Debt Trap Politics: Assessment of Economic Aid in Africa

Chinese President Xi Jinping
Credit: Kremlin.ru, CC BY 4.0, via Wikimedia Commons

In international politics as well as in foreign policy, offering or receiving economic aid is not unheard of. Economic aid as a tool to project one’s power or exert one’s own sphere of influence in places of strategic significance has become an increasingly common phenomenon, despite the fact that this concept has been largely controversial with disparate and varying outcomes. Despite the lack of a common or mainstream consensus on the efficacy or outcome of such a phenomenon in both economics and international politics, a majority of economic research has suggested that the outcomes of foreign aid on overall growth are “inconclusive” or “statistically insignificant” (World Economic Forum). Notwithstanding the controversies, however, developmental aid to garner diplomatic influence has continued to be employed by countries aspiring to be regional and global leaders. Increasingly, the tussle for strategic and geopolitical supremacy to ensure one’s own interests in a seemingly anarchic international system has led to increased competition for influence between countries aspiring to be global leaders. With respect to countries such as China, whose foreign policy is considered by some of its neighbors as being expansionist in nature, economic aid has become a relatively common phenomenon when dealing with other countries. In fact, in many parts of the world, economic aid has even become a way of achieving the objectives of foreign policy. This phenomenon has been true especially pertaining to the African continent and is fast gaining attention.

The past few decades have been a testament to how the African continent has increasingly come to be associated with varied economic opportunities for external powers. Its abundance of natural resources (including, but not limited to oil, minerals and diamonds), combined with the potential human capital have made it an attractive market for foreign powers. As the largest free trade area in the world, comprising of 54 countries and approximately 1.2 billion people, foreign interest in the African market has witnessed a substantially rise over the past few years. Additionally, several of the world’s fastest growing economies being African countries has only made it more prominent on the global scale. A 2019 article on World Economic Forum by Professor Landry Signe and Ameenah Gurib-Fakim, former President of Mauritius, highlighted that six of the world’s ten fastest growing economies are in Africa. Africa is also said to be growing at an increasingly fast pace, with countries like Ghana leading the way. In particular, the Sub-Saharan African region itself has around a billion people. Almost 50 percent of them would be below the age of 25 by 2050 (World Bank). However, the natural resources and human capital by itself has not been enough to pull the continent out of poverty. Economic aid, in this context, focuses on infrastructure and large-scale development.

International economic powerhouses, including Asian economies such as China, have been able to significantly tap into this economic opportunity, which has proved beneficial towards achieving their political and economic ambitions. Chinese economic involvement in Africa has been considerable across almost the entire continent, but has not been without its share of criticism wherein a section of scholars and policymakers have called it the “debt trap diplomacy” in which developing or underdeveloped countries are lured by big loans, usually for infrastructure projects that require sizeable manpower and money. Some researchers have attributed China’s economic relations with Africa as a new form of colonialism rooted in debt trap diplomacy which secures the end goal of acquiring strategically key assets of various low income or middle-income countries after they are unable to pay back the debt, while others such as Do Quynh Anh attribute it to historical ties borne out of a “common past” in the form of anti-colonial and anti-imperial struggles. Additionally, according to analysts such as Ted Bauman, the ultimate goal of Chinese loans in not merely economic; it also carries forward Beijing’s geopolitical ambitions. While the US has time and again given out warnings against Chinese borrowings in various global forums, Chinese investments in Africa have continued to grow at a rapid pace, one that no other country has been able to match.

Even though many countries of the world have been involved in providing developmental aid to Africa in various forms, the methods, approaches and patterns of aid have differed significantly. India, especially in the past few years has looked towards the African continent and the Western Indian Ocean region as a strategic priority, more so to challenge the diplomatic, economic and strategic influence that China exerts in the region. Although India has managed to retain its historical relations with various African countries even today, China continues to be Africa’s largest trading partner, exerting widespread political influence in the region. The Chinese model of overseas economic involvement, especially when it comes to Africa, is said to be unlike that of most other countries, mostly due to the volume of engagement and the sheer amount of loans and investments. As per data collected by the China Africa Research Initiative (CARI) of Johns Hopkins University in the United States, Chinese loans to Africa could be estimated to be approximately $143 billion in the period between 2000 to 2017, while the China-Africa trade was valued at approximately $185 billion, which increased from $155 billion in 2017. Chinese foreign direct investment (FDI) to Africa has also been steadily increasing over the past few years with the top five destinations for Chinese FDI being South Africa, Democratic Republic of Congo, Mozambique, Zambia and Ethiopia (CARI). According to data from CARI, Chinese loan finance is not homogenous. Although some loans have been termed as “official development aid”, other loans are in the form of export credits, suppliers’ credits etc.

Such data definitively suggests that Chinese economic engagement in Africa is enormous. Even so, critics of the Chinese model of economic diplomacy have raised concerns about the methods employed in such instances. As was the case in Sri Lanka regarding the Hambantota Port, which was leased out to China in the latter half of 2017 due to a continuing balance of payment crisis, there have been persistent questions about whether the Chinese model in Africa employs a debt trap strategy or not. Critics have pointed out that Beijing gives hefty loans for infrastructure projects that are highly ambitious, sometimes too ambitious to come to fruition keeping in mind the capacity of the host country to repay the loans on time. In Kenya recently, concerns were raised about supposed Chinese plans to take over one of its seaports that is considered to be of strategic significance due to a failure on the part of the African country to clear its debts. Experts such as Muhammed Tandogan have indicated that China’s economic involvement in African countries in the form of loans has caused not only “problems of economic sovereignty but also of political sovereignty.” According to Tandogan, Kenya is not the only country that is debt-ridden. Other African countries which owe significant amounts of debt to China include Madagascar and Djibouti. However, according to the US based Rhodium Group’s research, Beijing rarely occupies the assets of defaulting countries.

The COVID-19 pandemic situation and the economic downward spiral that resulted due to it, led the World Bank and International Monetary Fund (IMF) to urge all bilateral creditors such as China to provide debt relief to all low-income creditors as soon as possible. Africa makes up a majority of China’s low-income borrowers, with China accounting for approximately 17 percent of African debt, according to data from the World Bank. However, whether China will comply with suggestions of the Bretton Woods institutions, especially when it comes to Africa, is still not clear.

This has resulted in other countries of the world, including India, scaling up its efforts to provide nontraditional aid also, such as that in disaster relief situations along with traditional trade and investment in order to compete with China. Even so, the chorus of “debt trap diplomacy” when it comes to Chinese loans has remained a staunch criticism of Beijing’s model of overseas economic involvement in terms of giving out loans and investments in infrastructure projects. Whether the debt actually functions as an instrument to ‘trap’ remains a question in academic exercise.

Nitish Joshi & Mahananda Ray are M.A. students at the School of International Studies, Jawaharlal Nehru University. The views and opinions expressed in this article are those of the authors.