[366]
often intended for large
infrastructure projects
[369]
and the most common, commercial loans
[371]
with higher interest rates
[373]
in line with what you would get
from a typical private bank.
[377]
One of the very interesting
trends that we see
[380]
when researchers discuss Chinese loans,
[383]
is that there is a tendency
to bunch all three together.
[386]
Well, the very first question
you should ask yourself
[388]
whenever you see something like that,
[390]
is well, are they comparing
apples to oranges?
[393]
Because if you're
comparing commercial loans
[395]
to something available from the World Bank
[397]
or one of its different agencies,
[399]
then you're not really
comparing like for like.
[401]
And the fact of the matter is this,
[403]
and I hope the borrowers
out there are listening,
[406]
95%, if not 99%, the loan agreement
[409]
are there in favor of the lenders,
[411]
no matter who you deal with.
[413]
This is because by the time
you sign that loan agreement
[415]
and you get the money, you'll
have the money in your hands
[419]
and the only thing the bank
will have is a piece of paper.
[422]
That is why the loan
agreements are in their favor.
[426]
In one report, which analyzed
100 Chinese contracts,
[430]
it revealed that the loans are structured
[432]
to give an advantage over other creditors
[434]
and allows action to be taken
[436]
if the borrower acts
contrary to the interests
[438]
of a People's Republic of China entity.
[441]
There are also unusual clauses
[443]
that shroud agreements in secrecy.
[446]
When you look at multilateral lenders
[448]
like the World Bank and
the different agencies,
[450]
their shareholders are countries
[451]
and they're required to
publish their lending
[455]
and activities just to be transparent.
[458]
They don't have any choice.
[459]
On the other hand, when you
come to commercial banks
[462]
then you'll see a very different case.
[464]
And that is banks often are
under a duty of confidentiality
[468]
to their clients.
[469]
I think the Chinese
banks are no different.
[472]
But the rush to give
out loans by the Chinese
[474]
has meant some of their early investments
[476]
weren't as profitable as projected.
[479]
So when China stepped into the field,
[481]
it was much welcomed
by the developing world
[483]
that there would be increased
financing for infrastructure.
[486]
However, with the rush to
get projects off the ground,
[489]
to put them into action
and to begin construction,
[492]
critical due diligence was
often left by the wayside;
[495]
financial sustainability,
[497]
social and environmental
sustainability assessments
[500]
kind of never were done
or were done haphazardly,
[503]
or were simply not transparent
[505]
or available to the populations.
[507]
What this has ended up causing
is states to take on projects
[511]
that they initially
thought were affordable,
[513]
but unfortunately, they've
been now saddled by debt.
[517]
China is coming for its
pound of flesh in Uganda.
[521]
In 2021, the Entebbe
International Airport in Uganda,
[525]
came under fire after local media reported
[528]
that the airport would
be taken over by China.
[531]
We call this a debt-trap.
[533]
After closer examination of the contract,
[535]
it was found there was no debt-trap.
[537]
And both sides have denied
that the airport is in danger
[540]
of a takeover.
[543]
I think there is an assumption
that certain governments
[546]
are not able to look after
themselves, or they're
[548]
either not sophisticated enough
[550]
or just simply too corrupt
[553]
to look after its own interest.
[554]
I think in my personal
view and experience,
[557]
that just simply hasn't been true.
[559]
Experts say more should be
done by borrowing countries
[562]
to make sure loans are more
favorable to their interests.
[566]
But the Chinese argue that
the risk level is higher
[568]
in African countries and
greater repayment assurances
[571]
are needed for loans that might
not otherwise be available.
[576]
Certainly, in my 20 years of experience,
[578]
I've never seen a case
where the Chinese bank
[580]
would just say, "Look, don't read this,
[582]
just sign on the dotted line."
[583]
In fact, they will spend days and days
[586]
and they're sitting with us,
[587]
going through every line of the document
[589]
and making sure the
other side understands,
[591]
because they know in 10 years time,
[594]
if they don't explain this clearly,
[595]
this is going to come back and haunt them.
