Trade, Development, and Debt: What China’s Belt and Road Initiative Means for Africa
In the last twenty years, China has funded $170 billion worth of development projects in Africa. Nearly all of this money has been administered under Xi Jinping’s massive investment plan dubbed the “Belt and Road Initiative'' (BRI). Formally announced in 2013, the initiative aims to connect Asia, Africa, and Europe through trade-oriented infrastructure. Some of the largest African projects include the Gauge Railway in Kenya; railways in Ethiopia, Djibouti, Tanzania, Algeria, Egypt, Sudan, and Uganda; and various energy projects including a $4.4 billion hydroelectric plant in Egypt. While these projects are generally well received in the developing world, the BRI has been met with skepticism in the West, where the impact of Chinese investment in Africa has become a topic of intense debate. This has raised questions about China’s intentions in the region and the BRI’s long-term effects on the economies involved.
In a continent plagued by external interference, poverty, and market isolation, the BRI’s infrastructural development could provide African countries with the tools necessary to compete on the global stage. Railways that connect states for natural resource transportation could bolster trade and accelerate economic growth and job creation. Projects like the Addis Ababa-Djibouti Railway in Ethiopia exemplify the potential for economic growth from Chinese investment.
The Addis Ababa Railway has reduced long-haul transportation times out of Ethiopia from 50 hours down to just 10 hours. In 2019, one year after the railway’s official commercial opening, Ethiopia’s GDP rose 8.3%. Similarly, Djibouti, where the service sector relies on transport and accounts for 76% of GDP, saw a 5.9% GDP growth rate in 2019. Hoping for similar results, many African countries have signed on to the BRI and have borrowed large sums of money from China to fund their infrastructure projects. Thus far, fifty-three African nations have agreed to participate in the BRI, demonstrating widespread support for the program in the region.
China’s investment in Africa through the BRI is driven by a confluence of economic, geopolitical, and strategic considerations. Natural resources play a pivotal role in China’s engagement with Africa. From oil in Angola to copper in Zambia, Chinese investment in railways, ports, and roads secure Beijing’s access to essential natural resources. Another factor in China’s decision to ramp up infrastructure loans is interest. As countries pay off debt, China benefits directly from interest built up over time. Given the $170 billion the country’s banks have lent to African nations in recent years, interest payments would be substantial. For example, the $2 billion Kenya borrowed from China in 2017 for railway infrastructure development has an interest rate set between 4-9% for 2022-2032. That amounts to at least $80 million in interest collected by China in a single year during this period.
Incentives for Chinese investment in Africa are not limited to economic or fiscal prospects, relations with participating African nations also elevate China’s geopolitical and soft power. For example, China has increased the number of delegations sent to Africa and established more party-to-party relationships. Partnerships with political elites in Africa enable China to exert more influence in the region and raise the nation's global power in organizations like the United Nations as more countries align with Beijing. Additionally, in terms of new jobs created, China surpassed the United States in foreign direct investment (FDI) outflows to Africa in 2010 and has since remained Africa’s largest investor. This has further entrenched Chinese economic and political power in Africa during a period when, according to some experts, the United States’ influence in the region has flatlined.
Some observers in the West have accused China of engaging in what they call “debt-trap diplomacy.” They claim that Beijing pressures developing nations into signing unsustainable loan agreements so that when they inevitably default on their interests, China can seize the vested assets and benefit from greater leverage and power within the developing nations’ borders. While most experts now reject the asset-seizure part of this claim, the concern regarding unsustainable loans holds merit, and parallels concerns over the debt crisis in Africa during the latter half of the 20th century.
At the end of the 20th century, Africa experienced a debt crisis caused by aggressive loans from the International Monetary Fund (IMF) and World Bank through a program called “structural adjustment.” The two institutions provided African countries access to substantial aid with the caveat of high interest rates and other conditional requirements. Aimed to promote trade liberalization, free market economics, and democratization, these conditions proved much more difficult to satisfy than anticipated.
To meet requirements, many African governments were forced to abandon healthcare programs that were perceived by the West as burdens on the economy. This became a problem when the HIV/AIDS pandemic surfaced. Underfunded health-care systems were not adequately equipped and the virus went largely unabated. Compounding issues, high interest rates under structural adjustment, and its one-size-fits-all approach led to the region’s inability to keep up with loan payments, trapping countries in a cycle of debt. While structural adjustment policies may have been implemented with good intentions, their failure testifies to the complexity of FDI and aid.
Many critics of the BRI argue that Zambia’s debt crisis in 2020 is a prime example of unsustainable BRI loan terms, echoing the problems that arose with structural adjustment. Others argue that Zambia’s crisis was due to their own government’s irresponsible borrowing habits. The Zambian Institute for Policy Analysis and Research pointed to the government’s over-ambitious infrastructure plan and an unwise salary increase for 200,000 civil servants as key causes of the debt crisis. For loans that do turn out to be unsustainable, the recent $6 billion restructuring deal between Zambia and its creditors, including China, highlights Beijing’s willingness to provide debt relief.
Some experts point out that unlike the IMF and World Bank’s strict structural adjustment loans, most African nations have had considerable agency in their negotiations with China. However, regardless of the initial agency a country may have had, rising external debt lowers a country’s bargaining power in the long run and increases the nation’s dependency on the lender. In this regard, while Zambia’s debt crisis exemplifies Beijing’s flexible debt-restructuring approach, it also demonstrates the risks involved with ambitious loan-funded projects in the region.
China’s Belt and Road Initiative will certainly continue to have significant impacts on the African continent as more projects are underway. However, it’s difficult to predict whether those impacts will represent a net benefit or a net loss for African countries. The effects of the BRI will likely differ depending on the nation in question. As David Dollar of the John L. Thornton China Center argues, “African experiences with the BRI are quite heterogeneous. Some of the major borrowers have debt sustainability problems, while others have integrated the loans from China into sound overall macroeconomic programs.” Going forward then, creditors must avoid a one-size-fits-all approach to lending in Africa as the risks and opportunities vary considerably by country.
The case of Zambia, defined by its debt sustainability issues, might be a positive indicator for the BRI in Africa. The ability for compromise between the Zambian government and its creditors underscores the possible flexibility of recent investment in the region. While the full picture of economic impact is still foggy, what’s clear is that China’s influence in the region is on the rise. African countries traditionally aligned with Western powers are diversifying their partnerships by engaging with China and thereby reducing Western influence in the region. Access to natural resources and key trading ports will further fuel China’s growing economy and raise its bargaining power at the global level.
Port D’el Hamdania, Algieria