Thursday, June 13, 2019

Ethiopia is struggling to manage debt for its Chinese-built railways

This post by SAIS PhD Candidate and CARI Research Assistant Yunnan CHEN is an excerpt of a piece originally published in Quartz Africa: read the full article here.

Photo credit: Yunnan CHEN
In the wake of the Belt and Road Initiative (BRI) Forum in Beijing last month, Ethiopia gained another Chinese debt-concession. China’s second-largest African borrower and prominent BRI partner in infrastructure finance also received a cancellation on all interest-free loans up to the end of 2018. This was on top of previous renegotiated extensions of major commercial railway loans agreed earlier in 2018.

These concessions highlight the continuing debt-struggles that governments have in taking on Chinese large infrastructure projects. But they also demonstrate the advantages and flexibility, that African governments can gain in working with China—if they can leverage it.

Ethiopia’s railway projects have been an instructive case of both the benefits and pitfalls of Chinese finance. It has been over a year since the Chinese-built and financed Addis-Djibouti standard gauge railway (SGR) opened to commercial service in January 2018. A flagship project of China’s Belt and Road Initiative in the Horn of Africa, and constructed in parallel with Kenya’s showy Chinese-built SGR, the project was Ethiopia’s first railway since a century ago (another urban-rail project, the Addis light-rail transit (LRT) was completed earlier in 2015), as well as being the first fully-electrified line in Africa.

Costing nearly $4.5 billion, the SGR was partly financed through $2.5 billion in commercial loans from China Eximbank, according to figures from SAIS-CARI, with further loan packages dedicated to transmission lines and the procurement of rolling stock and locomotives. Part of China’s wider ‘export-supply chain’ strategy, the railway uses a package of Chinese trains, Chinese construction companies, Chinese standards and specifications—and is currently operated under a six-year contract by a joint venture of the two Chinese contractors, CREC and CCECC, who built it.

As part of a wider nine-line railway network plan under the Ethiopian Railway Corporation (ERC), the line cuts travel time from the capital Addis Ababa to Djibouti from two days by road to 12 hours.
On an economic front, however, actual uptake of the railway by the industrial zones it was intended to serve remains low—even after a year, the vast majority of the railway’s freight cargo is made up of imports, not exports. Integration with export and industrial zones is low, as the main trunk line does not connect to individual industrial zones, creating significant last-mile shipping and logistics for firms, particularly at port connections. Most exporters continue to use road transport, despite the higher time and financial cost, due to its greater flexibility and reliability compared to the train’s twice-daily schedule.

This is a major problem for the railway’s economic prospects. Few passenger-based rail systems in the world are profitable; in developing countries, most railways connect to mines: one of the few bulk goods that can generate returns for such capital-intensive transport.

China also bears these costs. State insurer Sinosure publicly commented on $1 billion in losses written off for the project, and Eximbank has halted previously-discussed funding for the country’s second line, the section from Weldiya to Mekele. Though contracted to another Chinese SOE, CCCC, Ethiopia faces little prospect of further loan finance from China, until the first railway can show demonstrable success.

Further financial challenges afflict the projects, along with Ethiopia’s growing debt burden. A long-term foreign exchange shortage, worsened by poor export performance, has challenged Ethiopia’s ability to repay many of the loans that financed these projects. Repayments on the principal for the Chinese railway loan began in 2017, before the line was even operational. As of the beginning of 2019, the ERC was not only behind in its loan repayments to China, but also unable to front the remainder of the management fees for the Chinese companies operating the railway.

In late 2018, Ethiopia negotiated with Beijing to restructure of the Eximbank loan terms, extending the repayment period from 15 to 30 years.

In this, China’s deep and strategically-tied pocketbook has been a big advantage, allowing Ethiopia to juggle its external obligations and leverage Chinese flexibility where it can. Ethiopia’s renegotiation and rollover of debt indicates that this BRI project is unlikely to have a Hambantota-esque Chinese takeover. But both sides have been burned: while the strategic discourse of the Belt and Road mean that the SGR will not be abandoned, both lender and borrower now show greater caution in the infrastructure they pour money into.

