Impact of Corona Virus on China-Africa relations

Impact of Corona Virus on China-Africa relations

Despite Chinese efforts to win over African countries by various measures including all out assistance during the COVID-19 pandemic, African nations remain wary of Chinese designs. 

 

On its part, China intentionally kept Africa high on its agenda amidst declining influence of Western countries.  The Chinese government, state-owned enterprises, entrepreneurs, philanthropists and individual citizens, all contributed towards different objectives in Africa.  China intensified its efforts to put its official narrative across Africa through active diplomatic campaigns and Information dissemination, highlighting its performance and solidarity with Africa while criticising western countries including US, for inept handling of pandemic.

 

Avoiding conventional channels, the Chinese shipments of humanitarian aid have been sent to Africa through coordinated efforts by diplomats, Chinese companies and the Diaspora, amid full media coverage.  China has also committed $ 80 million for the HQ building of Africa Centre for Disease Control and Prevention (Africa CDC) at Addis Ababa (Feb. 2020).

 

The Jack Ma Foundation (Alibaba Group) emerged as a most prominent donor of Chinese pandemic relief material, delivering the shipments via Addis Ababa, making Ethiopia a hub for relief distribution for rest of the African countries.  The Foundation also organised 11 online seminars for health professionals from nine African countries, within the frame work of the Global Medix Change for Combating COVID-19 (GMCC).

 

     Impact of Corona Virus on China-Africa relations

 

  • The pandemic has offered an opportunity to China to consolidate Health Silk Road by promoting health care services and infrastructure alongwith Traditional Chinese Medicine.

 

  • Countries like Egypt, Ghana, Ivory Coast, Kenya, Nigeria, South Africa, Uganda, Zambia and Zimbabwe have become a part of China’s Digital Silk Road, expressing allegiance to networks and systems provided by Huawei and ZTC, in spite of data theft and espionage allegations.

 

  • Amid calls for waiving debt and dwindling returns from projects in low income economies in Africa, China announced (China-Africa Summit, June, 2020) suspension of debt payment by the end of 2020, for 77 countries with almost half in Africa.

 

  • Algeria, Egypt, Mauritania and Senegal remained China’s trusted allies, giving Chinese mask diplomacy wide publicity and mass media coverage and received regular humanitarian aid and medical expertise from Chinese professionals during the crisis.

 

  • While Morocco remained cautious in its relationship with China, Niger authorities believe that close affinity with China may prove detrimental to their interests in other countries; as a result both received meagre aid and donations from China and Jack Ma Foundation.

 

  • The deliveries of medical supplies to Djibouti remained discreet, with Chinese military not involved in aid distribution. The Chinese mission remained most active in countries like Equatorial Guinea and facilitated medical aid amid mass media coverage.

 

  • Chinese mask diplomacy was evident in countries like Libya, grappling with political instability and security turmoil, where China provided medical aid with an aim to gain access to the infrastructure and oil sector in exchange.

 

  • Huawei and ZTE have consolidated their presence and have become the foundation of Africa’s telecom infrastructure. For African governments, getting a technology upgrade to 4G, with talks of 5G in the offing, seems to overshadow the security concerns however; China’s export of surveillance and control technology leaves African countries exposed to potential illicit collection of data by Chinese companies.

 

  • According to a report (released June 18, 2020) by the China Africa Research Initiative (CARI) at the Johns Hopkins University, Chinese banks, mainly the China Exim Bank and China Development Bank, committed loans worth US $ 152 billion to 49 African countries between 2000 and 2018. Chinese FDI in Africa rose from US $ 7.8 billion to US $ 46 billion during this period.  About 58 per cent of the Chinese investments or loans during the period 2005-2018 went for developing large scale infrastructure projects, particularly in the energy and transportation sectors.  Along with these loans, China has relied on preferential export agreements to make deep inroads into the continent.

 

  • Although, the Chinese President has promised African countries to write off all their interest-free loans this year, these loans are just a small part of the total loans committed by China. According to CARI, China has cancelled interest-free loans amount to US $ 3.4 billion only in Africa between 2000 and 2019 while overall loan commitment to Africa during this period stood at US $ 152 billion.  The zero interest loans come from China’s Ministry of Commerce as part of intergovernmental economic and technical cooperation agreements and average about US $ 10 million per loan.  The rest of the loans are advanced by China’s policy banks including China Exim Bank (US $ 86 billion) and China Development Bank (US $ 37 billion).  Several other commercial banks and more than 20 Chinese companies have also extended loans to African governments and companies.

