Africa on slippery road to the East (1)

NOT TOO LONG ago, the “Agenda 2063” came alive as the deal on “creating one African market” was consummated with the signing of the African Continental Free Trade Area (AfCFTA) agreement by 44 African countries in Kigali, Rwanda.  Although the signing ceremony hasn’t yet given AfCFTA a full status until ratification by 22 countries, it has nonetheless come to be recognised as the blueprint that signposts the future of African trade, which is expected to create a single continental market for goods and services, with free movement of business, persons and investments, and thus paving way for accelerating the establishment of the Continental Customs Union.

While the champions of AfCFTA must be commended for all the works that led to the birth of this initiative, it needs to be emphasised early that AfCFTA must be shielded and protected from congenital, infectious or neonatal afflictions that could paralyse or incapacitate it as it struggles to sit, toddle, walk and run. It is instructive to note that, barely six months after AfCFTA’s launch, almost all of Africa’s leaders – in unison – embarked on a tour to China to attend the 2018 Beijing Summit of the Forum on China Africa Cooperation (FOCAC). The level of participation in the recent FOCAC meeting, involving representatives of 53 out of 54 African countries, with the exception of Swaziland which still maintains diplomatic relationship with Taiwan, shows clearly that Africa is willingly lending itself to economic agenda formulated, fashioned and foisted by Beijing on Africa, with all the veneer of seeming benevolence.

Since year 2000, FOCAC has been a platform for making superlative diplomatic statements, alluring promises and unfolding grandiose programmes. The little difference this time could be explained as a slowdown of doubling of past figures manifested in cautious pronouncements. Unlike in South Africa in 2015, visitors to Beijing this time were not treated to doubling of past pledges, a reflection of the stark realities China currently faces on the political and economic fronts globally. Africa therefore needs not be swayed by the euphoria of FOCAC agenda, at least going by its most recent offerings. This continent needs to realistically examine the financial pledges China made at the 2018 Beijing Summit and the evolving Chinese economic priorities these commitments represent.

African leaders need to be on their watch. This is against the backdrop of recent temptations with financial carrots, often dangled with strong strings attached. Many African countries fell for the Bretton Woods pills that became overkill in the previous three decades or thereabout and are still struggling to recuperate from the side effects of such untested economic prescriptions. Many African countries operate current account deficits, are indebted to some developed countries and to multilateral global lending institutions. In many parts of Africa, there is still an on-going process of recovery from the debt burdens in poor countries that have benefited from their recent debt write-offs. But the FOCAC summit, summarised, is about loans, borrowing and debt accumulation by participating countries, in essence, the whole of Africa. Adding Chinese indebtedness to these could further compound African countries’ financial burdens and economic vulnerabilities ways beyond their imagination.

A paraphrase from a recent post by the Brookings institution could explain this. “The composition of Chinese financing also reveals another, perhaps deeper, inconvenient truth. Given that China pronounces that it has fulfilled its pledged $60 billion of financing to Africa under the 2015 FOCAC commitment, (including $5 billion for grants and zero-interest loans), and given the Chinese foreign direct investment to Africa in 2016 ($3.3 billion) and in 2017 ($3.1 billion) totalled $6.4 billion, what the numbers do manifest is that: The overwhelming majority of Chinese financing to Africa are neither grants nor investment, but loans of various forms.

China may not be the biggest creditor of Africa, but this serves to substantiate the widespread conviction that China is creating more debt for Africa (although the Chinese counterargument has been that the long-term economic capacity building effect of the Chinese loans significantly outweighs their downsides).”

The International Monetary Fund (IMF) has indicated that concerns are increasingly being voiced about how China’s growing presence might affect Africa’s development. “Responsibilities come with influence.  At the same time that Africa has a responsibility to maximise the benefits of its economic relationship with China and other nations, China has an important role to play in ensuring that its economic partnership with African countries is mutually beneficial,” advised IMF. In practice, lending terms and volume need to be consistent with the low-income country debt sustainability framework many African countries now use. Clearly, both debtor and creditor countries have a responsibility to minimise the vulnerabilities arising from debt-creating capital flows to African countries.

Africa has many options on its development pathway. It is a beautiful bride to many countries and regions as an emerging economy. While it has embraced some, it literally threw others overboard. Some remarkable interventions have targeted Africa’s growth and development. Similar to FOCAC is Japan’s Tokyo International Conference on African Development (TICAD), a conference held regularly with the objective “to promote high-level policy dialogue between African leaders and development partners.” TICAD has been an evolving element in Japan’s long-term commitment to fostering peace and stability in Africa through collaborative partnerships. In this context, Japan has stressed the importance of “Africa’s ownership” of its development as well as of the “partnership” between Africa and the international community.

By contrast, China’s relationship with African countries is basically transactional. It is on record that countries in Asia, Europe and Latin America have grievance over China’s trade practices and doubts have been raised about the massive Chinese economic and infrastructure campaign, leading to the cancellation or the downsizing of some major projects. The One Belt One Road (OBOR) is an economic diplomacy built on loans for infrastructural development. Africa, in trying to get loans from China, needs to learn a little from China’s benevolence to Sri Lanka, a country that easily provides a study in how to make a new colony. Sri Lanka’s ordeals in China’s hands on account of the former’s indebtedness to the latter are a sad reminder of the risks Africa runs in the unfolding regional relationship with China. They are also reasons for caution against the traditional give-away policies to attract foreign investments, done in forms of tax holidays, and other incentives that turn out to be perverse and self-defeating. In IMF’s reckoning, African countries face a dilemma: they need major financing to build their infrastructure and productive capacity, but their inadequate production and export bases limit the amount of external financing they can handle.

Sri Lanka has signed agreements with China that swap loans  for equity, transforming China into an owner to major infrastructure projects like Sri Lanka’s major port— and a key outpost in the Indian Ocean for Beijing. Forbes, in June, noted rather assertively that “China is turning Sri Lanka into a modern day “semi-colony,” the same way Great Britain and Portugal turned south China into their own semi-colonies back in the mid of 19th century. Sri Lanka didn’t lose a war to China. It never ceded any of its territory officially to China. But it handed over economic control of its deep sea Hambantota port to China Merchants Port Holdings (CM Port).”

Mahinda Rajapaksa, who was in power from 2010 till 2015, reportedly opened the door to Chinese lenders that pumped in $4.8 billion worth of loans into building the Hambantota port, a new airport, a coal-fired power plant and highways. By 2016, China had extended $6 billion in loans to Sri Lanka.

Subtle approaches to ownership of key and strategic assets are at work.

Last year, $1.1 billion in debt was written off by China in exchange for a long-term lease on the deep-water port of Hambantota, built by a Chinese company and funded by Chinese loans worth $1.5 billion, the lease to which is held by a state-owned Chinese company. Debts are turning into equity and finally ownership for Chinese firms that will not only adversely impact Sri Lankan economy.

The New York Times, in its June 25, 2018 edition, jocularly and wryly opened a write-up with the following statements: “Every time Sri Lanka’s president, Mahinda Rajapaksa, turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes. Yes, though feasibility studies said the port wouldn’t work. Yes, though other frequent lenders like India had refused.

Yes, though Sri Lanka’s debt was ballooning rapidly under Mr. Rajapaksa.” It added that the case is one of the most vivid examples of China’s ambitious use of loans and aid to gain influence around the world — and of its willingness to play hardball to collect.