Wednesday, April 24, 2019

Neither Tightening Nor Loosening the Belt: Chinese Lending to African BRI Signatories

Author: Jordan Link, Research Manager at SAIS China-Africa Research Initiative
As representatives from more than 100 countries assemble this week in Beijing for the second Belt and Road Cooperation Forum, questions remain as the Belt and Road Initiative (BRI) nears its sixth year of existence.  Is the BRI a top-down plot for building China’s  road to global dominance? Or is it simply a means to “promote world peace and development” as offered by Chinese President Xi Jinping?
The BRI’s amorphous definition has complicated the issue – with projects ranging from port development and hydropower plants to facial recognition technology and a “Polar Silk Road,” Xi’s vision has simultaneously become omniscient and blurry.  If the BRI can encapsulate so many disparate projects, does the label matter?
Rather than getting bogged down in this debate, it can be helpful to think of the BRI as a new policy environment that encourages Chinese policy banks, firms, and contractors to engage with developing countries with more impetus than before.  While there certainly is a security dimension to this engagement, it is important to establish a strong understanding of how the BRI actually incentivizes Chinese entities abroad.
To that end, how successful has Xi Jinping been in creating a BRI-inspired policy environment that encourages Chinese international economic engagement?  Analyzing Chinese loans to Africa provides rich data on the subject.
Since the BRI’s announcement in 2013, 37 African countries have signed BRI Memorandums of Understanding (谅解备忘录).  Of them, 28 were signed during the 2018 Forum on China-Africa Cooperation (FOCAC).


Tuesday, April 9, 2019

Chinese Lending to Africa for Military and Domestic Security Purposes

This blog post by SAIS-CARI's Research Manager Jordan Link is the first in a series that will explore security and military matters as they relate to China/Africa issues, a theme also being explored by our 2019 CARI Fellows.

China’s engagement with the African continent has until recently been interpreted primarily through an economic lens. However, China-Africa military ties are also deepening and becoming more complex. China’s first international military base opened in 2017 in Djibouti. The first China-Africa Defense and Security Forum was held in June of 2018 as representatives of 50 different African countries and the African Union met in Beijing to discuss defense and security cooperation efforts. Against this background, what role does Chinese lending play as the China-Africa security relationship evolves?

For purposes of this post, we have separated our data into “military,” “domestic security,” and “dual use” borrowing.

Between 2003 and 2017, China has loaned USD 2.53 billion to 8 African countries explicitly for military and national defense purposes. An additional USD 1.36 billion was loaned for African policing and law and order purposes, while USD 67 million was lent for dual-use purposes. In sum, African countries signed USD 3.56 billion for military, domestic security, and dual use purposes. Over this same time period, China lent African countries a total of USD 147.77 billion. Therefore, lending for explicit defense and/or domestic security purposes has accounted for just over 2% of all Chinese loans to Africa.

The data used in this report is drawn from the loans database curated by the China-Africa Research Initiative at Johns Hopkins University. Only signed, implemented, and completed loans were used for the analysis – all unconfirmed loans were excluded. While the CARI database includes all loan data from 2000, we found no loans specifically for defense and/or domestic security purposes from before 2003.




A loan with defense and/or domestic security purposes includes the following types of projects: aircraft procurement, the construction of military facilities, national security telecoms, patrol ships, CCTV systems and military/security wares. We have no loans in our system specifically for the purchase of arms. In keeping with China’s comparative advantage in African construction projects, African governments borrowed over one billion dollars for the construction of defense and/or security facilities such as barracks. The second largest amount of money went to national security telecoms networks.  Third was the procurement of aircrafts.





We exclude projects such the construction of government buildings outside of the military, broadband networks, or other telecommunications systems. While there are potential defense and security implications for these types of projects, this analysis only includes loans that finance projects signed by the country’s ministry of defense (or equivalent) for explicit defense and/or domestic security purposes.

The USD 3.56 billion amount is distributed through 35 different loans. Zambia stands out, with both the largest number of loans (8) and the highest military and/or domestic security-related borrowing (USD 1.42 billion). The Republic of the Congo (ROC) and Ghana each borrowed six times for military and/or domestic security purposes. The ROC borrowed a relatively small total at USD 147 million. Cameroon signed loans totaling USD 414 million, Nigeria borrowed USD 400 million, and Ghana borrowed USD 357 million.

The Chinese Eximbank was the top lender, supplying more than 2 billion dollars worth of loans to African countries. This is not surprising as the Chinese Eximbank has lent more money to African countries since 2000 than any other lending source. The second largest source of defense and/or domestic security lending, at USD 440 million, was China National Aero-Technology Import & Export Corporation (CATIC), a Chinese state-owned defense company that imports and exports aviation products and technology. The third highest amount – USD 364 million – was lent by Poly Technologies, a Chinese SOE that imports and exports defense equipment. 

Facilities

The ROC, Ghana, Namibia, Tanzania, Zambia, and Zimbabwe all have signed loans for facilities with defense and/or domestic security purposes. For example, nearly all of the loans that fall under this category were for the construction of barracks or housing units for military and security personnel. Zimbabwe has borrowed USD 107 million to build a National Defense College. Zambia borrowed USD 640 million, the highest dollar amount across the Continent. 

