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China’s ‘Plan B’ for African debt

China has become Africa’s largest trade partner and has greatly expanded its economic ties to the continent. Photo by Cfr.org

In October, Sierra Leone cancelled a planned US$ 400 million Chinese-funded project for a new airport just outside the capital, Freetown according to a BBC report.

The project was agreed and former President Ernest Bai Koroma signed the loan agreement with China before he lost the election in March, this year.

Aviation minister, Kabineh Kallon said the project, which was due to have been completed in 2022, was not necessary arguing that Sierra Leone’s current international airport would be renovated instead.

In fact economists on the continent say African countries are increasingly getting trapped in debt due to the Chinese’s previous unwillingness to pay more attention to the types of projects they lend to.

“Most of this debt was acquired to invest in high cost infrastructure projects like the standard gauge railway, Ezra Munyambonera, head of the macroeconomics department at the Economic Policy Research Centre at Makerere University told The East African in September.

Mukunda does not appear optimistic about China’s new arrangement. He says countries that have borrowed money from China might have to worry more because the company buying this debt may not be as lenient as the Chinese government.

“These companies are like brokers; they might come and want to sell off some of these assets to the highest bidder.”

Goobi also doubts whether China will succeed with their debt to equity swap scheme. He notes that on a continent infamous for poor corporate governance and lack of competitiveness, private investors may not be as enthusiastic in buying this debt.

For Dr. Fred Muhumuza,a Makerere University based economist, China might be going in this direction because it still wants to maintain its strong political relations with Africa.

“Already China is struggling with the perception that it is deliberately miring African countries with debt; that it is lending to Africa with the intention of grabbing their resources,” Muhumuza told The Independent on Nov. 13.

“China feels it might not be able to enforce the loan repayment yet it still wants to maintain its diplomatic clout on the continent. They are getting concerned that the money they are lending might not be recouped as they had expected.”

Muhumuza told The Independent that the talk that infrastructure often leads to development is also recursive— that after you have developed—your development can help you upgrade your infrastructure.

“So you don’t begin with first class infrastructure, thinking that it will spur development, you begin with moderate infrastructure.”

“For us, we began with expensive first class superhighways but these are not bringing us the desired benefits. We could have chosen to begin with the old tarmac we used to do and we could have chosen to pave others with murram and as the economy improves, we upgrade.”

“But we also stole the money; the corruption aspect in these infrastructure projects cannot be ignored.

“The loans for these infrastructure projects have been way too expensive. We could have done most of these projects with a quarter or a third of the cost we borrowed from China,” Muhumuza said.

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