How China's 'Debt-Trap Diplomacy' Impacts Africa: Exploring the Truth

International Impacts on Chinese Debt-Trap Investment In Africa

Global economics is complicated, yet massive investment movements make a splash. China's growing interest in Africa has excited people across the globe in recent years. China's large-scale investments in Africa are becoming a major topic of international relations and developmental strategy as the world's socio-political dynamics evolve. This article explores Chinese investment in Africa and why it is doing so. 


Key Highlights

  • Chinese investment in Africa is changing African economies, international commerce, trade, and geopolitics. China, Africa's fastest-growing investor since 2000, is leading this transformation.

  • Currently, China holds more than $73 billion in debt across Africa and stands as the largest single lender to African countries.

  • Kenya owes 70% of its GDP in debt, with $12 billion tied to China's banks out of its $36 billion foreign debt.

  • China has also built 130 medical facilities, 45 sports venues, 170 schools, trained 160,000 professionals, and created 4.5 million employment in Africa.

 

Overview of China's investment in Africa 

First, let's review 'China's investment in Africa'. There are major infrastructure projects, economic transactions, and crucial political ties. China is Africa's largest commercial partner and a major infrastructure investor. In 20 years, trade values rose from $10 billion to $204 billion.

  • In 2000: $10 billion

  • In 2019: $204 billion

Chinese investment in Africa is changing African economies, international commerce, trade, and geopolitics. China, Africa's fastest-growing investor since 2000, is leading this transformation.

China has invested substantially in African energy, infrastructure, mining, telecommunications, and transportation for decades. 

A notable instance is the Mombasa-Nairobi Standard Gauge Railway in Kenya, one of Africa's most extensive infrastructure projects, primarily funded by China's Exim Bank.
Such an expansive and substantial investment strategy has resulted in China's status as Africa's largest trading partner. Here's an overview of these investments:

  • Infrastructure Development: China's state-owned companies have become the chief architects of Africa's infrastructure, from constructing highways and bridges to erecting sports facilities and public buildings.

  • Natural Resource Exploitation: China relies heavily on Africa's oil reserves and mineral wealth, making significant investments in mining and oil drilling sectors across the continent.

  • Telecommunications: Among all Chinese firms in Africa, telecom giants like Huawei and ZTE have developed a massive presence in Africa, driving the continent's tech boom.

The Quantum and Impact of Chinese Investment in Africa

The sheer scale of Chinese investments in Africa continues to surge. According to the China Africa Research Initiative, African nations received $153 billion in loans from Chinese companies and governments between 2000 and 2018. 

Why is China investing heavily in Africa? 

It is essential to understand that China's extensive investment in Africa serves a multidimensional vision, a meld of economic, political, and strategic interests. Here's a deep dive into China's vision propelling this investment.

Economic Interests

  • Raw Material Access: Unparalleled access to vast reserves of raw materials like oil, minerals, and rare earth metals is a huge attraction for China.

  • Market Potential: Africa's burgeoning middle class and the untapped consumer market potential are alluring prospects for Chinese enterprises seeking to expand overseas.

Political Interests

  • Global Influence: China's investments enable it to wield considerable political influence in Africa, counterbalancing Western geopolitics.

  • Strategic Partnerships: Solidifying diplomatic relations with African countries not only reaps economic benefits but also provides China with a solid strategic advantage at international forums like the United Nations.

Social Interests

  • Cultural Exchange: Active economic engagement promotes cultural exchange between China and Africa, thus fostering better understanding and harmony.

  • Employment Opportunities: Investment in job-creating sectors like manufacturing provides opportunities for Chinese and African workers.

China Belt & Road Initiative

The Belt and Road Initiative drives Chinese investment in Africa. In 2013, this global development plan sought to link China to the world through infrastructural initiatives. The BRI essentially creates a "new Silk Road" – increasing China's global influence by fostering economic interdependence.

Political Leverage

China's investment in Africa is not without political intent. By heavily investing in Africa, China has managed to secure crucial votes at international forums and wield significant influence in African domestic and regional politics.

Who are China's allies in Africa?

In the wake of substantial borrowing from China, several African nations find themselves in precarious economic positions. Let's dig deeper:

The Scale of African Debt to China

Currently, China holds more than $73 billion in debt across Africa and stands as the largest single lender to African countries. Countries such as Angola — China's premier African borrower — and Zambia have utilized these borrowed finances to power high-cost infrastructure projects, ranging from stadiums to railroads.

The Debt-Burdened Nations

The IMF and World Bank report that 22 African countries are experiencing financial distress due to heavy debt burdens. Many of these nations owe China their most substantial loan portions, and China has frequently demonstrated its ruthless approach toward repayment. 

The following African countries owe China :

  • The Republic of Congo ($7.3 billion)

  • Angola ($25 billion)

  • Ethiopia ($7.4 billion)

  • Kenya ($7.4 billion)

How Much Is Kenya Owing China: Dire Consequences Examined

From 2013-2021, Kenya's debt soared from $16B to $71B in just eight years, with a big chunk owed to China. Kenya owes 70% of its GDP in debt, with $12 billion tied to China's banks out of its $36 billion foreign debt.

