Global credit rating firm Moody’s has issued a warning to sub-Saharan Africa concerning the risk of losing strategic state assets to China.
China’s financial influence on Africa cannot be understated. In the last 18 years, China has pumped more than $124 billion into the continent. These funds, which arrive on African soil in the form of loan agreements, capital or large-scale infrastructure projects, have the propensity to enhance the growth of developing economies.
Naturally, embattled African nations see China as a strong economic and political ally. As such, bilateral relations between China and African countries have strengthened significantly over the last decade.
Yet, concerns regarding undue political influence and resource management have surfaced in the face of mounting liquidity pressure. The threat of African nations over-indebting themselves is very real. Moody’s warns that opaque financial terms attached to exorbitant Chinese loans have left sub-Saharan Africa at risk of losing assets and infrastructure.
Kenya struggling to repay China
While it’s undeniable that African countries benefit greatly from Chinese investments in the short term – problems arise when debt matures, inflates and eventually becomes unpayable. This leaves poor countries open to exploitation. China’s debt collection methods often threaten the sovereignty and stability of nations unable to repay what they owe. This, according to Moody’s, demonstrates the current crisis facing Kenya.
As reported by The East African, Moody’s cites Kenya’s enormous Chinese debt, emanating from the construction of the Standard Gauge Railway (SGR), undertaken by China Road and Bridge Corporation (CRBC) as cause for great concern. According to Kenya’s National Treasury, China is owed $5.4 billion – more than 70% of the African nation’s total bilateral debt.
It seems highly unlikely that Kenya will be able to repay its debt to China, which puts its strategic assets, resources and infrastructure at risk of being ‘seized’ during ‘debt relief’ negotiations. Moody’s explains that this conundrum extends to all African countries which have accepted China’s impervious financial support, saying:
“Countries rich in natural resources, like Angola, Zambia, and the Republic of the Congo, or with strategically important infrastructure, like ports or railways such as Kenya, are most vulnerable to the risk of losing control over important assets in negotiations with Chinese creditors.
Even if debt restructuring alleviates immediate liquidity pressure, the loss of natural resources revenue or other assets is credit negative.”
Funding from the World Bank linked to progressive objectives
Chinese funding is especially problematic because it comes with “relaxed conditions” – which is attractive to African nations. However, because these agreements do not emphasise structural reforms to enhance governance and competitiveness, indebted countries very seldom see long-term growth.
Financial assistance granted by the World Bank and European Union stresses compliance with objectives related to governance, socioeconomic development, and democratic principles. These stringent regulations are in place to ensure the practical advancement of developing nations.
While this, in itself, may be seen as undue political influence, the ethos behind objective based financial agreements seeks to enhance the lives of ordinary citizens while mitigating risk related to nepotism, corruption and elitism.