[598]
Certainly, there are issues
[600]
with how China finances projects,
[602]
there are issues around transparency,
[604]
but I don't think this is
some sort of grand master plan
[607]
from Beijing in order to
ensnare developing countries
[611]
into debt and become
further beholden to Beijing.
[616]
In Kenya and Nigeria debts
to Beijing are growing.
[620]
These include Kenya's $3.6 billion railway
[623]
from Mombasa to Nairobi,
[624]
which reportedly lost $200 million
[627]
in three years of operation.
[629]
And a $1.3 billion loan
from the China Exim Bank,
[633]
to fund Nigeria's largest
infrastructure project,
[636]
a 157 kilometer segment
of the Lagos-Kano railway.
[641]
The government itself
can't afford to finance
[644]
these things.
[645]
The private sector isn't
really stepping up,
[648]
the West has not got
an alternative program.
[652]
So therefore, China is
the only game in town
[657]
and the terms of the loans are reasonable.
[661]
At the same time, you have
members of The National Assembly,
[663]
particularly, from the
main opposition party,
[666]
vocally criticizing the government
[669]
for what they perceive to
be a lack of transparency
[672]
around the management
of the loans from China.
[676]
They often articulate this worry
[679]
that you hear in other parts of Africa,
[681]
that China will try and
seize Nigerian assets
[686]
in the event of a default
by the Nigerian government.
[692]
But looking closer at Kenya and Nigeria's
[694]
total public debt, it doesn't appear
[696]
that China's in a position
to use the debt it's owed
[699]
as leverage.
[700]
In Kenya, Chinese loans
account for about 10%
[704]
of the country's $70 billion total debt.
[707]
And it's even less acute in
Nigeria where the Chinese debts
[710]
are just about 3-4%.
[712]
So again, we have to focus
on the data as it is,
[715]
not as these narratives
and the storytelling
[718]
which we have these fantasies that Kenya
[721]
is going to be taken over by the Chinese.
[723]
One country cannot control another country
[726]
just by owning 4-10% of its debt.
[729]
Only a handful of countries
on the African continent
[732]
have a significant amount
of debt owed to China.
[735]
And most of them owe much
more to private bond markets.
[739]
Africa does not have a
Chinese debt problem.
[741]
Angola weights about a third
of all Chinese debt in Africa.
[745]
So take Angola out of the issue,
[747]
then you have an even less
serious problem in that respect.
[750]
So it's very important that
we narrow down this problem
[753]
to be what it is.
[756]
But it only takes one bad
deal to affirm Western fears.
[760]
In the Democratic Republic of Congo,
[762]
a controversial method of borrowing
[764]
based on future natural resource revenue,
[766]
has meant some projects have
fallen victim to corruption.
[770]
Congo has a very, very
significant mining industry.
[773]
It's Africa's biggest producer of copper,
[776]
it's by far the world's
biggest producer of cobalt.
[779]
Cobalt is a key ingredient
in the rechargeable batteries
[783]
that power electric vehicles.
[785]
You hear politicians talk about Congo
[788]
saying that, "We are to cobalt
as Saudi Arabia is to oil."
[793]
However, up until now
at least, the benefits
[799]
to government revenue and the benefits
[801]
to the population at large,
have been rather limited.
[808]
In 2008, China and the
Democratic Republic of Congo,
[811]
agreed that Chinese companies
would finance $3 billion
[815]
worth of infrastructure
[816]
and build a $3.2 billion
copper and cobalt project,
[820]
whose tax-free profits would
repay both investments.
[823]
China with the help of these mines
[825]
has now come to dominate an industry
[827]
at the heart of future technologies.
[830]
And leaked documents
reveal millions of dollars
[832]
that flowed from Chinese entities,
[834]
including the multi-billion
dollar mining project,
[837]
to the family and associates
of Congo's then-president
[840]
Joseph Kabila.
[842]
If the example of Congo applies elsewhere,
[846]
these companies operate
[848]
with a real deliberate
lack of transparency.
[852]
And if they find a willing
partner in a government,
[857]
as they did in Joseph Kabila's government,
[859]
this lack of transparency can
extend to and really envelope
[864]
the relationship between the state
[867]
and these mining companies.
[871]
There is a lot of anxiety in the West
[874]
over China's involvement anywhere really,
[877]
because it's a strong
number two to the US.