 

  • The dependency of the African countries on China has increased in recent decades. According to McKinsey, between 2000 and 2014, the stock of Chinese investments as proportion to the total US investments in Africa increased from 2 per cent to 55 per cent.  The same study pointed out that about 1000 Chinese companies are operating in Nigeria and Zambia and other African countries.  Chinese companies handle about US $ 500 billion of the industrial output in Africa, constituting 12 per cent of the total industrial output of the continent.

 

  • China may adopt different tactics including debt relief to keep its image as an important development partner of the African countries and promote its BRI initiative. Political opposition to Chinese debt funded projects has already begun in some African countries and this may intensify further if the countries find debt servicing increasingly difficult due to the COVID pandemic.  

 

China-Nigeria

 

  • Even African nations have become critical of China. Following the forceful eviction, quarantine and testing for Coronavirus of Nigerian nationals in China, Nigeria’s Lower House of Parliament passed (Abuja, April 28) a Motion titled ‘Maltreatment and Institutional Acts of Racial Discrimination Against Nigerians Living in China by the Government of China’ condemning Chinese actions. The Motion also gives mandate to the various House Committees to ascertain the extent of violation of rights of Nigerians in China, probe the legal status of Chinese nationals / businesses in Nigeria and repatriate illegal / undocumented Chinese.

 

  • Despite being an oil producing country, Nigeria is increasingly sinking deeper into a debt trap. Its internal national debt was 12 trillion Nairas in 2015, which has doubled to over 27 trillion in 2020.  There are plans to borrow an additional 2 trillion Nairas from the pension funds.  In the last one year alone, the National Assembly has approved acquisition of loans worth $ 28 BILLION.

 

  • Most of the loans obtained for infrastructure projects are from Chinese Banks. Infrastructure loans by the Chinese are utilized by giving major contracts to Chinese Companies, which means that the funds are mostly repatriated to China and have minimal impact on the Nigerian economy.  In case of default on Chinese loans, there is a possibility of the Chinese takeover of the built facility.  For example, when Zambia defaulted repayment of its low interest loans, Lusaka Airport, Zambia State – owned TV and Radio station and ZESCO power station have been taken over by Chinese EXIM Bank.  They have taken over exclusive fishing rights in Somalia, Entebbe Airport in Uganda, Kenya’s largest port, power plants in South Africa and farming rights in five African countries.

 

  • There are rumblings in the opposition cadres and general public that this reckless borrowing by the government is not in National Interest because COVID-19 situation has further worsened the economic outlook and there is a very real possibility that the Government would default in loans repayment, resulting in takeover of assets by the Chinese, as has happen3ed in other parts of Africa. The Government would have to borrow more loans to repay previous loans, thereby falling into the debt trap.

 

  • Recently, Nigeria faced immense pressure for reviewing the China assisted projects. On May 12, 2020, Nigeria’s House of Representatives, resolved to set up a high powered committee to look into all extant China-Nigeria loan agreements since 2000 with a view to ascertain their viability and renegotiate or cancel the latest Chinese loans on the principle of force majeure.  

 

KENYA

Chinese Projects caught in Legal Hassles in Africa – Case of Kenya SGR Project

  • Of late, China is facing setbacks in Africa in terms of termination of contracts, public hostility as well as legal troubles. The most recent setback is in Kenya, where the country’s Court of Appeal ruled that $3.2 billion Standard Gauge Railway (SGR) contract between Kenya Railways and China Road and Bridge Corporation (CRBC) was illegal, as the former had violated the procurement rules.

 

  • The Law Society of Kenya had filed a case (2014) in the High Court in a bid to stop the SGR project, arguing that the project connecting Mombasa to Nairobi had not been subject to a competitive and transparent procurement process but a single tender process with only one Chinese company bidding, CBRC. EXIM Bank had financed for the line and it was completed in 2017. But it is not making any profit as the transporters are unwilling to use the train citing higher costs and the government unable to fulfil its contractual obligation to pay the management fee to the CRBC.

 

