East Africa's leaders and senior bureaucrats arrived in Beijing early this week for a meeting with their counterparts from at least three dozen states to deliberate on Chinese President Xi Jinping’s signature project, the Belt and Road Initiative.
And despite concerns by mainly Western critics about the towering profile of Chinese debt in the developing world, a few African leaders did not leave their begging bowls behind.
Where Ethiopia hoped to renegotiate long overdue obligations to China, Kenya and Uganda were expected to seek financing for pending SGR projects.
In the 2019 edition of its Africa Pulse report, the World Bank notes that the external debt of nearly half of sub-Saharan Africa’s low income economies had shifted from concessional to more expensive private sources of funding. This has consequently put many of them at risk of debt distress.
Besides the growing pile of debt, the type of debt has made a number of African economies vulnerable.
Both China and its critics have a point. Beijing is correct when it argues that developing countries need a helping hand to revamp the infrastructure they need to participate more and effectively in global commerce.
Yet Western countries that have in the past two decades had to write off billions of dollars in bad debt owed by African states, should not be dismissed either.
Many borrowers from China’s seemingly bottomless well of credit are showing signs of distress. Stories of China threatening to take over key national institutions from defaulting states demonstrate the dangers of unbridled borrowing from that country.
African states are walking a tightrope with China primarily for two reasons. The investments made don’t always bring the anticipated returns.
China itself is not a major trading partner with most of its clients.
The share of Chinese credit in Uganda’s foreign debt has expanded from just 3 per cent in 2011 to 20 per cent in 2018.
On the flipside, Uganda sold barely $50 million worth of goods to China against annual imports averaging $900 million.
While not unique, the reality is that a sizeable proportion of Chinese loans is often repatriated, leaving borrowing countries stuck with shells of infrastructure.
Recent numbers show nearly 117,000 Chinese workers were employed in East Africa over the past nine years while Chinese firms earned $41 billion in contracts from Kenya, Uganda and Tanzania over the 20-year period to 2017.
The dilemma of Chinese debt will only be resolved if the parties take a more critical look at how debt generates new value to support repayment.
For instance, Uganda and Kenya have committed to a standard of SGR well beyond their capacity to generate corresponding value.
Without economic integration in Africa, some of these projects do not make sense.
For instance, despite a fine highway they simultaneously developed to facilitate trade back in 2011, trade flows between Rwanda and Uganda have come to a halt because of bad politics.
If China is doing business by lending to us, we must make sure that there is value in the debt we pick up.