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The “debt-trap” narrative around Chinese loans shows Africa’s weak economic diplomacy (Quartz Africa)

February 5, 2019

From the article:

Hugging the shores of the Indian Ocean, Kenya’s Mombasa port is one of the biggest and busiest harbors in East Africa.

Almost 1,800 vessels docked at the port in 2017 alone, with cargo worth over 30 million tons processed—much of it heading to neighboring or landlocked nations including Uganda, Rwanda, Burundi, and DR Congo. Since its opening in the mid-1890s, the seaport has developed to be a rising regional hub and a key cog in Kenya’s growing infrastructural development.

In December, reports surfaced the prized port was used as collateral for the $3.2 billion loan that was used to construct the 470-kilometer (292 miles) rail line between the seaside city and the capital Nairobi. In a leaked report linked to the auditor general’s office, Kenya was said to risk losing its port if it defaulted on the loan, with the Exim Bank of China taking over the port authority’s “escrow account” to regain revenues. Further reports have even noted it goes beyond just one asset that’s been put up as collateral and that “any state” possession was on the table in the event of a non-payment.

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Western leaders, drawing on these examples and wary of China’s rising financial and economic might, have cautioned African states from taking out these loans. Observers have also pointed to the fact Beijing offers financing with fewer strings attached and isn’t part of the global multilateral framework for official creditors known as Paris Club. This has raised questions about the transparency, sustainability and commercial viability of Chinese state-sponsored lending, which have grown tenfold in the past five years in Africa.

And with no officially-published contracts or “no written predictable rules” of how Beijing responds to a loan default, “people are free to speculate,” says W. Gyude Moore, a visiting fellow at the Center for Global Development. Between 2000 and early 2019, there were 85 instances when China canceled or restructured debt globally—including most recently in Cameroon.

The Sri Lanka port remains the only place in the world where Beijing took control of a state asset, with observers noting that officials understood the damages “debt book diplomacy” could bring to China. Yet Beijing’s debt relief or repayment actions, Moore notes, remains “haphazard. It’s unpredictable. There’s nothing written. It’s confusing.”

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Because there’s no frame of reference for Chinese deals, Moore, who previously served as Liberia’s minister of public works, says African governments can improve their capacity to negotiate by drawing support from global litigation services. These include the African Legal Support Facility hosted by the African Development Bank or pro-bono entities like the International Senior Lawyers Program. Mobilizing these resources, he adds, could improve the quality of project selection and the process of delivering them.

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Photo of W. Gyude Moore
Visiting Fellow