by Dr. Richard L. Benkin
Originally published September 19, 2019 in The Daily Asian Age (Dhaka)
https://dailyasianage.com/news/196219/african-nations-lead-escape-from-chinese-debt-trap
For the past two years, I have been warning developing nations to exercise care before accepting Chinese Belt and Road (BRI) loans.
Because I spend a lot of time in these countries, I understand their desire to develop and to move their infrastructure into the 21st century. It helps unite their peoples and improves their commercial capacity-two things that every nation wants and deserves. And in that respect, I wish them the greatest success and the brightest of futures.
China's predatory lending practices and imperialist aims, however, make Belt and Road the wrongvehicle for development; and Bangladeshi Prime Minister Sheikh Hasina has taken her nation down that path despite the wreckage of other BRI victims. Worse, their victimhood was predictable; and because every lender has that capability, it suggests more sinister Chinese motives.
Those motives were on full display in how China hurt the peoples of Sri Lanka, who they strong armed into giving them the strategic Hambantota port; Montenegro, whose leaders colluded with the Chinese to line their pockets and leave their people with a "highway to nowhere" and massive debt they can't repay; as well as others. China's treatment of debtor nations reveals underlying geopolitical and military motives that it will pursue even at the expense of debtor nations like Bangladesh.
"Let me be blunt, " I said at April'sDaily Asian Age think tank, Debt Trap Diplomacy and Regional Threat, "Taking the Chinese money would be a mistake-a big one!" Nevertheless, the nation's leaders took on the Chinese debt with no more than a blind hope that it would not reverse Bangladesh's economic miracle of the past two years, and an inflated self-confidence that they could do what no other BRI debtor so far could: outwit the Chinese.
African nations, however, Kenya most prominently, might have found a way to do just that. At the very least, they appear to be telling the Chinese to stuff their predatory intentions while saving their children's future.
When questions about Kenya's BRI development surfaced around the time of the November 2018 United Nations General Assembly meeting in New York, Kenyan President Uhuru Kenyatta was unequivocal in publicly rejecting their validity.
Asked a month later in a CNN interview if he worries about his country's growing indebtedness to China, Kenyatta again pushed back, questioning why the interviewer was focusing on just one lender when Kenya has a diverse group of creditors including the United States and the World Bank, in addition to China.(Perhaps one reason is that Kenya's other creditor nations belong to the Paris Group, whose members commit to working as one so debtor nations unable to make payments are treated fairly.)
And as 2019 dawned, Kenyatta was especially forceful in combatting projections that Kenya's Mombasa port would suffer the same fate as Hambantota. He called the allegations "propaganda" and said Kenya was "ahead of schedule" for repaying its $3.21billion loan to China's Exim Bank, an odd thing to say given that payments do not even start until 2020.
But things began to change as 2019 progressed. In June, a Kenyan court stopped the construction of a $2 billion Chinese-backed coal power planton Lamu, a world heritage site in the country's northeast, and canceled the license issued for it by the National Environmental Management Authority.
The ruling was based on the project's potential ecological disaster and caused many to question why the Chinese were pushing the project in the first place. Kenya-along with neighboring Tanzania and other East African nations-are well along in their environmental protection programs, in some cases further along than the West. The massive project just didn't make sense. Kenya currently gets about two-thirds of its power from clean energy sources.
Lamu would have been East Africa's first coal plant,and would have increased Kenya's greenhouse gas emissions by 700 percent. Kenya is not an isolated incident. Edward Cunningham, a specialist on China and its energy markets at Harvard University, told America's National Public Radio that China is building or planning more than 300 coal plants in Turkey, Vietnam, Indonesia, Egypt, the Philippines; and elsewhere, including Bangladesh.
Why?
China long has been scolded as the world's largest polluter, something anyone who has been to China's cities can confirm; and it is estimated to account for about 70 percent of the world's coal consumption. In response, China has had to get greener at home, for instance, closing three of its four Beijing coal plants.
