My discussion with a high-level diplomat last week made me question the world order in which we are living. In the middle of our discussion, which was largely about Ethiopia’s growth experience and its role in African politics, the diplomat reminded me of the tough time our fair nation faced with the fall of the socialist military regime, the Dergue. He told me about the debt hangover our nation faced and the tiresome negotiations to restructure the debt of the nation.
With the Dergue openly affiliated with the eastern bloc, much of the debt was coming from the Soviet Union and its satellites. As the bloc shattered and the Soviet Union disintegrated, the debt leverage went through the roof.
Claims for repayment piled up. Countries trying to pay their own debts started knocking on the doors of the nation that had just got out of a long and bloody war. The whole situation was nightmarish to the country that was trying to get itself together.
Thanks to the laborious job undertaken by the new government, the situation was effectively managed before it went on to consume the nation’s future. Sadly, though, we seem to be entering another phase of a similar pattern of reality. Except, this time around our nation is stable and growing.
The wind is coming from nowhere else but the east. And the key player is China. Swarming the world with its effort of internationalisation, China has become a household name. It is closer to everyone, anywhere in the world.
China’s role in Ethiopia is growing with each day. We import too much from the Asian nation and export some. Our infrastructure is largely financed by Chinese banks, constructed by Chinese contractors, run by Chinese project managers and engineers and utilize materials imported from China. Much of our consumables are imported from the emerging country, whereas almost all our household appliances are made in China.
It has become customary to see Ethiopians working with Chinese on many endeavours. Be it in shoe factories, construction materials manufacturers, telecoms infrastructure providers or water well drilling companies, thousands of Ethiopians interact with Chinese nationals. Not only is China’s foot within Ethiopia’s economy increasing, but its portfolio of influence is growing exponentially.
Addis Abeba, our capital, has come to host dedicated Chinese vegetable markets, salmon houses, restaurants, herbal medicine outlets and entertainment centres. Chinese doing typical Ethiopian things, such as drinking tella, has become the new line of gossip in the public space. This, of course, is not to mention the most popular talking point – a Chinese marrying an Ethiopian.
On the macroeconomic front, Ethiopia is heavily indebted to China. Over 80pc of the debt stock of Ethiopia is owed to China. Chinese financing hugely contributes to the progress our nation has seen over the past 13 years. But the fact that a significant portion of the debt happens in the form of export credit means we compulsorily export considerable quantities of goods to the socialist nation.
Worryingly, the debt frenzy is continuing. What used to come for roads, railways and telecoms service expansion has changed face to industrial parks. Knocking on the doors of Chinese decision makers has become a common activity for our policymakers.
In a way, then, we stand to serve China Inc. The good part is that China is helping us grow. But the bad part is we are increasingly becoming reliant on the second largest economy of the world. The partnership has reached a level that any regressive movement from the side of the beast could have a huge impact on our survival.
We are just “putting all our eggs in one basket”. And the probability that it all could go rotten is high.
What would save us from another round of costly debt restructuring negotiations like the one the diplomat recalled?
A debt overhang with China is no more an impossibility. Arguably, it is a probability. Our reliance on the nation has gone so unattended that the risk is mounting with each day and it looks like we are downplaying the sensitivities.
It is good that we are benefiting from the overflowing Chinese savings, projected to amount to 3.1 trillion dollars, but we have to think of what we are giving in return. If the return is compulsory export, access to resources at nominal rate, improper flexibility in tax obligation, deaf ears to poor employee conditions and abuse, involvement in retail trade, acculturation of corruption and transgression of privacy, then, we have to think twice. Such a game certainly hurts our future.
We need to learn from our own past. We should not depend on a single agency but should diversify instead.
Our past is full of costs we have paid for our inaction. On multiple occasions, our focus on short-term gains has inflicted long-term pains. It is this similar condition we need to avoid now.
Let the Chinese come, but only on our terms. Let us trade with China, but let us trade with others too. Let us use Chinese finances, but only to an extent it is safe for our economy. Let us work with Chinese companies, but only as decent partners.
Guiding the way we live with China Inc. is the new challenge for us. And time is upon us not to miss the chance to avoid a crisis.
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