Be Wary of China’s Grandest Project

May 4 , 2019
By Eden Sahle

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Prime Minister Abiy Ahmed (PhD) visited China recently for the second Belt & Road Forum for International Cooperation. Even if Ethiopia has undergone a major change in leadership in high political offices, it was not at all surprising to see a chummy relationship between the two countries.

The Belt & Road Initiative, which would see China investing over a trillion dollars, encompasses infrastructure, energy and trade. It has enticed Ethiopia as it has European and Asian countries. It is also one of many projects unveiled by China to immerse itself in the international political economy.

Launched six years ago, the Initiative aims to solve infrastructure deficits and support sustainable development projects. Its potential impact has generated global attention due to its promise for economic growth and regional cooperation involving over four billion people living in Africa, Asia and Europe.

For Ethiopia, struggling to achieve external competitiveness due to, among other factors, lack of infrastructure, the Initiative seems a godsend. Around the world, since the Initiative came to be, China has supported thousands of projects related to the Initiative with over 100 billion dollars in outlays.

Undoubtedly, Chinese investment does have the potential to address Ethiopia’s infrastructure gap, but what needs caution is that this may lead to unsustainable debt.

Projects under the Initiative increase debt-to-GDP ratios for several countries, putting them at high debt risk, according to estimates by the Centre for Global Development. It recommended countries be vigilant to balance the need for these development projects with the exposure created by increased debt levels. As it stands now, East African countries have taken loans of over 29 billion dollars from China for infrastructure, energy and construction development projects, according to the Johns Hopkins University.

Currently, Ethiopia’s debt is estimated to be over half of annual gross domestic product (GDP). This is compounded by the fact that the economy is barely performing at the moment with exports declining and lacklustre performance in manufacturing. Analysts suggest that nations unable to compete economically would be more hurt by the Initiative than benefited.

Sri Lanka recently defaulted on more than a billion dollars of infrastructure development loans. It was forced to surrender a port to Chinese state-owned companies on a 99-year concession. Similarly, to pay off its debt, Pakistan gave a 40-year concession. Analysts speculate that Djibouti could be next on the chopping block, unless it clears up its massive debt to the Asian giant immediately.

This does not mean that Chinese investment or initiatives are bad. There is no doubt that under the right sort of management, countries, especially in Africa, stand to benefit from the Initiative when it comes to addressing infrastructure gaps.

Accountability on the side of leaders and transparency of the Initiative is vital for monitoring and evaluation. Deals must be done strictly on the basis of local demands, after strict evaluation on capacity to repay loans.

Most crucially, countries interested in China’s new Initiative should not consider it a shortcut. The alternative to Chinese handouts is securing billions of dollars in investment annually for decades to address infrastructure. None of the African countries is positioned to achieve this on their own. But it does not mean that countries such as Ethiopia should jump into deals without giving loans a careful thought. It should be understood that it is dangerous to jump into a whole slew of infrastructure investments without a definite clue on whether the current ones are performing optimally.

Managing to negotiate a better deal from the Initiative and implementing the African Union grand plan for infrastructural development can raise the funds needed to mitigate gaps, according to the African Development Bank (AfDB).

As it stands, the Initiative can benefit Ethiopia, but much of it depends on whether the Ethio-China business deal can be mutually beneficial. The challenge for Ethiopia is to prioritise its core strategies to effectively take advantage of the investment and loan benefits to segue into a sustainable development path.

China is in a position to gain much over projects related to the Initiative and expand its market dominance. At the same time, Ethiopia can guarantee national objectives and sustainable development goals are being met. Ethiopia must also ensure that institutional capacity is built and policies are tinkered with to create accountability and transparency.

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PUBLISHED ON May 04,2019 [ VOL 20 , NO 992]

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