But because the Chinese have no intention to change their economic aims, they are merely shifting the environmental damage from China to its BRI debtors. Given the ecological challenges facing Bangladesh, can its people afford to take on increased pollution to service the Chinese economy?
By September, African doubts about the benefits of Chinese debt forced Chinese President Xi Jinping to send his special envoy, Yang Jiechi, tothe Kenyan capital of Nairobi for damage control.
(Yang also visited several other African nations with concerns about "Chinese debt trap.")Representatives of both nations emerged from the meeting with the same message: there would be no further Chinese loads to Kenya. Rather both Kenyatta and Yang said they would concentrate on attracting "private investors."
The significance of that cannot be overestimated. As a businessman, I can tell you that when someone invests in a business-which is essentially a loan-the first question that must be answered is "How do I get my money back and make a profit?" That is, those private investors do not have the geopolitical or military motives that China has. And in order to see a project as lucrative enough for them to invest, it must show clearly how it will generate income.
That is, if those infrastructure projects, no matter how noble for the nation, do not make enough money to repay the loan, private investors will not touch them. The process forces borrowers to have a detailed plan for sustainability and put into place processes to insure that it will be followed, which also means that no corrupt individual will be allowed to scuttle the project for personal enrichment.
There are a lot of ways to do this, and the Kenya plan seems to make a lot of economic sense. It begins with a moratorium on any more borrowing. Those who attended April's Daily Asian Age think tank will recall how debt can ruin an economy. Once the economy is off that addiction, private investors can use that existing infrastructure project to attract income generating businesses around it.
Tolls will never generate the income needed to repay a loan; but fees and taxes associated with businesses located around it will; the additional tolls generated by all the people having to go to work will help; additional businesses so those workers have a place to eat lunch or buy petrol will.
There are many parallels here for Bangladesh. Like Sheikh Hasina, Uhuru Kenyatta is the offspring of the father of the nation, Jomo Kenyatta. And like Sheikh Hasina, Uhuru Kenyatta is committed to furthering the goals and ideals of his father. Both heads of state know that cannot happen if China takes over critical facilities. Kenya and Bangladesh also have impressive and growing economies that are threatened by too much debt.
With a healthy GDP growth of 5.7 percent in each of the last two years, Kenya's remains the fastest growing economy in Africa. Bangladesh has outperformed even its fastest growing neighbors and is expected to leave the "least developed country" category for the first time in its history. China's economy, on the other hand, is in trouble. Last year was one of its worst years on record, and it is further reeling from President Trump's actions in the US-China trade war.
China's problems in Africa are becoming more the rule than exceptions. Last year, Zambia had to quash rumors that it was about to cede major assets for Chinese debt relief. Yang also had difficult meetings in oil rich Nigeria and Sierra Leone. Djibouti is in serious arrears; and both Ethiopia and Egypt are at risk of significant debt distress due to Belt & Road, according to the Washington-based Center for Global Development.
At the same time that Kenya was scrapping the Chinese funded coal plant, Tanzania, its neighbor to the south, was turning down China on another front. According to The Telegraph, "the port in the Tanzanian town of Bagamoyo was worth $10bn and would have been the largest in east Africa."
In saying no to the deal, Tanzania President John Magufuli called the Chinese terms "exploitative and awkward" and said that the Chinese wanted "to take the land as their own." Moreover, the capitalist expertise of these African leaders should not be taken lightly, Magufuli in particular, as numerous Tanzanians told me on a recent trip there.
The warning signs to anyone considering China's offer are apparent and many. Kenya, it seems, has found a way for borrowing nations to neutralize China's predatory practices by focusing on making each project self-sustaining. Involving the private sector overcomes China's military and geopolitical priorities.
Bangladeshi leaders should take their cue from Kenya (as it appears more and more nations are), and make decisions based on hard-headed business factors, rather than on how they would like things to turn out; recognize their strengths and weaknesses, rather than fear being thought less than perfect.
The writer is an American human rights activist, journalist, writer and lecturer.