The now former Secretary of State Tillerson’s talking points for his hastily-arranged trip to Africa last week accused China of fostering dependency, with “opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt,” hurting growth and local employment. Is China really a predatory lender in Africa?
It’s clear that Tillerson last trip as secretary of State to Africa was an attempt to try to repair relations with a continent that was outraged by President Trump’s foul language in discussing their countries. Pointing a finger at China is already deflecting attention from the Trump administration’s image problems. But are these accusations true?
{mosads}Our two research groups have been tracking Chinese loans globally and in Africa for the past decade. Predatory lenders use deception and fraud to entice borrowers to take out expensive loans they don’t really need and can’t afford. But, it seems that Chinese loans fund projects African borrowers really do need, and the loans generally have favorable terms.
In Sub-Saharan Africa, about 600 million people have no access to electricity. Between 2000 and 2017, nearly $35 billion of loans in the SAIS-CARI database and the GDP Center database financed power generation and transmission.
One power station producing 100 milliwatts (mW) of electricity can support 80,000 jobs in low-income countries according to some estimates. That’s a lot of employment.
Twenty years ago, only 12 percent of African roads had all-weather paving, while bridges, airports and railways were in disrepair, many in conflict-affected countries like Angola, Liberia and the Congo.
Not surprisingly, African governments have borrowed $30 billion from Chinese banks during this period to pay for transportation infrastructure. Chinese loans can sometimes be tied to Chinese construction companies, although they do employ African workers as well.
Low commodity prices for exports have created difficulties for some countries, like Zambia and Angola, in servicing loans from China. But were terms for these loans usurious? It doesn’t appear so. Loans from China’s two official policy banks made up 80 percent of the $ 97.5 billion lent by China.
Policy bank loans are lent at low, fixed interest rates — usually 2 percent — or at commercial rates (LIBOR plus a margin). In one big borrower, Angola, Chinese oil-secured loans for which we have terms were actually lower cost than similar oil-backed loans from Western bank syndicates.
The Trump administration would have a better argument if they were offering an alternative. There are legitimate concerns about the extent to which Chinese development finance in infrastructure and energy is lower-carbon and socially inclusive — and both of our groups are studying these aspects.
But the Western-backed banks such as the World Bank had all but abandoned infrastructure financing on a continent in desperate need of infrastructure.
In 2013, the Obama administration belatedly began to address Africa’s electricity shortages and access problems through its Power Africa program. Power Africa promises to be more socially inclusive, address access issues, finance off-grid energy and put a premium on green energy.
The program offers a mere $7 billion for energy on the continent, but has had trouble getting off the ground, and China has already invested five times the total amount earmarked.
The president has a chance to make his own mark in Africa, but now he has two strikes against him with his derogatory comments about the region and former Secretary of State Tillerson’s finger pointing at the only country willing to step up and address some of the continents most pressing needs.
President Trump would do better to put his money where his mouth is and offer a better alternative — scaling up Power Africa with better terms and better outcomes than those on offer. Until then, he should welcome the void the United States has abandoned.
Deborah Brautigam is the Bernard L. Schwartz professor of International Political Economy and director of the International Development Program (IDEV), and the China Africa Research Initiative (CARI) at Johns Hopkins University’s School of Advanced International Studies (SAIS). She is the author of “The Dragon’s Gift: The Real Story of China in Africa.” Her newest book, “Will Africa Feed China?,” was published in 2015 by Oxford University Press.
Kevin P. Gallagher is professor of global development policy at Boston University’s Pardee School of Global Studies where he directs the Global Development Policy Center. He is the co-author of “The Dragon in the Room: China and the Future of Latin American Industrialization” and “The China Triangle: Latin America’s China Boom and the Fate of the Washington Consensus.”