There is constant propaganda whose intention is best known by those propagating it insinuating that China is putting African countries into a ‘debt trap’ by lending them too much money that the African countries will not be able to pay back.
Let us first analyse on a personal level why one would go for debt.
Firstly, and the most common is that one goes for debt when one’s finances are not able to cover the basic needs and obligations that need to be fulfilled. Undoubtedly what is at the borrower’s mind at that time is how to solve the immediate basic need. Secondly, there are those who borrow because they want to upgrade their lifestyles and sometimes beyond their means. It is usually the later that tends to cause problems between the borrower and the lender when time to pay back comes.
The above analogy is no different for a country. Countries borrow because they have immediate social and economic imperatives that are not able to be fulfilled by their own current finances available. Some countries too can also borrow to elevate their position among the electorate resulting into over-borrowing in some cases.
Borrowing and lending is a business transaction and business transactions are done at arms lengths where the borrower is expected to pay for the borrowing in form of interest or any other agreed transactional form.
China has been available to lend to countries, not only in Africa but Europe as well to help those countries solve whatever pressing obligations they have. China in this case is lending as a business transaction and is not donating. China also donates lots of money to a number of countries but it is the lending and borrowing which I would like to discuss in this article to dispel the notion of debt trapping.
For so long, the main lender that had monopolised the African continent was the IMF and World bank. Now there is a ‘new Sherriff in town’ in the name of China that is eating part of the business that was only meant for those chosen few. Those who know what IMF and World bank debt which comes with all sorts of pre-conditions of structural reforms know what a thorn this has been to many African countries.
Claiming that African countries borrow more that they can afford to pay back is just being simplistic and lack of both understanding and appreciating problems African governments have to solve. Starting from independence, African countries were left with ‘rigged’ debts to their former colonisers which up to today over a century past, some countries are still paying the same debt whose interest just kept ballooning. Guess who was coming to African Continent rescue to ‘help’ them pay or ease these loans/debts. Definitely the IMF and World bank which only added misery to injury. I will not discuss who the major shareholders in both the IMF and World bank are because this is common knowledge.
For so long, the west and Europe had been having a stronghold over indebted African nations forcing them to cut on social spending or even end price subsidies on food items like what happened in Egypt resulting in unaffordable food prices for the local community. Egyptians had to be creative because they had to survive and created a ‘second hand’ food market where substandard and sometimes expired food had to be sold to the local population. The remains of meals from restaurants and hotels were offered to families at a discounted price. Imagine the misery and abuse of dignity this brought to the Egyptian people.
China on the other hand does not give loans that come with all sorts of conditions that are meant to make life difficult for the common man. No structural reforms are imposed and no ‘tightening of the belt’ on an already empty stomach is imposed. China’s bilateral and multilateral engagement is based on a win-win principle rather than exploitation.
One should not imagine that Africa does not have economists who understand the effect of debt and how it will have to be repaid. Africa may have a few corrupt leaders who may take debt that may end up being misused and if this happens surely it is not China but the borrowing country that is creating problems for itself. Just like in the analogy give above, an individual, who borrows money to support a lavish lifestyle beyond his means, will eventually land into problems when debt is due for repayment and that will not be the problem of who lent him money. Countries not only in Africa which borrow beyond their means eventually land in problems when it comes to paying back.
Some of the examples being thrown around claiming it is China that is leading these countries into a debt trap include countries like Zambia, Mali and Senegal on the African Continent but also Pakistan, Srilanka, Tonga, Montenegro and a number of others. What is not being said, is that actually China is lending to these countries in order for them to ease their balance of payment issues and also to pay interest on earlier loans that were taken from IMF and World bank.
In the case of Srilanka where propagandist claim China will take over the Hambantota Port on a 99 year lease in order for Srilanka to manage pay back what was borrowed, it is purely Srilanka’s decision and if they feel this is that best way they can repay China’s debt, it should be left to the Srilankans. Every country including African countries that have borrowed money know how best they will pay it back.
It is the envy of those who were the only players in Africa who now find that they have a competitor whose terms are more acceptable to Africans compared to surrendering ones political and economic sovereignty that Africa had been subjected to that creates the noise of the so called “China debt trap”.
In the late 1970’s, the only construction companies one would find in Africa would either be from Europe or the west. They would determine prices for whatever infrastructure they pretended to be developing in Africa and with no alternative, African countries had to contract them at times at prices that are out of this world. Currently, Africa has a choice where China construction companies have not only proved to be more efficient but also more cost effective. This has rubbed the former monopolists on the wrong side and that is why they are fuelling the notion of China Debt trap.
The reality in Africa is that Africa is in a debt trap that was initiated by the former colonisers and perpetuated by western financial institutions like IMF and World bank. Should I remind you of the statement from Harry White the former assistant to Secretary of the U.S treasury who once said that, “some of the recommendations of the IMF to Africa are like a doctor stemming the bleeding of your arm by stopping your heart”. That is the kind of treatment Africa has been receiving from Western lenders before China came up with better and more humane conditions to lend to Africa.
Discussions of debt restructuring whether it is with China or IMF happens all the time and those dubbing it ‘Debt trap diplomacy’ when it comes to China having discussions on how to structure debt given to some Africa countries are just trying to be economical with reality. The debt trap therefore, is a myth created by China’s competitor with the intention of spoiling the existing good cooperation and diplomatic relationship between China and African countries.
Africa has enough economists and has managed to lend some of them to western financial institutions and therefore is capable of making its own judgement as to what debt and how much of it they need and from where. China has never forced any African country to take unaffordable debt. To the contrary, China has been there to assist many African Countries even during times of immense distress where western financial institutions are only interested in manipulating conditions that have in many cases resulted in those African countries losing jobs due to unjustifiable reforms.
The many infrastructure projects in Africa that have been mainly funded by Chinese loans have become an envy to the would be lenders who have been left out of the equation and are left with enough time to craft propaganda shifting ‘debt trap’ in Africa from the real western organisations trapping Africa.
Mr. George Nsamba is a risk management practitioner based in Johannesburg
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