[880]
And being a superpower and
China having very strong links
[885]
with Africa, setting up a lot
of logistical supply chains
[891]
in Africa, preparing to expand its trade
[896]
and take it to the next
level, is worrisome.
[899]
'Cause whatever happens in Africa
[902]
or whatever happens in Asia,
[904]
ultimately can affect the world order.
[907]
There's a lot at stake.
[912]
Ideology may also be on the line.
[915]
Countries that receive help from the U.S.
[917]
or European multilateral
development banks,
[919]
often require values that fall in line
[921]
with democratic nations.
[923]
Anti-corruption, good governance,
[925]
transparency, participation, inclusion,
[929]
these are things that really matter.
[931]
We should want projects
that are beneficial
[934]
to the populations, that
don't negatively affect them.
[937]
And so while it may hinder the U.S.
[940]
in being able to lend
to certain countries,
[943]
I don't necessarily
think that's a bad thing.
[945]
When countries in Africa
take help from China,
[948]
they're expected to side with,
or at least not participate
[951]
in the condemnation of China
on key issues, including Taiwan
[955]
and allegations of
forced labor in Xinjiang.
[959]
On these sensitive red line issues,
[961]
and Taiwan is certainly one of them,
[963]
this is where the political relationship
[966]
becomes more evident
and much more important.
[968]
Africa, more than almost any
other region in the world,
[972]
tends to vote as a block
[974]
in major international organizations.
[976]
And tends to express itself as a group,
[979]
if not the whole continent.
[980]
And again, this is the political symbolism
[982]
that's becoming increasingly
important to China
[985]
from a region like Africa,
[987]
that is so important to the Chinese,
[989]
much more so in many
ways than the resources,
[992]
which again, aren't as important to China,
[994]
simply because they can
buy the resources now
[996]
from any number of other places.
[998]
But getting this kind of political support
[1000]
is very important in today's
geopolitical environment.
[1003]
We want to show that a
democratic, value-driven approach
[1010]
can deliver on the most
pressing challenges.
[1013]
While the U.S. and
Europe haven't attempted
[1015]
to try and match China's
investment on the continent,
[1018]
they have started work
to offer alternatives.
[1021]
The EU's Global Gateway aims
to supply €300 billion globally
[1026]
between 2020 and 2027.
[1029]
And Build Back Better
World or B3W from the U.S.,
[1033]
aims to address the infrastructure needed
[1035]
in developing countries.
[1037]
Democracies are messy.
[1039]
Things take time in democracies.
[1041]
So while authoritarian
regimes such as China
[1043]
are able to speed up the process,
[1046]
are able to get things done quicker,
[1048]
that doesn't mean it's
of a better quality.
[1050]
And I think that's really
where the U.S. and others
[1053]
and through the B3W initiative,
[1055]
can really make a difference,
is by actually developing
[1059]
and building high quality infrastructure.
[1061]
We believe in the nations of Africa,
[1064]
in the continent-wide spirit
[1065]
of entrepreneurship and innovation.
[1068]
Yet skeptics of U.S. and
European-led projects
[1071]
say they're aimed at
specifically targeting
[1073]
Chinese influence, rather than working
[1075]
with African countries
as business partners.
[1078]
And they lack specific information
[1080]
that have many wondering whether or not
[1082]
they'll result in
significant action in Africa.
[1086]
When you talk to the
Chinese, they'll tell you
[1088]
that, "We have come along way with Africa
[1090]
both culturally and economically,
[1093]
we have had similar problems as Africa
[1095]
and we want to help them grow
[1097]
because they were in a
position where we were."
[1100]
In Africa, the Africans will
tell you, "We need the money.
[1104]
We have a huge infrastructure gap.
[1107]
And it doesn't matter whether
the money is blue or red,
[1111]
as long as it can do the
job, we will accept it."
[1114]
When we talk to some of the
economists that follow China
[1119]
and the African governments,
they will tell you
[1121]
that there has been benefit
[1123]
for these projects overall for Africa.
[1126]
How they have been done,
[1130]
the terms as well as how
these projects have been got,
[1135]
is another story.
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