Aircrafts and the Dual-Use Conundrum

China has provided several loans for the purchase of aircrafts. Aircraft loans present the tricky issue of dual-use technology and equipment. It is difficult to ascertain whether the African countries listed are using these aircraft explicitly for defense and/or domestic security purposes. For example, the MA60 plane is generally used for commercial cargo and passenger flights. However, MA60s have also been used by China for maritime surveillance. These planes can also be used to transport military cargo or personnel. 

We checked whether the MA60 aircraft financed by Chinese loans were later used by the national airline or by the national air force. Zambia’s total includes a USD 56 million loan for two MA60 airliners and twelve Y-12 cargo planes. According to SAIS-CARI research, both the Chinese Ambassador to Zambia and Zambia’s Secretary of Defense were present as witnesses to the loan signing. This implies that the procured aircrafts were for defense and/or domestic security purposes. 

In other countries, the national airlines have been flying the MA60 planes. Three other African countries, the ROC, Cameroon, and Zimbabwe have signed loans for MA60 cargo planes that appear to be associated with commercial airline operators.

National Security Telecoms

Ghana, Nigeria, Sierra Leone, Senegal, Uganda, and Zambia have signed loans for the creation of national security communication systems. Of the seven loans, six are confirmed to be using ZTE as the contractor to carry out these projects. The one exception was a loan to Uganda, which was put towards acquiring a TETRA Communications System. This system was reported to be used by the police, army, and intelligence agencies in Uganda. Nigeria signed loans worth the most in this category, at nearly USD 400 million.

Patrol ships

Cameroon and Ghana both signed loans to procure patrol ships. In 2008, Ghana signed a loan to acquire two patrol vessels worth almost USD 40 million. Cameroon signed a loan in 2012 for two patrol vessels worth USD 330 million.

Loans for policing: Countering smuggling, improving law and order, and anti-terrorism

In 2003, Mauritius signed a loan for a CCTV Surveillance System and airport X-Ray scanning equipment worth USD two million. Details of the loan did not specify the amount that went towards either the surveillance system or the scanning equipment. In 2016, Côte d’Ivoire signed a USD 53 million loan for the Abidjan Video Surveillance Platform. This platform aimed to reduce crime levels by placing video cameras on dangerous streets and crowded public areas. Cameroon signed a USD 84 million loan in 2017 for an urban video surveillance system.

Ghana, Sudan, and Zambia signed loans for the procurement of military and/or domestic security wares. Ghana signed two loans in 2008 for equipment for its own armed forces and peacekeeping operations for a total of USD 160 million. Sudan signed a loan worth USD 106 million in 2003 for unspecified military equipment. In 2016, Zambia signed a USD164 million loan for equipment for its domestic police force, the Department of Immigration, the Drug Enforcement Commission, and prisons. 

Year-by-Year and Looking Forward

Looking at the total dollar amount lent per year, there were large jumps in both 2010 and 2016. In 2010, Nigeria signed a USD 400 million loan for its police force’s national public communication system. Zambia also signed two loans in 2010: a USD 365.5 million loan for residential housing units for its Air Force and a USD 105 million loan for Z-9 helicopters. Zambia was also a major player in 2016, signing the following loans: a USD 275 million for police and security force housing, a USD 179 million loan for its public security network, and a USD 164 million loan for security equipment. 

China’s lending to Africa for defense and/or domestic security purposes fits the tenor of its Second Africa Policy paper, an official government white paper published in 2015 that outlines China’s foreign policy strategy in Africa.

Namely, the paper states “[China] will support the efforts by African countries…to build capabilities in safeguarding peace and stability in Africa. [China] will continue to help African countries enhance their capacity building in national defense and peacekeeping to safeguard their own security and regional peace.” 

Moving forward, it is reasonable to expect security ties between China and African countries to grow. The Belt and Road Initiative, marshaled by CCP General Secretary Xi Jinping, is likely to make inroads across the continent due to local infrastructure needs. As such, Chinese economic and strategic interests will continue to coalesce. Chinese lending to African countries since 2003 for explicit defense and/or domestic security purposes has accounted for just over 2% of all Chinese loans to Africa. At present, this total does not seem to be growing. The construction of military facilities such as barracks and housing units is so far the major focus of military-related loans in Africa as China continues to play towards its comparative advantage in infrastructure.

Wednesday, December 19, 2018

CARI Revisits China, Djibouti, and the New York Times: How Much Debt?

We are reposting our analysis of Djibouti's debt to China, in view of the launch of the Trump administration's new Africa strategy last week.

