African leaders in China for more loans as trade imbalance persists

Saturday September 01 2018

Construction works on Phase 2A of the Kenya's standard gauge railway at Suswa. China Communications Construction Company is the contractor. PHOTO | GEORGE SAYAGIE | NMG


China will this week host a forum where development projects for the next three years will be discussed.

African leaders are going to Beijing for the Forum on China-Africa Co-operation (FOCAC) Summit, hoping to get financing for their mega infrastructure projects.

The summit themed "China and Africa: Towards an Even Stronger Community with a Shared Future through Win-Win Cooperation," is meant to link the Belt and Road Initiative with the UN 2030 Agenda for Sustainable Development, the AU’s Agenda 2063 and individual countries' development plans.

But it comes at a time when some African countries are grappling with an external debt burden and a trade balance favouring Beijing.

Credit rating firms and global financial institutions have been advising against taking out further loans, instead recommending fiscal consolidation to arrest the ballooning debt.

Kenya, for instance, had taken over $5 billion from China as at the end of March 2018 while Uganda owed China $1.6 billion. Kenya’s National Treasury has recently been under pressure to slow down the growth of public debt, with the International Monetary Fund raising its concerns.


Even then, East African Presidents Paul Kagame of Rwanda — who is also the African Union chairman — Yoweri Museveni of Uganda and Uhuru Kenyatta of Kenya are expected to attend the summit and seek financing for their joint infrastructure projects, particularly the standard gauge railway.

Kenya is looking to complete the second last phase of the line and Uganda will be inking a deal for its first phase from Malaba to Kampala. Rwanda is also angling to start financing discussions for the Isaka to Kigali stretch of the line from Tanzania.

But the East African Community partner states are going to Beijing without a common position on a proposed EAC-China trade pact, for which China has been negotiating since 2016, and which Kenya has opposed.

In May, Kenya rejected the China-EAC economic trade agreement, arguing that it was protecting its manufacturing sector from China’s cheaper and more efficient producers.

Chris Kiptoo, Principal Secretary for International Trade, said China already accounts for 25 per cent of Kenya’s import bill under the current common external tariff structure of zero per cent, 10 per cent and 25 per cent for raw materials, intermediate goods and final goods respectively.

“This means that China is likely to even get a larger share of Kenya’s market once we enter into a free trade arrangement,” Mr Kiptoo said, explaining Nairobi’s opposition of the deal.

China-Africa trade

Data shows that China-Africa trade amounted to $170 billion in 2017, a 14.1 per cent increase upon the 2016 figures. China’s exports to Africa grew by 2.7 per cent to $94.74 billion, while its imports rose by 32.8 per cent to $75.26 billion.

The meeting will also review the progress of the outcomes of the Johannesburg summit, during which President Xi Jinping announced 10 major co-operation plans to promote industrialisation and agricultural modernisation in Africa. He announced a $60 billion funding package to African countries, some of which is yet to be fully implemented.

African Union Commissioner for Trade and Industry Albert Muchanga will take stock of the infrastructure development, industrialisation and peace and development programmes, and agree on the priorities for the coming years.

In 2015, President Xi Jinping under the China-Africa infrastructure plan promised to fund the establishment of five transportation universities in Africa. This, he said, would help African countries in infrastructure planning, design, construction, operation and maintenance, particularly in the sectors of railways, roads, regional aviation, ports, electricity and telecommunications.

This, however is yet to be fully actualised, even though Kenya and Ethiopia, which have recently launched new railways built with support from Beijing, have seen a strong funding and revamping of their respective railway institutes and curriculum to align them modern railway realities.

One of the biggest contentious issues between African countries and China has been on trade and in the three-year plan, Beijing had promised under the China-Africa Trade and Investment Facilitation Plan to carry out 50 trade programmes to improve Africa’s capacity for internal and external trade and investment.

China also said it would negotiate free trade agreements with countries and regional organisations and increase the import of African products.

However, this has failed. Aside from Mauritius, no other African country has an Free Trade Agreement with China. Beijing is also yet to finalise any economic partnership agreement with the continent’s economic blocs.

Industrialisation plan

Under the China-Africa Industrialisation plan, Beijing promised to build or upgrade a number of industrial parks and set up regional vocational education centres and schools for capacity building.

China also pledged it would train 200,000 technical personnel and provide 40,000 training opportunities for Africans in China. The Asian giant has come through with several new industrial parks in Ethiopia and Senegal, with an upgrade to an existing one in Rwanda.

Another pledge that Beijing has fulfilled from its 2015 summit is expanding the renminbi settlement and currency swap operations with African countries, a pledge under its financial plan. In the past three years.

Nigeria, South Africa and Zimbabwe have led the push to adopt the yuan as an alternative settlement currency, with other countries including Kenya promising to follow suit.

In May, African central banks, under the Macroeconomic and Financial Management Institute of Eastern and Southern Africa, (MEFMI) a regional establishment with members including EAC countries supported the introduction of the yuan as a reserve currency.

“As it is, almost all African countries have loans or grants from China, so it would make economic sense to repay in yuan,” said MEFMI spokesperson Gladys Siwela-Jadagu.