You probably know that has been investing in a number of countries of strategical importance. There is a lot of African countries on the list. According to several observers, Chinese banks have given such countries over 77 billion euros since 2000.
Not so long ago, there was a documentary broadcast on the national TV. The documentary is about a railway line in Kenya built by China Road and Bridge Corporation. It praises Chinese engineers and tells the viewer that the Chinese government is ready to support African countries on their way to economic growth.
Back in 1975, China built the first railway line in Africa connecting Tanzania and Zambia. The construction cost was around 450 million euros. Those funds were given as an interest-free loan by China.
In 40 years, the construction investments increased, and the new line opened on May 31st, cost around 3.2 billion euros. The line happened to be 5 times as expensive as any European peer. The launch took place 4 months after the launch of a similar railway line in Ethiopia. It cost 4 billion euros, which is roughly 25% of Ethiopia’s national budget. Even on favorable terms, servicing this debt promises to be rather challenging for the African state.
As for the 77 billion euros of endless loans to African states since 2000, most of them are paid off by shipping various commodities, which keep on decreasing in price. Almost 100% of the crude oil produced by Angola is used to pay off the debt to China, which is around 20 billion dollars. At this point, the country’s currency reserve is nearly exhausted, which means the country is about to go bankrupt.
The IMF predicts 2,6% and 3,5% economic growth in Africa for 2017 and 2018 respectively. After economically disastrous year of 2016, some growth is expected in Nigeria and South Africa. However, the experts doubt that the growth will exceed 1%, and they are afraid of the possibility of higher inflation and national debt.
Chinese Finance Big-Scale Projects In Africa
The World Bank is concerned that the cost of the Chinese investments in Africa is too high. In Kenya, for example, China Exim Bank sponsored 90% of the construction of a new railway line, even without tenders. Another important thing to note is that China is Kenya’s biggest lender. It holds 50% of the country’s external debt. The local government believes that the new railway line will help them to increase the national GDB by 1,5% and pay off the entire debt to China within the next 4 years. However, some of the local experts think this is unreal since Kenya’s external debt has nearly tripled over the last 3 years. With that being said, the only way out for the government is to raise taxes since it’s pointless to expect economic growth in the near future.
At the same time, the countries of Central Africa have virtually found themselves swimming in cash as China is manipulating those investments. Rich African banks can demand to pay off the loans or ease them at any minute. South African economy, for example, is totally dependent on China. Other countries are Mozambique, Zambia, Angola and many others. As for Kenya, this country has a certain advantage since it’s a part of the so-called Chinese Silk Road, which is why the credit line for Kenya is literally unlimited.
The bottom line is that China has big plans when it comes to Africa. However, the Chinese government has stopped being the key component of the phenomenon. For African states, China is the key to opportunities. For them, it’s neither bad, nor good, some experts believe. For example, China makes up for 28% of the total investment in the African oil industry. Ethiopia and Kenya are the biggest winners when it comes to those financial opportunities.