China's loan policies are proving challenging for Kenya, setting a precedent of what other nations might face while confronting their Chinese debts. The Kenyan government has been forced to choose between paying its employees or repaying Chinese loans — a dire choice indeed.

What has China built in Africa? 

Meanwhile, China has been on an investing spree in Africa, backing significant development projects across the continent from 2000 to 2023 and projecting itself as Africa's largest trade partner for 14 consecutive years. Year-on-year bilateral trade observed an 11% increase to reach $282 billion.

Key Areas of China's Investment in Africa

Infrastructure Investment: 

China has made considerable strides in African infrastructure, from transportation to power generation. According to Wang Dong, the deputy head of the ministry's Department of Western Asia and African Affairs, China increased its investments in Africa by 4.4% year over year to over $1.8 billion in the first half of this year.

Transportation Infrastructure: 

Empirical evidence includes the construction of lengthy railways, highways, ports, bridges, and large-scale power facilities. China assisted African nations in developing 13,000 km of trains, almost 100,000 km of highways, 1,000 bridges, nearly 100 ports, and 80 large-scale power plants between 2000 and 2020.

Belt and Road Initiative: 

Africa stands as a prominent player in this grand strategy for global connectivity and cooperation.

Labour Market Influence: 

Chinese investments have spurned significant employment opportunities and propelled industrialization.

Energy Infrastructure: 

China funded the development of four coal-fired power stations in southern Africa, including Zimbabwe's Hwange power facility.

China has also built 130 medical facilities, 45 sports venues, 170 schools, trained 160,000 professionals, and created 4.5 million employment in Africa.

Which country owes China the most money in Africa? 

Angola is the African country that owes China the most money. Angola owed China $20.1 billion in 2020. China invests extensively in Angola's oil sector and has decades of economic collaboration. As a result, Angola's debt encompassed around 30 percent of the debts China owed to African nations.

This debt was incurred mainly under a financing model often referred to as the "Angola model" or "resources for infrastructure" deal. This model means that development finance is provided by China, which is repaid in kind through shipments of natural resources, such as oil from Angola. However, this model has come under criticism for its opacity and potential contribution to debt distress.

What is the Chinese debt trap for Africa?

Many critics argue that China utilizes large-scale infrastructure investments and loans, especially in Africa, to garner unsustainable debts and thus gain leverage or strategic assets when countries cannot repay. Originating from Sri Lanka's Hambantota Port case, where the government leased the entity to China for 99 years after defaulting on Chinese loans, the "Chinese debt trap" theory spread worldwide.

The Debatable Narrative

However, this narrative has sparked a festering debate. Some researchers reject the idea of debt-trap diplomacy as a deliberate strategy pursued by China. For instance, studies reveal that from 2000 to 2019, China canceled $3.4 billion of such debt in Africa. Most countries participating in China's Belt and Road Initiative (BRI) often have more significant debt holdings with other multilateral development banks and the Paris Club of creditors and not with China.

Africa's Perspective

From the African standpoint, the narrative of China's "debt trap" in Africa is itself a trap imposed on China and Africa. China's projects in Africa have undeniably contributed to Africa's development and improved people's lives. The will and needs of African people are at the heart of these initiatives. China aims to deliver tangible benefits through cooperation grounded in African realities, promoting mutual development.

In which African country does China invest the most? 

China's investments in Africa are vast and varied. However, Nigeria and Angola stand out, representing one-fourth of all Chinese investments. Infrastructure and oil-based investments take the lion's share, notably with significant railway development projects financed by China in Nigeria.

Nigeria's Focus on Railways

China backs two major standard-gauge rail initiatives in Nigeria, one from Lagos to Kano and the other, a coastal railway from Lagos to Calabar. Besides transit, oil also forms a significant part of China's investment in Nigeria.

Not Just Nigeria...

While Nigeria may be a central figure, it's not the only African state experiencing Chinese investment. These investments spread across the continent and focused mainly on the sectors of transport and energy. Numerous African countries, including Kenya, Ethiopia, and Zambia, have seen a significant Chinese presence in their transport sector infrastructure development.

The Bottom line

Amidst global politics and economics, China's Investment in Africa' is complex. This collaboration has changed the continent's economy. While these two players engage globally, Chinese investment in Africa will influence their future. While debt sustainability is problematic for some states, China's contributions have spurred tremendous African growth.

The people of Africa are the last judges since they are directly affected by these infrastructure projects and their debts. The best outcomes will occur if their voices and needs remain central to these cooperative efforts.

Frequently Asked Questions

Where does China have influence in Africa?

China typically provides funding for infrastructure development in Africa. This covers building highways, railroads, dams, ports, and airports. Sometimes, Chinese state-owned companies build substantial infrastructure in African nations in exchange for access to minerals or hydrocarbons.

What does China need from Africa?

The primary goal of China is the African gas and oil riches. For future supplies, China will buy more oil than the US, encouraging major investment in African oil areas, including Sudan, Angola, and Nigeria.

Who is Africa's largest investor?

The leading investor in Africa, in terms of total capital, is China.

How much land does China own in Africa? 

About 71% of Africa is land, while the remaining 29% is covered by water. Africa extends over 1.2 billion acres. China already owns almost 465 thousand square kilometers of land in Africa, covering an area of around 186,000 square miles. 

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Win Harrison 31 Oct, 2023

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