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NY Times, Nov. 24, 2018
One African Nation Put the Brakes on Chinese Debt. But Not for Long.
By Dionne Searcey and Jaime Yaya Barry
DAKAR, Senegal — The new international airport in Sierra Leone was
supposed to be a shiny welcome center for travelers — a symbol showing
that after a devastating civil war and an Ebola epidemic, the nation was
finally open for business.
But last month, the government decided that the multimillion-dollar
price tag was too high, so it canceled the financing that made
construction possible: a more than $300 million loan from China that
Sierra Leone might have struggled to repay.
President Julius Maada Bio was soon hailed by analysts for putting the
brakes on a project that could have deeply indebted his nation, already
one of the poorest in the world.
It seemed that Sierra Leone was heeding the hard-earned lessons of other
developed nations that have found themselves owing enormous amounts to
China.
Yet only a few days after his announcement about scrapping the deal, Mr.
Bio appeared on state-owned Chinese television to make clear that he was
not backing away from China after all. In fact, he was seeking its help
to build a more than $1 billion bridge, and was also open to
renegotiating the airport loan.
“We are a developing nation,” Mr. Bio told the interviewer, “and we look
forward to nations that want to help us develop.”
Across sub-Saharan Africa, governments like Sierra Leone’s are opting to
overlook glaring examples of developing countries teetering toward
economic distress after borrowing heavily from China.
Forty percent of countries in the region are close to falling into debt
crisis, the International Monetary Fund has cautioned. And many of those
are still seeking loans from Beijing for help to finance airports,
highways, railways, dams and power projects.
The warning signs of taking on too much debt from China appear across
the globe, as in Sri Lanka, where after struggling to make their
payments, officials recently turned over to China a port and 15,000
acres of land for 99 years.
But Chinese-backed ventures have also hit snags in Africa.
Kenya has now borrowed far more from China than from any other country.
But it has also come to depend on a flood of Chinese manufacturing
imports, a trade imbalance that makes it harder to raise foreign
currency to pay off debt. Kenya’s trade with China has grown eightfold
in the past decade, according to President Uhuru Kenyatta, who
complained at a conference this month in Shanghai that the trade was
skewed in favor of China.
The monetary fund has flagged Djibouti, site of a large Chinese military
base with live-fire exercises in the desert, as having potential
problems with mounting debt, most of which is owed to the Chinese
government’s Export-Import Bank, according to a report this year from
the Center for Global Development. Yet Djibouti shows no signs of
limiting new borrowing for projects, and it’s unclear whether these will
earn enough revenue to pay off their debts.
In Nigeria, Chinese projects have been dogged by accusations of
corruption, poor decision-making, and in some cases shoddy construction.
Yet the nation is still turning to China to build a coastal railway and
myriad other projects.
Chinese debt has become “the methamphetamines of infrastructure finance:
highly addictive, readily available, and with long-term negative effects
that far outweigh any temporary high,” according to a recent article by
Grant T. Harris, who was President Barack Obama’s White House director
for Africa from 2011 to 2015.
The added fact that China has flooded African markets with low-cost
manufactured goods means that many African factories have been driven
out of business, making it harder for African countries to raise the
hard currency — mostly dollars — that they need to repay loans from Beijing.
China has extended lines of credit to nations rich in natural resources
like oil, bauxite, iron and other metals. So even if a resource-rich
developing country has trouble repaying its loans for a while, the
thinking goes, it can pay with natural resources sooner or later. China
also gains politically by extracting promises of support for the Beijing
government over Taiwan as a condition of eligibility for a loan.
At the China-Africa Forum for Cooperation summit in Beijing this month,
China announced that it had set up a $60 billion fund for African
infrastructure projects to strengthen ties with the continent.
Numerous analysts and experts, including the former secretary of state
Rex W. Tillerson and Christine Lagarde, the managing director of the
monetary fund, have warned nations to be cautious about taking on too
much Chinese debt.
Angola, the Republic of Congo and Zambia were some of the nations that
Moody’s listed this month among the most indebted to Chinese creditors.
A report from the financial research company said interest payments in
Ghana, Angola, Zambia and Nigeria already absorbed more than 20 percent
of government revenue.
This month, while speaking at the Asia-Pacific Economic Cooperation
summit, Vice President Mike Pence accused China of using “debt
diplomacy” to expand its global influence. But Chinese officials have
repeatedly disputed any notion that its loans are creating so-called
debt traps for African nations.
“On the contrary, cooperating with China helps these countries raise
independent development capabilities and levels, and improves the lives
of the local people,” said Hua Chunying, Chinese Foreign Ministry
spokeswoman, in a statement responding to Mr. Pence.
China has promised to forgive some of its loans to some of Africa’s
poorest nations. But it was unclear which countries would benefit, and
the promise applied to only interest-free loans.
China is strengthening ties in new areas on the continent, specifically
in West Africa where it is adding more African countries to the list of
nations in its Belt and Road initiative, which envisions major
infrastructure projects backed by the Chinese government around the world.
One of the new Belt and Road countries is Senegal, which was part of
President Xi Jinping’s four-country visit to the continent this summer.
During a ribbon-cutting ceremony in Senegal’s growing capital city, Mr.
Xi handed keys to a new wrestling stadium built by the Chinese to
President Macky Sall.
Across the country, billboards line the roads touting Mr. Sall’s
“Emerging Senegal” plan to transform the economy with a new city, a new
commuter rail link and other projects. Chinese loans are paying for a
highway to the city of Touba and part of an industrial park.
The agreements benefit both governments. Mr. Sall is facing re-election
next year and eager for his vision to be completed. And Senegal, along
Africa’s westernmost coast, is of particular geographical importance to
China as a base for manufacturing and exports.
The same is true on the opposite side of the continent, in Mozambique,
where Chinese loans are paying for bridges and numerous other projects.
It’s part of a plan to double down on places that have strategic
importance, said Anna Rosenberg, sub-Saharan Africa director at Frontier
Strategy Group, an emerging markets advisory firm.
“For Africa this is not a bad thing,” she said. “They need the
infrastructure. They can’t wait for aid to come from the West. They need
it fast, and the Chinese government has realized that.”
For nations like Sierra Leone that are eager to put years of political
instability behind them, the lure of Chinese deals can be irresistible.
With more than half of the population living under the poverty line and
an economy struggling to get back to the levels reached before the Ebola
outbreak, it has few other options.
During his election campaign, Mr. Bio decried the new airport project,
calling it a “sham that is clouded with secrecy” and unnecessary for a
nation that had no more than 40,000 travelers passing through each year.
The monetary fund had also warned against the deal. Canceling the loan
was one of the first major moves Mr. Bio made after taking office this year.
But on Chinese television, Mr. Bio backpedaled, explaining that he was
negative about only the terms of the airport deal, and that the
cancellation wasn’t intended as a sweeping indictment of dealing with
China. He went on to praise a Chinese health center and other aid the
nation has given to Sierra Leone.
Sierra Leone is home to one of the largest iron ore deposits in the
world and its economy is dominated by a China-backed mining project that
exports ore for use in Chinese steel mills. Government officials
declined to comment on plans for more loans from China.
Analysts caution that African governments need to get better at
negotiating loans with China, taking care to haggle over interest rates
and adding clauses requiring full-time employment for local citizens.
“The Chinese seem to know what they want from Africans, in particular
when it comes to commodities,” said Ibrahima Cheikh Diong, a former
member of the Senegalese government who scrutinized deals between China
and Senegal. “The question is, is that the same for Africans?”
Keith Bradsher contributed reporting from Shanghai.
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