China and Africa financial partnership; what is the story?

Over the weekend, I happened to have been deep into my thoughts and trying to figure out what to write and tahdah…I had a chat with one the experts in the extractive sector in Tanzania. I asked, what one thing would you suggest at the moment in the context of your field? After a long discussion of what was going on here and there, my interest picked on the “New Giant in town”, CHINA.

Following the completion of the 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) in September, China is the talk of town mainly on the speed its lending to African countries in “kind”, especially on infrastructure development to the highly dignified so-called developing countries.

A lot has been written on the topic with inclusion of the summary of the after-summit meetings among leaders. Tanzania included adhering to the one-China policy, and willingness to actively participate in building the Belt and Road Initiative that will potentially benefit the country’s infrastructure, construction and industrialization, and elevate Tanzania-China relations to a new level.

Key interest however was on those borrowing against their precious metals, stones and fossil fuel. I set out to find out what is the trend out there? Which countries are the victims? What is the drive behind it? What have our profound scholars have to say about it? And what is the impact of this whole new wave.

Now, I am going to make this a mini-series of posts. Well, for reasons most millennials like me understand, we want it quick, short and straight to the point and at the same time interesting enough across all demographics and Intellects. What a time to be alive! Starting off with the basics, I believe these are issues worthy to talk about in our time way before we find ourselves in a position where we will not be able to explain to our generation “X”, how and why we were not able to control the precious wealth for them to enjoy then, and end up in the cyclic circle of “developing countries.”

The debate is currently going on as why Africa and China relationship has been spiked up by the trend of China loaning billions of dollars to African countries for infrastructure development in exchange for resources, famously known as the “Angola mode”.  

According to Africa’s Pulse of April 2018, Africa has on average experienced an increase in debt with oil exporting countries being held responsible for the high debt to GDP levels. Africa’s public debt saw an increase from 37 to 56 percent of GDP between 2012 and 2016 with cases where countries such as Angola and Gabon median debt-to-GDP more than doubling over a span of four years and the Republic of Congo more than tripled between 2012 and 2016. On the other hand, China went from leading Asian oil exporter to largest global oil importer in 2013.

Let’s start by putting into contexts what the debate is all about out there. Looking on one side of the story there are those who say;

Africa can benefit from the partnership

China is resource hungry, and Africa is short of Infrastructures to boost economic growth. Infrastructure projects that China backs tend to be of high-quality, commercially sound, socially responsible, and well-managed. However, it is up to African leaders to drive harder bargains and African publics to demand transparency in terms of contracts.

 

It’s a win-win situation

When providing foreign assistance, China adheres to the principles of not imposing any political conditions, not interfering in the internal affairs of the recipient countries and fully respecting their right to independently choose their own paths and models of development. The basic principles China upholds in providing foreign assistance are mutual respect, equality, keeping promise, mutual benefits and hence a win-win situation.

…….and the other side who refer to the partnership as a wary matter…….

Africa risks relinquishing its natural resource wealth, with no sufficient gain

Many African countries are seen to lack a strategic focus in their engagement with China—or a long-term vision that could ensure that the partnership supports broader poverty alleviation on the continent. Lack of coordination among African countries for engagement with China is a missed opportunity.

 

Tying of projects to Chinese companies

Typically, Chinese financing is used to pay Chinese companies directly upon their completion of the contracted infrastructure project. In March 2004, China’s Exim bank extended a USD 2 billion oil backed loan to Angola to support its reconstruction. The payment plan for these disbursements are generally made directly to the approved contractor(s), arguably is done so to avoid corruption cases. Loan repayment normally commence at the project’s completion

 

China vs the West

One of the funniest that I find and actually makes Africa look like a lost puppy in need of rescue, is the push and pull of whether Chinese loans are good for the countries vs those from the west. Where scholars have mentioned the unconditioned Chinese aid and investment may allow some authoritarian leaders to delay political and economic reform, and the Western aid, with its more explicit political and economic conditions, but with marginal success in producing meaningful African reform citing that the Chinese approach undermining western longstanding efforts to improve governance in the continent.

 

African governments know what they are doing?

More broadly, many studies have presented Africa as a continent for exploitation by China, whilst others have highlighted that these loans are actually not forced on African governments. However, the unfortunate appetite for quick movements to development and the constrained resources has made African governments voluntarily seek out debt. Presently issues that portray Africans being clueless of their debt obligations and the impact it may have on the long-term development of their countries is creating an incentive for African governments to fail to acknowledge their role in protecting their natural resources.

My take on this, I would say, that Africans need to understand that natural resources have and remain the primary area for foreign investment appetite. The key challenge for Africans is to take this bitter sweet pill, swallow it and use it to promote a long-term developmental agenda for Africa. This will not happen out of the blue, doing so requires African governments to have a more innovative thinking.

Now building upon best-established practices from our own experiences, in short and in question marks. Let’s discuss; When all is finished, ooh and yes, it will be finished (they are exhaustible resources, we all know that). …. what will Africa trade with the East and the West? Why are the markets for locally produced products and local companies not getting enough backing from their governments to secure markets abroad? The companies that explore and develop the infrastructure for oil, gas and minerals are the same companies over and over again. They are not going to remain in the countries for ever. So, the cash cycle remains in their favour as the assets get transformed into revenues that go to foreign companies who take raw materials back home and produce final products for the “developing countries” and some remain among the “elites”. So, what does Africa actually sell?

Thank you for reading and your patience trough here. I would be more than happy to receive your comments on this which I would incorporate them in the upcoming article.

Until then, be good, do good.

 

Posted by Lulu Olan’g

Lulu Olan’g is a Researcher at REPOA, a think Tank in Tanzania focusing on socio-economic transformation for poverty reduction through inclusive development.

 

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