  • When Chinese President Xi Jinping hosted African leaders at China-Africa Summit (June 17), he singled out Kenya’s Standard Gauge Railway, a multibillion-dollar Chinese-funded Belt and Road Initiative project, for helping to move cargo during the coronavirus pandemic. Xi congratulated Kenya’s President Uhuru Kenyatta for ensuring the uninterrupted flow of cargo from the Port of Mombasa on the Kenyan coast into the East African hinterland via the Standard Gauge Railway (SGR), which first started operating in 2017. Kenya’s decision, he said, had helped keep trade flowing in the region despite freight restrictions required by Covid-19 containment measures. But the rail project has faced one setback after another, and the latest could have major implications on its future and any other projects that may follow.
  • Closer look at the loan document exposes Chinese intentions to get hold of Kenya’s strategic Mombasa port as well as other assets. The clause 5.5 of the Preferential Buyer Credit Loan Agreement on the Mombasa-Nairobi SGR. between CRBC and Kenya Railways reads that “Neither the borrower (Kenya) nor any of its assets is entitled to any right of immunity on the grounds of sovereignty or otherwise from arbitration, suit, execution or any other legal process with respect to its obligations under this Agreement.” The blanket reference to “any asset” exposed vulnerability of Kenya in case of default as Chinese can take over critical sources such as airports, natural key resources or even diplomatic missions abroad.
  • The clauses of the loan pact not just bar Kenyan government from sharing the details with people, but also asserts the agreement would be “governed by and construed in accordance with the laws of China”. And shockingly, Kenya has been made to sign that it would never dispute the choice of China International Economic and Trade Arbitration Commission (CIETAC) as an arbitrator and to accept its decision. So Quite possible that China will use this clause to supersede the verdict of Kenyan court. China’s bullying tactics stand exposed with such clauses that will trap the borrowing countries in debt trap.
  • Chinese had carried out own feasibility study secretly but there was no market study or financial modeling reports to indicate viability. The study also lacked an environmental and social assessment. The Kenya Railway had also raised concerns over the higher projected cost, which was endorsed by rail experts as well. However, Chinese were overly optimistic and managed to convince Kenya government to go ahead with the plan.
  • The second phase extends the first 385 km of track from Mombasa to Nairobi, which was completed in 2017 for a cost of $3.2 billion, again with Chinese funding. The 120 kms long Nairobi-Naivasha railway line is criticized as ‘railway line to nowhere’ that starts from the capital Nairobi and ends in Suswa in Maai Mahiu county, a region dominated by nomadic Maasai herders, who bring their cattle and sheep to graze here on the valley’s fertile floor. The entire railway track when completed will link the Kenyan port city of Mombasa with the Ugandan border.

 

  • Originally, a phase three was also planned. This would continue the SGR line from Naivasha through Kisumu, a port on Lake Victoria, onto the Ugandan border town of Malaba. This phase three section of the track is seen as critical because it would link Mombasa, East Africa’s biggest port, with the landlocked countries of Uganda, Rwanda and South Sudan – giving them a faster and more reliable route to Mombasa’s port than the overburdened roads. But in a blow to President Kenyatta, China announced in April last year that they wouldn’t bankroll the $3.7 billion railway extension from Naivasha to Uganda, presumably because the existing line has failed to turn profitable.
  • The contract to operate trains on the Mombasa- Nairobi railway line has been awarded to a Chinese company called Africa Star Railway Company by paying it a hefty sum. Founded in 2017, Africa Star Railway Operations Co., Ltd. is a subsidiary of CRBC. However, the details about the deal have been kept secret. China had claimed that the USD 3.8 billion Mombasa- Nairobi SGR would reach break-even point by 2020. But currently, even day-to-day costs cannot be covered. Kenya is supposed to repay the Chinese loan with the revenue generated through passenger tickets and freight charges. However, the railway line would make Ksh 10 billion against running costs of KSH 12 billion, as per Kenya National Bureau of Statistics (KNBS), thus increasing the taxpayers’ burden as well as plunging the country into massive debt.
  • Kenya’s parliament has repeatedly warned that the country is falling behind in its debt service payments for the SGR line. And they’re not Kenya’s only infrastructure loans from China. According to the Economist, the country has borrowed at least $9.8 billion between 2006 and 2017, making it Africa’s third-largest recipient of Chinese loans. Dues are also pending to the operator, Africa Star Railway Company. If timely payments are not made, the Chinese operator would pull out of the daily operations, passenger and cargo trains, thus aggravating financial burden further.
  • Kenya’s National Treasury is calling on the parliament to provide it with $940 million dollars for the latest installment to repay China for the SGR. The Treasury’s request prompted new appeals from MPs for urgent talks with the Chinese to renegotiate the terms of the SGR’s multibillion-dollar loans. Neither President Uhuru Kenyatta, his administration nor the Chinese embassy has commented on the request to restructure the SGR’s loan package
  • There have been doubts in minds of Kenyan people for long time that the country’s key strategic assets could be seized by China should there be default in repaying the loan taken for Mombasa-Nairobi Standard Gauge Railway (SGR), a part of China ambitious Belt Road Initiative (BRI). The railway line would offer China easy access to Central Africa through Mombasa, a strategically important port on the Indian Ocean as well as South Atlantic Ocean in the future. China is certainly interested in Mombasa port since almost all neighbouring countries depend on it for deliveries of goods and access to international markets.

 

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