With modern stations and a shiny, new track, the Mombasa-Nairobi Standard Gauge Railway (SGR) runs nearly 600 kilometres between Kenya's capital and the port of Mombasa, on Africa's eastern coast. Opened in 2017, the railway was designed, built and financed by China at a cost of $4.7 billion. In theory, a modern infrastructure project like this should boost the local economy, promote trade, create jobs and spread optimism about the future. Unfortunately, SGR has failed to do any of those things. What it has created is a mountain of debt.
Most Kenyans would agree with The New York Times in calling SGR a "fiasco". But what about other Chinese-backed projects in Africa? The broader picture is much more complicated. China says that both sides benefit from its financing. African leaders point out that China has been the only lender prepared to meet their needs. But critics say China's loans increase corruption and indebtedness while creating "white elephants" — expensive but useless things. Is the claim of "debt-trap diplomacy" fair? What's really going on in Africa? And should the world be worried?
West to East
From the early 2000s, both China and the West increased finance for development in Africa. While most Western finance came as foreign aid, China provided loans (at or near market rates). Between 2000 and 2020, China made loans of about $160 billion to African governments, according to the China Africa Research Initiative of the Johns Hopkins School of Advanced International Studies. This database of Chinese financing to Africa shows the huge scale of China's lending. Most of the nearly 1,200 loans came from state-owned banks for infrastructure projects in transport, energy and mining but also other sectors, such as communications, health care, education and defence.
It's not just banks that have been busy in Africa. Over the past ten years, China and the West have swapped roles. The Economist reports that, in 2013, Western firms were responsible for 37 per cent of all infrastructure projects in Africa (valued over $50 million). In 2020, it was only 12 per cent. Meanwhile, Chinese firms were responsible for 31 per cent of those projects in 2020 — up from 12 per cent in 2013.
China is important to Africa in other ways, too. It's the continent's biggest trading partner. Chinese companies produce an eighth of Africa's industrial output. And most Africans use Chinese-made technology to communicate with each other. President Xi Jinping has made nine visits to Africa (four as president). And surveys show that two-thirds of Africans see China as a positive influence, slightly more than the 60 per cent who say the same about America.However, observers point out that the relationship between Africa and China is unbalanced. While both have about 1.4 billion people, China is one country governed by a single party, and its economy produces 20 per cent of global output. Africa consists of 54 mostly low-income countries, which (according to the UN Conference on Trade and Development) produce three per cent of global output.
Finance with Chinese characteristics
While the IMF publishes details of its loans and debt-relief programmes, China prefers secrecy, which feeds speculation that it's implementing an evil plan. However, the UK think tank Chatham House says China's lending to Africa "has, for the most part, been uncoordinated and unplanned, and carried out by competing lenders with links to different elements of the Chinese state." This doesn't support the image of systematic economic colonization.
There are other false assumptions, too. China is a big lender to Africa but generally not its biggest creditor. Most of the current debt load consists of commercial debt to Western financial institutions or Eurobonds. The UK-based organization Debt Justice reported, in 2022, that 12 per cent of African governments' external debt was owed to Chinese lenders, while about 35 per cent was owed to commercial bond holders in the West.
That doesn't necessarily mean that China's loans aren't problematic. Since 2013, the Belt and Road Initiative (BRI), which 43 African countries have joined, has been the main economic programme through which China tries to spread its influence. In doing so, it has made big loans even to fragile countries in Africa. There's also a contrast between China's talk of friendship and its ruthless negotiating tactics. Contracts between Chinese organizations and developing countries reportedly include brutal conditions, such as strict confidentiality clauses and requirements that China gets paid before other parties. In October 2021, Uganda's finance minister, Matia Kasaija, apologized to parliament about a Chinese loan to expand Entebbe Airport, near the capital, Kampala. "We shouldn't have accepted some of the clauses," he said. "But they told you: ‘Either you take it or leave it.'"
Another feature of Chinese projects is speed. The Economist says the average BRI construction project takes 2.8 years — much faster than those funded by the World Bank or the African Development Bank. This is useful to elected officials who want something to show before the next election. However, what if quick action comes from cutting corners on due diligence? In the case of SGR, a World Bank study found the project would never be profitable, but Chinese lenders jumped in anyway. In its first three years, the railway reportedly lost $200 million.
Lending lessons
Today, the era of lending without limits is over. China has suffered financial losses, and its lending to Africa has declined since 2016. In 2020, partly due to the pandemic, Chinese loans to Africa totalled $1.9 billion (in the years before, it was averaging $8 billion). China is changing its tactics to focus on smaller, more profitable projects. A tweet in April 2022 from Wu Peng, head of the Department of African Affairs in China's Foreign Ministry, stated: "Will China stop lending to Africa? Our answer is a NO." However, the poorest countries are likely to miss out in future unless they offer China a strategic advantage. What happens when countries can't make the repayments? China's usual tactic is to extend the term rather than accept a "haircut" (cutting the principal). But sovereign-debt crises are a messy business with multiple creditors, in which China must accept joint debt-relief programmes with no preferential treatment. In Zambia, China is currently dealing with a debt crisis. On a visit to the country, US Treasury Secretary Janet Yellen said China was a "barrier" to finding a solution because of its reluctance to accept losses. This won't be the last time. In December 2022, Ghana became another debt-stressed country to stop repayments to foreign creditors, including China.
The debt issue now dominates China's relationship with Africa. Many countries are struggling, and how China deals with them will define its foreign relations for years to come. While some Chinese projects have certainly been wasteful, others have been very useful. Africa still has serious infrastructure gaps and needs financial support. However, China and the West should work together to prevent Africa from falling into debt distress. As China's lending now begins to focus more on profit and strategic interests, some African nations may start to miss the old days.