There are two reasons for this decline in Chinese presence in Africa since the past few years: internal turmoil and problems facing China and the reluctance of the African nations to accept loans from China because of the difficulties associated with BRI projects, writes Vaishali Basu Sharma
The Belt and Road Initiative (BRI) of China has reached a dead end in Africa. Burdened with debt and experiencing corruption scandals, violations of labour laws, environmental hazards and public protests associated with BRI projects, the African nations are increasingly turning them down and now turning to the United States of Africa to fill the need for building infrastructure projects in the continent. India has also been taking a leading role in investing in infrastructure projects in African countries.
A Boston University study in 2023 found that lending to Africa by China has dropped to the lowest level in two decades, says Voice of America. Available data say in sub-Saharan Africa BRI investments fell by 55 percent between 2021 and 2023, from $16.5 billion in 2021 to $7.5 billion in 2023. This region drew $4.5 billion of investment in construction activities in 2022, compared to $8.1 billion in 2021. An Observer Research Foundation study says BRI investments in Africa reached their peak in 2016. After that, Chinese loan volumes have steadily declined in Africa. Between the pre-pandemic years of 2017 to 2019 and the pandemic years of 2020-22 the average volume of loan to African countries fell by 37 per cent. The situation has not been retrieved in the post-pandemic years.
According to these studies, there are two reasons for this decline in Chinese presence in Africa since the past few years: internal turmoil and problems facing China and the reluctance of the African nations to accept loans from China because of the difficulties associated with BRI projects.
China has been facing domestic challenges increasingly in recent years. The revenue of local governments has always played a key role in the economic growth of China. Since the pandemic of 2020-21, the falling values of property and land and increased government spending have caused revenue shortages for local governments. The revenue deficit of provinces crossed the $1000 billion mark in 2022. In 2023, China’s national budget revenue was $3.3 trillion, while the national expenditure grew to $4 trillion, resulting in a deficit of $690 billion. Besides, rising youth unemployment, an ageing population and geopolitical unrest like the war in Ukraine have all contributed to the decision of China to reduce their large-scale debts. As a result, some African countries are stuck with lots of proposals for mega projects but China is not funding them any longer.
In most cases, however, the African countries themselves are turning down fresh proposals for investment under BRI or are withdrawing from ongoing BRI projects. Many BRI projects have faced problems in the stage of implementation and a growing number of borrowers had to struggle to repay their debts to China. Some African governments have been accused of undertaking monstrous white elephant BRI projects; among them Standard Gauge Railway in Kenya and Kampala- Entebbe Expressway in Uganda. The projects are now faced with insurmountable problems of debt repayment and the uncertain global environment putting a question mark on their economic viability. Projects have been executed with little concern for issues related to economic feasibility and social and environmental risks.
Botswana has withdrawn from a 300 km road rehabilitation project because financial negotiations have taken longer than usual because of discrepancies in terms and conditions. Kenya and Uganda have pulled out of negotiations from the Naivasha to Kampala Standard Gauge Railway project for the same reason. “I wish those responsible for the SGR would have looked at repayment. It’s a massive investment project, to have repayment being done in 20 to 30 years,” Kenyan economist Victor Kimosop has been quoted in the VOA report in the contest of the Mombasa to Nairobi and Nairobi to Naivasha railway project.
In the latest setback for BRI in Africa, an oil pipeline being built with Chinese assistance at Niger has been threatened by an internal security crisis. A $400 million deal was signed in April this year with PetroChina for laying the 1,930-km-long pipeline from the Chinese-built Agadem oil field in Niger to the port of Cotonou in Benin. In June, there was an attack on the pipeline by rebel group Patriotic Liberation Front that disabled a part of the pipeline. The group has threatened more attacks if the deal with China is not cancelled.
Among the reasons for unsuccessful negotiations and abandoned projects are disagreements over terms, the risk that African countries will not pay their share of project costs, concern over African debt levels and the problems in executing thermal power projects because of global warming. The Covid-19 pandemic has complicated the situation with respect to repayment of Chinese debt by African countries. Nearly 40 percent of the African countries are now estimated to be at high risk of debt distress. In 2021, 30 of the 48 countries that were part of the G20 Debt Service Suspension Initiative were from Africa. This initiative allows less developed countries to suspend the payment of the principal and the interest on their debts to G20 member countries. China had to write off 23 loans from 17 African countries and provide debt refinancing and deferring of payment to several other African nations. Kenya has already approached the U.S. for financial assistance.
U.S. President Joe Biden has appealed to the African nations that the U.S. can be a better partner in the economic revival of these nations than China. Loans from Beijing carry high interest rates and other difficult terms. China is reluctant to write off foreign debt and is secretive about how much money it has loaned. The U.S. has called on international financial institutions to coordinate debt relief and support through multilateral funding agencies offering better terms.
India is also coming up in a big way to replace China as the main country helping to bridge the infrastructure gap in Africa. The Adani Ports and Special Economic Zone has made an entry in Tanzania with the signing of a 30-year agreement with Tanzania Port Authority to operate and manage a terminal at the Dar es Salaam Port in the east African country. “We are confident that with our expertise and network in ports and logistics, we will be able to enhance trade volumes and economic cooperation between our ports and East Africa. We will strive to transform Dar es Salaam Port into a world class port,” APSEZ Managing Director Karan Adani has said.
Senior executive of India’s Shapoorji Pallonji Group S. Kuppuswami has recently said in Washington that infrastructure projects set up by Indian companies in Africa are helping strengthen ties with African countries and called upon American development finance institutions to collaborate with India to ensure early execution of such projects to regain the trust of nations lost out to China. These projects by India have “phenomenally” strengthened India’s ties with African nations, he has told PTI in an interview.
(The author is an analyst on geopolitical and macroeconomic issues. Email: postvaishali@gmail.com)
ALSO READ: Opposition cautions Nepal government on BRI loans