China in Africa; America’s Splitting Headache

Standing last week on a podium in the African Union Commission (AUC) Headquarters, which ironically was given as a gift by the Chinese government, America’s top diplomat, Rex Tillerson, urged African countries to be wary of Chinese debt.

The Secretary of State of a nation that seems highly concerned about the broad Chinese involvement in Africa’s economy had stayed in Addis Abeba for two days before he headed to four more African countries: Chad, Djibouti, Kenya and Nigeria. His visit was cut short after arriving in Nairobi over the weekend, for he reportedly was not feeling well. Yet, his message to Africa endures.

On Thursday, he met with ambassadors designated to the African Union and Chairman Moisi Fakih Mohamed on the premises of the AU, a headquarters which was fully funded and built by the Chinese government at the cost of 200 million dollars. During a joint press briefing he made with Fakih, following the closed session he had with the ambassadors, he urged African countries to consider the terms of agreements with China carefully.

“Our message is for countries to carefully consider what the terms of the agreements are, and not to forfeit any elements of your sovereignty as you enter into such arrangements with China,” Tillerson reminded Africa on the pitfalls of reckless borrowing.

It is a message echoed his policy remarks made just two days before his arrival in Addis Abeba, at the George Mason University. China encourages dependency using “shady contracts, predatory loan practices, and corrupt deals that embroil nations in debt and undermine their sovereignty, denying them long-term, self-sustaining growth,” he alleged. It is a powerful indictment coming from the most senior American official in President Donald Trump Administration, which is in a tug of war with the red nation over tariffs on steel and aluminium.

Trump’s alleged statement made a couple of months ago referring to African countries has since been controversial, if not offensive. Having arrived last Wednesday to a nation that is under an emergency decree and in the midst of political unrest, which saw sit-in strikes and the resignation of a Prime Minister, Tillerson’s visit was perceived by many as the US pursuing its aim of negotiating with the ruling EPRDF for political stability.

But Tillerson’s visit was one of the three foreign ministers Ethiopia hosted last week, along with the Russian and United Arab Emirates (UAE). A day before, Sheikh Abdullah bin Zayed bin Sultan Al Nahyan, minister of Foreign Affairs & International Cooperation of the UAE, had arrived in Addis to have a two-day talk with Ethiopian authorities. On Thursday, Russia’s Foreign Minister, Sergey Lavrov, joined the stopover.

Tillerson’s visit aimed at addressing three core domains; re-building institutions in African countries, the national debts of African nations and, undoubtedly, the Chinese role in African countries’ economy.

Chinese investment in African countries has grown some 30-fold in the past 15 years., jumping from half a billion dollars in 2003 to almost 15 billion dollars by 2012.

The United States uses the ‘UN system’, unofficially known as ‘UN Family’, to grant funds to developing countries, including Ethiopia, through its agencies such as the United States Agency for International Development (USAID). Last year, the total American humanitarian contributions to Ethiopia and Kenya was recorded at 458 million dollars, scaling up emergency food assistance, providing specialised nutrition supplies to treat malnourished children and furnishing safe drinking water and health services. Just before he came to Addis, he had announced an allocation of 533 million dollars to support food security in Ethiopia, Somalia, South Sudan and the Lake Chad Basin.

“The United States pursues, develops sustainable growth that bolsters institutions, strengthens rule of law and build the capacity of African countries to stand on their own feet,” he told students at the George Messon University, in his landmark statement on reframing relations with Africa. “We partner with African countries by incentivising good governance to meet long term security and development goals.”

Americans, however, voice their worry that China’s engagement in African has an undoing impact of this. Their chief diplomat believes although Chinese investment may have the potential to bridge the infrastructure gap, it leads to “mounting debt and few jobs.”

“When coupled with the political and fiscal pressure, this endangers Africa’s natural resources and its long-term economic stability.”

Liu Runxia, a secretary to the Chinese Ambassador to Ethiopia, vehemently denied these claims. China is not the primary creditor of African countries, according to Runxia.

“The infrastructure projects intend to promote Africa’s industrial, sustainable and long-term development, and are not for adding African countries’ debt burden,” he told Fortune, responding via email.

It is not a view without sympathy in Ethiopia. Many are pleased with the change they see brought by Chinese finances and loans, spent on bridges, highways, railways, buildings, industries and utilities.

Chinese investment in African countries has grown some 30-fold in the past 15 years., jumping from half a billion dollars in 2003 to almost 15 billion dollars by 2012. And in 2013, China pledged 20 billion dollars in loans for infrastructure development.

Though the US sent its Secretary to address issues related to China's role in Africa, Russia, on the other hand, seems to be focusing on establishing a nuclear research facility in Ethiopia.

“China’s support for infrastructure is more sustainable than the US food aid,” Henok Assefa, founder and managing partner of Precise Consult, a local management consulting firm, twitted last week. “Tillerson is wrong.”

The Addis Abeba Light Rail Transit, Addis Adama Expressway, Ethio Djibouti Railway, and the under-construction Bole International Airport Passenger Terminal are among the mega projects undertaken by Chinese companies, paid by money sourced in their country.

Getachew Kassa (PhD), chairman and coordinator of the Research Unit of the Institute of African Studies at Addis Abeba University, sees China’s loans from a different perspective.

“The Chinese don’t want to interfere in the continent’s politics; they only deal with business,” he told Fortune.

China has contributed about a quarter of the total foreign direct investment (FDI) in Ethiopia and bought 240 million dollars worth of goods while selling 3.8 billion dollars worth of goods, with a trade balance grossly in its favour.

During the last fiscal year, Ethiopia has received 737.8 million dollars from China as credit. In contrast, the value from the Paris Club, which has 20 member states, including the United States, and aimed at finding solutions such as loans relief to African countries with loan re-payment difficulties – Heavily Indebted Poor Countries (HIPC) – stands at 872.2 million dollars, according to Ethiopia’s Public Sector External Debt Data. This is only the iceberg compared to the 13 billion dollars Ethiopia received in loans in the preceding decade and a half leading up to 2015, according to the China Africa Research Initiative at Johns Hopkins School of Advanced International Studies.

This, however, has led the International Monetary Fund (IMF) to raise the alarm for Ethiopia’s risk of external debt distress from “low” to “moderate”, in August 2016. The debt sustainability analysis (DSA) compelled Ethiopian authorities to suspended commercial loans since last year, diverting to concessional loans with lower interest rates and extended grace periods.

However, Tillerson’s call for caution is not without reason. Foreign debt stock sustained by developing economies has raised concerns that another crisis is looming, as external debt in many African countries has reached unsustainable levels, according to Fanwell Kanala Bokosi, executive director of African Forum & Network on Debt and Development.

“The next crises will be more difficult to prevent and resolve than the last one because of the debt landscape, which has grown more complex,” Bokosi warned in an article published in the Finance & Development magazine, IMF’s flagship publication.

Though the US sent its Secretary to address issues related to China’s role in Africa, Russia, on the other hand, seems to be focusing on establishing a nuclear research facility in Ethiopia. Its Foreign Minister, who arrived in Ethiopia a couple of weeks after the two nations celebrated their 120th anniversary of diplomatic relations, told members of the media that the plan is moving forward and will move faster once the two sign agreements.




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