No go-go: China’s belt through Africa hits a roadblock
The BRI slowdown has been attributed to Covid-19, Beijing’s waning appetite for foreign investments and African debt
Deep in Kenya’s Great Rift Valley, members of the National Youth Service tirelessly swing machetes to clear dense shrubs obscuring railway tracks more than a century old.
It’s a distinctly low-tech phase for China’s Belt and Road drive in Africa to create the trade highways of the future.
There’s not enough money left to complete the new 1,000km superfast rail link from the port of Mombasa to Uganda. It ends abruptly in the countryside, 468km short of the border, and now Kenya is resorting to finishing the route by revamping the 19th-century colonial British-built tracks that once passed that way.
China has lent African countries hundreds of billions of dollars as part of president Xi Jinping’s Belt and Road Initiative (BRI), which envisaged Chinese institutions financing the bulk of the infrastructure in mainly developing nations. Yet the credit has dried up in recent years.
On top of the damage wrought to China and its creditors by Covid-19, analysts and academics attribute the slowdown to factors such as a waning appetite in Beijing for large foreign investments and a commodity price crash that has complicated African debt servicing, as well as some borrowers’ reluctance to enter lending deals backed by their natural resources.
“We are not in the go-go period any more,” Adam Tooze, a Columbia University historian, said about China’s overseas investment projects. “There is definitely a rebalancing from the China side,” said Tooze, whose new book, Shutdown, examines how Covid-19 affected the world economy, adding that Beijing’s current account surplus was “dwindling somewhat”.
Chinese investments in the 138 countries targeted by BRI slid 54% from 2019 to $47bn (about R740bn) last year, the lowest amount since the BRI was unveiled in 2013, according to Green BRI, a China-based think-tank that focuses on analysing the initiative.
In Africa, home to 40 of those BRI nations, Chinese bank financing for infrastructure projects fell from $11bn (about R173bn) in 2017 to $3.3bn (about R52bn) in 2020, according to a report by international law firm Baker McKenzie.
This is a blow for governments which were anticipating securing Chinese loans to build highways and rail lines linking landlocked countries to seaports and trade routes to Asia and Europe. The continent is facing an estimated annual infrastructure investment deficit of around $100bn (about R1.6-trillion), according to the African Development Bank.
A Chinese official said Beijing always intended to implement BRI gradually to manage debt-default risks by countries or projects.
“The pandemic has actually made things worse. Those numbers will go up,” said Akinwumi Adesina, the president of the bank, citing the need for additional infrastructure to support health services.
Holdups have hit some other BRI projects across the continent, such as a $3bn (about R47bn) Nigerian rail project and a $450m (about R7bn) highway in Cameroon.
Beijing officials have said the two sides have a mutually beneficial and cooperative relationship, and that lending is done openly and transparently.
“When providing interest-free loans and concessional loans, we fully consider the debt situation and repayment capacity of the recipient countries in Africa and work in accordance with the law,” Zhou Liujun, vice-chairperson of the China International Development Cooperation Agency said in late October.
Another Chinese official, who declined to be named as they are not authorised to speak to the media, said Beijing always intended to implement BRI gradually to manage debt-default risks by countries or projects.
Officials in Kenya said its rail route initiatives were long-term projects that would be seen through, without giving any specific time frame. Covid-19 has presented the world with unforeseen and unprecedented challenges, they added.
“Eventually, this standard-gauge railway will still be complete because it is part of what we call the Belt and Road Initiative,” said James Macharia, Kenya’s transport minister.
The government has already spent about $5bn (about R79bn) on its new rail link and can’t now afford the additional $3.7bn (about R58bn) needed to finish it. The last station hooked up is only accessible by dirt roads.
Hence engineers in the Rift Valley are no longer building new infrastructure, but rather shoring up colonial-era viaducts and bridges in an operation that the government estimates will cost about $91m (about R1.4bn).
There are knock-on effects and, over the border in Uganda, construction on a modern railway line has been delayed because it’s supposed to link to the Kenyan one.
That has been one factor in the holdup in a $2.2bn (about R36bn) loan from the Export-Import Bank of China (Exim Bank), David Mugabe, spokesperson for Uganda’s Standard Gauge Railway project, said.
In Nigeria, the government turned to London-headquartered Standard Chartered Bank this year to finance the $3bn (about R47bn) railway project initially slated to receive Chinese backing. Standard Chartered declined to comment on the deal, citing confidentiality agreements.
In Cameroon, the $450m (about R7bn) highway linking the capital Yaounde and the economic hub of Douala, whose funding was secured from China’s Exim Bank in 2012, stalled in 2019 as the bank stopped disbursing further tranches of the loan.
A growing number of policymakers in low- and middle-income countries are mothballing high-profile BRI projects because of overpricing, corruption and debt sustainability concerns.Brad Parks, study author
Zhou Yuyuan, senior research fellow at the Centre for West Asian and African Studies at the Shanghai Institutes for International Studies, said the Covid-19 crisis had strained Chinese lending institutions and African finances.
In future, he added, Beijing was likely to encourage more corporate Chinese investment on the continent to fill the role of state-backed financing. “Once the pandemic is over, Africa’s economy is likely to recover,” he said. “That could drive China’s corporate investment.”
The pandemic has added to the obstacles facing Xi’s self-described “project of the century”. After peaking at $125.25bn (about R1,2-trillion) in 2015, Chinese investments into BRI nations have dropped every year, apart from 2018, when they edged up 6.7%, the Green BRI data showed.
In 2018, Pakistan balked at the cost and financing terms of building a railway. The previous year there were signs of growing problems for BRI after China’s push in Sri Lanka sparked protests.
AidData, a research lab at the College of William and Mary in the US, said in a study at the end of September that $11.5bn (about R181bn) in projects in Malaysia had been cancelled over 2013-2021, with nearly $1.5bn (about R23.6bn) cancelled in Kazakhstan and more than a $1bn (about R16bn) in Bolivia.
“A growing number of policymakers in low- and middle-income countries are mothballing high-profile BRI projects because of overpricing, corruption and debt sustainability concerns,” said Brad Parks, one of the study’s authors.
China’s foreign ministry said in response to the AidData report that “not all debts are unsustainable”, adding that since its launch the BRI had “consistently upheld principles of shared consultation, shared contributions and shared benefits”.
A key problem is debt sustainability.
Copper producer Zambia became Africa’s first pandemic-era sovereign default last year after failing to keep up with payments on more than $12bn (about R189bn) of international debt, for example. A recent study suggested more than half of that burden is owed to Chinese public and private lenders.
In late 2018, Beijing agreed to restructure billions of dollars in debt owed by Ethiopia.
Some African governments are also growing more reluctant to take out loans backed by commodities such as oil and metals.
“We can’t mortgage our oil,” Uganda’s works and transport minister Katumba Wamala said, confirming the country had refused to pledge untapped oil in fields in the west to secure the railway loan.
The finance squeeze means African governments must make more strategic investment decisions in terms of debt sustainability, said Yvette Babb, a Netherlands-based fixed-income portfolio manager at William Blair.
“There is no infinite amount of capital,” she said.