Friday, September 14, 2018

Corruption Is Wasting Chinese Money In Africa

Djiboutians hold a Chinese flag before the launch ceremony of a Chinese-funded construction project in Djibouti, on July 4, 2018. (YASUYOSHI CHIBA/AFP/Getty Images) via Foreign Policy


BY SALEM SOLOMOM & CASEY FRECHETTE

From the 1960s on, China supported anti-colonial and anti-apartheid movements across Africa. When countries like Algeria, Sudan, and South Africa fought for liberation, Beijing supplied financial assistance and logistical support. As the decades passed, ideological ties morphed into shared economic, security, and strategic interests, resulting in one of the world’s most complex, and controversial, arrays of international partnerships.

Today, some see China as a neocolonial power eager to plunge African nations into debt, stripping their resources and their sovereignty. They point to cases such as Djibouti, where China owns about 80 percent of its public debt, which, in turn, has exceeded 86 percent of GDP, or Zambia, where some reports suggest unsustainable lending will soon lead to a Chinese takeover of the public electric company, ZESCO. (The Zambian government has refuted the claims.) In August, 16 U.S. senators voiced their concern about China’s efforts to “weaponize capital” in Africa and Asia in a letter to U.S. Treasury Secretary Steven Mnuchin and Secretary of State Mike Pompeo.

Others, especially African leaders, see China as a flexible partner willing to engage, with parity, where no one else will. Chinese loans for infrastructure projects, a significant part of overall financial ties, have historically come with interest rates far lower and repayment terms far more flexible than those offered by the International Monetary Fund and other multilateral lenders, to whom many African countries owe the bulk of their public debt. Through Chinese lending, construction, and project management, Africa has gained bridges, roads, railways, dams, hydropower plants—the kinds of large-scale projects that can jumpstart industrialization and invigorate economies for years to come.

But two decades of financial data, evolving business and cultural ties, and the latest news from the just-concluded Forum on China-Africa Cooperation in Beijing suggest that the China-Africa relationship defies simple characterization. There may be an overarching Africa policy. But on the ground, China is engaged in a diverse set of bilateral ties, with the benefits for African countries driven in large measure by how well their leaders defend national interests.

And there’s good reason to be concerned about whether those interests have been well served. Opaque deals, reports of large-scale corruption and mismanagement, doubts about project feasibility, and a stark trade imbalance raise serious questions about how well African leaders are managing the opportunities they receive.

After 20 years of expanding cooperation, China has emerged as Africa’s largest trade partner, one of its biggest foreign direct investors, and its most prolific financier of infrastructure projects. Data compiled by the China Africa Research Initiative at Johns Hopkins University reveal the extent of these ties. China-Africa trade topped $128 billion in 2016, China has extended more than $140 billion in debt financing throughout the continent, and its foreign direct investment stock in Africa reached almost $35 billion in 2015. Beijing has also created incentives for Chinese businesses to set up shop in Africa. McKinsey & Company, a global consulting firm, estimates that about 10,000 Chinese firms operate in Africa, the bulk of which are privately owned, resulting in hundreds of thousands of new jobs across the continent.

China has also built some of Africa’s most prominent buildings. Its presence is visible on the skylines across Africa’s largest cities, and a number of these structures have been gifted. In 2012, for example, China financed and built the $200 million African Union headquarters in Addis Ababa, Ethiopia. This year, it gave the Economic Community of West African States an interest-free, $31.6 million grant to build its new headquarters in Nigeria. Only in official development aid and FDI does the United States continue to outpace China in Africa, but that too may change.

But China doesn’t invest evenly across the continent, based on our analysis of data compiled by the China Africa Research Initiative. Between 2000 and 2017, China made no loans to eight countries and less than $200 million in loans to another 10 countries. Meanwhile, just five recipients—Sudan, the Democratic Republic of the Congo, Kenya, Ethiopia, and Angola—accounted for more than half of all loans. Similarly, six countries accounted for all FDI stock in 2015, and just two countries—Angola and South Africa—accounted for more than half the continent’s trade exports to China in 2016.

And not every pledge from China gets disbursed. When there is a gap between what China promises and delivers, the common thread has been African nations’ struggles to close deals and manage contracts. Both Ghana and Zimbabwe, for example, have received less than 10 percent of the money pledged to them, Bright Simons reported this month in Quartz. That’s partly due to stipulations imposed by China—the requirement for an African nation’s government to be involved even in private loans, for example. But it’s also tied to mismanagement of funds.

One example is a water and sewer project in Harare, Zimbabwe. Officials secured a $144 million loan from China to perform much-needed upgrades to modernize the public works system, making potable water safer and more widely available. But local media reported in March that China declined to disburse half the loan, and an independent audit revealed budget inconsistencies and concerns over kickbacks tied to funds that had been spent.
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