An Assessment of Chinese Aid, Infrastructure and Development Assistance in Africa
Date: 14-09-2020 GSI Internal Research and Analysis Group Authors: Vyshnav Menon, Zachary Horsington
Summary OF Key Findings:
Finding A: While Chinese loans are now a significant part of Africa’s debt landscape, their relevance should not be overstated.
Finding B: Expanded Chinese diplomatic and military engagement across Africa poses a clear threat Western-allied influence in Africa, which may in future hinder economic investment and military activities initiated in their interests.
Finding C: The PRC’s controlling involvement in the development of rail, road and sea links opens the possibility for preferential treatment in access to critical infrastructure in ways disadvantageous to western interests.
Finding D: China reveals itself to be more interested inflows of information in Africa than goods, as the critical metadata on millions of people and governments it monitors represents valuable information to inform Chinese national policy in the region.
overview of China’s presence in The Region:
In the early 2000s, China emerged Africa’s largest trading partner, a leading investor and a generous provider of aid. Today, Africa is the top recipient of Chinese aid. China offers African nations “mutual benefit loans” - large commercial-rate loans for the construction of infrastructure – to be repaid in exports, typically natural resources.
However, Chinese foreign aid to Africa is motivated primarily out of the need to secure natural resources and secondarily to obtain diplomatic objectives such as isolating Taiwan and garnering Chinese support in international organizations, namely the UN. China’s increasing presence in Africa is also impelled with the intention to expand China’s access to foreign markets, and to assist and develop existing PRC companies’ operations in Africa.
One of the core elements of the appeal of Chinese aid is the sheer competence and speed with which it can negotiate and execute its development programs as opposed to its centralized and bureaucratised western counterparts. An AidData study found that African countries that routinely vote in support of Chinese motions at the UN receive an average 86% more Chinese aid compared to countries that didn’t. In 2007, China offered Malawi investment and aid worth upwards of $6b across critical economic sectors.
However, the operations of private Chinese companies in Africa has recently raised national security concerns regarding Chinese state interference. In early 2018, Le Monde reported that the Chinese built African Union headquarters in Addis Ababa was targeted by Chinese hackers and bugged, eventually siphoning off large amounts of data to Beijing and then onto servers in Shanghai. Following this, in May, MTN, a popular wireless carrier that serves 220 million people across Africa and the Middle East, released a statement announcing an internal review of their operations given their “exposure to ZTE in our networks”.
Analysis of key findings
FINDING A:
In over half of Africa’s low-income countries most at risk of, or already in, severe debt stress, Chinese lending is small, representing less than 15% of their debt stock. Indeed, their debt problems are predominately caused by lenders other than China. Households in areas recipient to Chinese projects tend to stay in school longer, have higher educational attainment, and experience a reduction in child mortality, in this way China is similar to existing Western donors in ensuring positive developmental outcomes.
Finding B:
Since January 2017, China’s president and foreign minister made 19 trips to sub-Saharan African countries in contrast to sparse engagement by the US. In July 2018, high-ranking military officials from 50 African nations attended China’s two-week-long China-Africa Defence and Security Forum. While Western allies will routinely host counterparts, their duration is rarely as long. Much like similar arrangements such as Russia with and the CIS, such interactions may be viewed as a means to further elicit mutually beneficial cooperation, providing China with deeper influence in Africa and partner nations with greater access to Chinese developmental assistance.
Finding C
China’s present involvement in early railway modernization programs provides it with a first-mover advantage in setting the standards for railway operation, safety, control systems and engineering across in Djibouti, Kenya and Nigeria.
For example, China has financed the Djibouti portion of the Djibouti-Addis railway, two phases of the Standard Gauge Railway between Mombasa and Malaba and a US$850m railway connecting Abuja with Kaduna in Nigeria. Between 2013-2019, approximately $7.5 billion worth of rail-related construction contracts have been signed between China and Nigeria alone, comprising a series of lines that span the 1,300 km-long Lagos-Kano Railway Modernization Project. This not only indicates a significant involvement but also a more pervasive one as compared to France’s mere US$2.3b.
This disparity in Western involvement may give way to a divide in the African geo-economic landscape, with Western actors seeking to consolidate control over port access to compensate. Western nations will need to mobilize their comparative edge in the service sector, agribusiness, financial sector, and renewable energy to maintain influence in Africa.
Finding D:
Chinese state-owned telecommunication firms have been central to driving modernization efforts across several African states. In early 2018, Le Monde reported that the Chinese built African Union headquarters in Addis Ababa was targeted by Chinese hackers and bugged, eventually siphoning off large amounts of data to Beijing and then onto servers in Shanghai. Following this, in May, MTN, a popular wireless carrier that serves 220 million people across Africa and the Middle East, released a statement announcing an internal review of their operations given their “exposure to ZTE in our networks”.
Chinese firms such as ZTE and Huawei are the largest telecommunication companies in Nigeria. Their main attraction is their highly competitive prices. Huawei proclaims its prices are 5-15% lower than those of its main international competitors in Nigeria - Ericsson and Nokia. ZTE has declared its prices to be 30-50% lower than competing European telecom companies in the region.
In 2005, ZTE was awarded a contract with Nitel, Nigeria’s main telecommunications provider, to expand Nigeria’s CDMA wireless communications network across seven north-eastern states. ZTE was also awarded a contract to provide 13 000 CDMA handsets and terminals to Nitel. More recently, in 2010, ZTE was awarded a US$400m contract to construct Nigeria a national security communications system, financed through China’s Eximbank.
