Wednesday, January 26

African nations get by and get by


Deep in Kenya’s Great Rift Valley, members of the National Youth Service tirelessly swing machetes to clear dense bushes that obscure the more than a century old train tracks.

It is a distinctly low-tech phase in pushing the China Belt and Road in Africa to create the commercial highways of the future.

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There is not enough money left to complete the new 1,000 km ultra-fast rail link from the port of Mombasa to Uganda. It ends abruptly in the countryside, 468 km from the border, and now Kenya is resorting to finishing the route by renovating the colonial roads built by the 19th century British who once passed that road.

China has loaned African countries hundreds of billions of dollars as part of President Xi Jinping’s Belt and Road Initiative (BRI), which envisioned Chinese institutions to finance most of the infrastructure in countries mainly in developing. However, credit has dried up in recent years.

In addition to the damage caused to both China and its creditors by COVID-19, analysts and academics attribute the slowdown to factors such as a diminishing appetite in Beijing for large foreign investments, a drop in commodity prices that has complicated the service of the African debt, in addition to some factors. the reluctance of borrowers to enter into credit agreements backed by their natural resources.

“We are no longer in the go-go period,” Adam Tooze, a historian at Columbia University, said of China’s overseas investment projects. “There is definitely a rebalancing on China’s side,” said Tooze, whose new book Shutdown examines how COVID-19 affected the global economy, adding that Beijing’s current account surplus was “shrinking a bit.”

Chinese investments in the 138 countries targeted by BRI fell 54% from 2019 to $ 47 billion last year, the lowest amount since the BRI was unveiled in 2013, according to Green BRI, a think tank with based in China that focuses on analyzing the initiative.

In Africa, home to 40 of those BRI nations, Chinese bank financing for infrastructure projects fell from $ 11 billion in 2017 to $ 3.3 billion in 2020, according to a report by the international law firm Baker McKenzie.

This is a blow to governments hoping to obtain Chinese loans to build roads and rail lines linking landlocked countries with seaports and trade routes to Asia and Europe. The continent faces an estimated annual infrastructure investment deficit of around $ 100 billion, according to the African Development Bank.

“The pandemic has made things worse. Those numbers will increase, ”said Akinwumi Adesina, president of the bank, citing the need for additional infrastructure to support health services.

The robberies have affected other BRI projects across the continent, such as a $ 3 billion Nigerian rail project and a $ 450 million highway in Cameroon.

China’s Foreign Ministry did not respond to a request for comment.

Beijing officials have said that the two sides have a cooperative and mutually beneficial relationship and that the loans are made openly and transparently.

“By making interest-free loans and concessional loans, we fully consider the debt situation and repayment capacity of recipient countries in Africa, and we work in accordance with the law,” said Zhou Liujun, Vice President of the Cooperation Agency. China Development International to reporters in late October.

Another Chinese official, who declined to be named because he is not authorized to speak to the media, said Beijing always intended to gradually implement BRI to manage debt default risks by country or project.

‘Railroad will be built’

Officials in Kenya said their rail route were long-term projects that would be seen through time, without giving any specific timeline. COVID-19 has presented the world with unforeseen and unprecedented challenges, they added.

“Over time, this standard gauge railway will continue to be complete because it is part of what we call the Belt and Road Initiative,” said James Macharia, Kenya’s Minister of Transport.

The government has already spent around $ 5 billion on its new rail link and is currently unable to pay the additional $ 3.7 billion needed to finish it. The last station connected is only accessible by dirt roads.

So engineers in the Rift Valley are no longer building new infrastructure, but propping up colonial-era viaducts and bridges in an operation the government estimates will cost around 10 billion shillings ($ 91 million).

There are collateral effects and, across the border in Uganda, the construction of a modern railway line has been delayed because it is supposed to connect to the one in Kenya.

That has been a factor in the delay in a $ 2.2 billion loan from the Export-Import Bank of China (Exim Bank), David Mugabe, a spokesman for the Uganda standard-gauge railway project, told Reuters.

In Nigeria, the government turned to London-based Standard Chartered Bank this year to finance the $ 3 billion rail project initially slated for Chinese backing. Standard Chartered declined to comment on the deal, citing confidentiality agreements.

In Cameroon, the $ 450 million highway linking the capital Yaoundé and the economic center of Douala, financed by China’s Exim Bank in 2012, stalled in 2019 when the bank stopped disbursing more loan tranches.

Exim Bank did not respond to a request for comment on its loans to Uganda and Cameroon.

Malaysia to Bolivia

Zhou Yuyuan, a senior fellow at the Center for West Asian and African Studies at the Shanghai Institutes for International Studies, said the COVID-19 crisis had affected both Chinese lending institutions and African finances.

In the future, he added, Beijing is likely to encourage more Chinese corporate investment on the mainland, to play the role of state-backed financing. “Once the pandemic is over, the African economy is likely to recover,” he said. “That could boost corporate investment from China.”

The pandemic has added to the obstacles faced by President Xi’s self-styled “project of the century”. After peaking at $ 125.25 billion in 2015, Chinese investments in BRI nations have fallen every year, except for 2018, when they rose 6.7%, Green BRI data showed.

In 2018, Pakistan objected to the cost and financing terms of the construction of a railway. The year before, there were signs of mounting problems for the BRI, after China’s push in Sri Lanka sparked protests.

AidData, a research lab at the College of William and Mary in the United States, said in a study in late September that $ 11.58 billion worth of projects were canceled in Malaysia during 2013-2021, with nearly $ 1.5 billion canceled in Kazakhstan. and more. of $ 1 billion in Bolivia.

“An increasing number of policymakers in low- and middle-income countries are canceling high-profile BRI projects due to concerns about overpricing, corruption and debt sustainability,” said Brad Parks, one of the authors of the study.

China’s Foreign Ministry said in response to the AidData report that “not all debts are unsustainable,” adding that since its launch, the BRI has “consistently upheld the principles of shared consultation, shared contributions and shared benefits.”

‘Resources are finite’

A key issue is debt sustainability.

Copper producer Zambia became Africa’s first sovereign default in a pandemic era last year after failing to keep up with payments on more than $ 12 billion of international debt, for example. A recent study suggested that more than half of that burden is due to Chinese public and private lenders.

In late 2018, Beijing agreed to restructure billions of dollars in debt to Ethiopia.

Some African governments are also becoming more reluctant to apply for loans backed by commodities such as oil and metals.

“We cannot mortgage our oil,” Uganda’s Transport and Works Minister Katumba Wamala told Reuters, confirming that the country had refused to promise untapped oil in fields in the west to guarantee the rail loan.

The financial constraint means African governments must make more strategic investment decisions in terms of debt sustainability, said Yvette Babb, Netherlands-based fixed income portfolio manager at William Blair.

“There is no infinite amount of capital,” he said.


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