Moreover, Chinese companies are constructing an undersea cable from Pakistan to Kenya and Djibouti, with a terrestrial extension to Beijing, and another from Brazil to Cameroon.
Chinese penetration into Africa’s telecommunication market has provided China with significant leverage over the information flows across the continent. Chinese control over the flow and access to information allows China to set the agenda for data governance across Africa.
Such developments in conjunction with the dominance of Chinese E-Commerce positions Western firms and institutions at a disadvantage in penetrating African markets, securing the integrity and privacy of regional networks, and gaining access to SIGINT relevant to managing regional and internal security issues.
Country wise analysis of operations:
Nations to watch (In order of interest)
Angola:
According to the DSSI, Angola is China’s largest borrower in Africa, with over US$ 19 billion indebted to China. Indeed, Chinese debt accounts for 49% of Angola’s outstanding government debt, with debt service on Chinese loans estimated to account for 58% of all of Angola’s debt service this year. Angola’s goal of securing financial alternatives to prevent political conditionalities while meeting its desired level of development has provided opportune conditions for China to negotiate an oil for cash and infrastructure credit model.
Given Angola’s heavy continued dependence on oil and mineral deposits, the importance of the strategic relations with China becomes even more obvious. The financial aid received by Angolan authorities have predominantly been allocated towards the development of infrastructure such as mines and oil refineries throughout the country. Angola prioritizes projects and oversees project supervision, while the management of debt administration, the tendering processes, and eventual project implementation is outsourced to China. While Eximbank’s institutional structure within Angola is reasonably transparent, the conditionalities of such loans remain highly opaque with detailed information published on its website, the CIF (China International Fund) credit line conditionalities are very opaque. More broadly, the entire operational framework of the GRN (Gabinete de Reconstrução Nacional) is completely devoid of public oversight. There is a complete lack of information regarding how funds have been spent, how far proceedings have gone, with what actors, diminishing any semblance of accountability and monitoring.
Density map of maritime traffic near the coast of Angola
Chinese infrastructure projects transformed Angola’s competitive landscape. Chinese programs have contributed to increasing the mobility of goods and people within Angola, the reintegration of the Angolan economy, and expanded electric and fibre-optic connectivity across the country (p64, Aberg). China has facilitated the development of Angola’s domestic agriculture as Chinese infrastructure projects now provide access to rural markets, as well as catalysed Angola’s export potential for mineral resources (p64, Aberg). Chinese financial assistance to Angola is geographically extensive, and much-needed education and health facilities have also been established throughout the country.
While Angola’s oil-for-infrastructure arrangement may allow it to avoid typical problems of debt-servicing and overcome creditworthiness complications, as credit lines are reimbursed with oil. Accordingly, the structure of Angola’s current arrangement does not provide the country with any substantial liquidity.
Djibouti:
China has financed the Djibouti portion of the Djibouti-Addis railway, three port upgrade projects and a large water project. This has cumulated to China holding 57% of PPG the nation’s (Public and Publicly Guaranteed Debt) worth US$1.2b. Djibouti’s debt service this year to China accounts for 58% of the total due. Negotiations are currently taking place between China’s Eximbank and Djibouti concerning the restructuring of the remaining US$ 490m due for Djibouti’s section of the Addis-Djibouti railway. While the agreement has yet to be finalized, in 2019, an MOU was signed to extend the loans’ maturity by 10 years along with a reduction in interest from LIBOR + 300 bps to LIBOR + 210 bps.
The expansion of China’s financial (and by extension political) influence in Djibouti serves to expand both its commercial and Geo-Strategic reach. The nation’s position the Bab el Mandeb passage, which allows access to not only the Gulf and Indo-Pacific but also Western Europe (via the Suez Canal) provides the nation status as both a central node in inter-regional trade and as a decisive maritime choke-point
Density map of maritime traffic near in the Arabian and Red seas
Kenya:
Chinese loans to Kenya represent 27% of Kenya’s outstanding debt. Large-scale Chinese financed projects include US$5.1b for two phases of the Standard Gauge Railway between Mombasa and Malaba, US$867m for various geothermal wells at Olkaria, US$229m on the Karimenu Dam Water Supply Project, and US$156m on the Nairobi southern bypass highway. Commercial interest rates exist for some of the larger loans, such as parts of the Standard Gauge Railway. This meant debt service on Chinese loans was initially estimated to take up 38% of all Kenya’s debt service this year, however, this was not the case (p11, Brautigam, Huang, Acker).
Republic of the Congo:
Chinese loans to the ROC account for 45% of the country’s external debt, and this year, 43% of the ROC’s debt service. The loans were predominantly for new highways. China bankrolled US$1.8b into building National Route 1, linking Brazzaville with Pointe Noire on the coast, and US$537m for National Route 2. More recently, in 2019, Eximbank agreed to restructure US$ 1.6b of the ROC’s outstanding debt for loans signed between 2010 and 2014, extending their maturity by 15 years with reduced interest.
Overall Assessment of Regional Trends:
China has positioned itself in Africa to exploit specific gaps in the developmental landscape, to gain compressive control over key strategic assets such as critical infrastructure, information networks and diplomatic channels. This has been achieved through top-down oversight, that provides autonomy to recipient nations in exchange for the establishment of its economic and political influence. As a consequence, China may potentially move to expand and consolidate this position in the mid to long term. However, such developments continue to be in their early stages and thus may change as China’s strategic priorities evolve.