Once again, the administration described Chinese lending as predatory: "the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands." No evidence was provided for this characterization of Chinese lending.

As with the administration's overblown estimates of Chinese lending in Djibouti (discussed below), we urge reporters to do their own reporting on China-Africa debt issues, and not to simply report the administration's "facts" at face value.

Our post from 2017 follows:

The New York Times had a front page article on China and Djibouti this past weekend: "U.S. Wary of its New Neighbor in Djibouti -- a Chinese Naval Base." Like many observers, the NYT seems to have been misled about the scale of Chinese engagement, and Chinese lending to Djibouti in particular. Here's what they said:
Beyond surveillance concerns, United States officials, citing the billions of dollars in Chinese loans to Djibouti’s heavily indebted government, wonder about the long-term durability of an alliance that has served Washington well in its global fight against Islamic extremism.
Here at the China Africa Research Initiative we specialize in tracking and confirming Chinese loans in Africa. We have not been contacted by the US government, and we wonder where they are getting their "data"? In this instance, we were able to interview top ranking officials in Djibouti's Ministry of Finance to confirm Chinese loan financing.

Signed Loans/Debts Owed by Djibouti to Chinese Government (past decade). All in US$

1. Goubet/Ghoubet Salt Port Expansion:                                    64 million
2. Addis-Djibouti Railway (Djibouti share):                             492 million
3. Djibouti-Ethiopia Water Pipeline:                                         322 million
4. Doraleh Container Terminal/Multipurpose
Port Expansion (the endpoint of the Ethiopia-Djibouti Railway)
and Damerjog Livestock Export Port:                                        405 million

TOTAL                                                                                      $1283 million, or $1.3 billion

We also have a confirmed report of $596 million in Chinese finance for two new airports, but this appears to be either a Chinese company suppliers' credit or a public-private partnership investment, not a Chinese government loan. However, even if we add this, the total comes to $1.9 billion. While several other projects--most prominently a toll road highway to the border--have been in the news, we confirmed that they are all still under discussion. Yes, $1.3 billion or even $1.9 billion is a large figure, but it seems inaccurate to call it "billions of dollars in Chinese loans".

Undue alarmism? Another case of "alternative facts"? More reason to support an increase of $58 billion in the US defense budget? From what we can see, China's main rival in Djibouti has not been the US, but Dubai Ports World, which had a number of public-private partnership (PPP) port contracts in Djibouti, and had also arranged financing to build and operate ports in this important gateway to land-locked Ethiopia, one of Africa's most populous and dynamic countries.

As always, if someone has better information, please comment here or contact us directly at SAIS-CARI at Johns Hopkins University.

Friday, December 14, 2018

CARI Update: "Angolan Ghost Town Wakes Up"

Kilamba: credit Voice of America
Time for an update? Over the holidays CARI will be re-posting some of the most-visited stories from our blog: China in Africa: The Real Story. Below is our April 2, 2014 "real story" about Angola's Chinese-built Kilamba Kiaxi, or Kilamba New City.

Kilamba is an enormous Chinese-financed satellite city that is, surprisingly still today being derided as an example of a Chinese-built "ghost city".  

Several excellent field research-based studies by the intrepid team of David Benazeraf and Ana Alves, as well as Chloé Buire, Anne Pitcher, and others have debunked this myth, providing ample evidence that Kilamba was slow to take off but can hardly be called empty.  By the time of her fieldwork in 2015, as Dr. Buire notes, there were 80,000 people living in the apartments of Kilamba, a mid-sized city had materialized on less than a thousand hectares. Today, it has become a popular spot for AirBnB rentals. And Phase II of the project appears to have been funded.

So when you hear the one about the Chinese "ghost town" in Angola on the VOA, the BBC, or CNN: think again. What's the real story?

The original 2014 post follows:

Anyone who has been to Luanda knows that the city lacks housing. The hotels are extremely expensive, and researchers have been known to rent a room in someone's house for $100 a day. Angolan president Jose dos Santos pledged to build a million new homes, between 2008 and 2012. Kilamba City was part of that promise. The idea of constructing a new town, Kilamba City, 20 km outside Luanda, where flats would be available for purchase, seemed like a good one.

A Frenchman, Pierre Falcon, the famous architect of the "Angola-gate" arms trade and corruption scandal, owns the company that oversaw the project: Pierson Capital GroupThe complex was financed by ICBC, Industrial and Commercial Bank of China, allegedly backed by oil-revenues. CITIC built the flats. The state-owned oil Angola was in charge of marketing the apartments (they would use those revenues to repay the loan). Chinese firms built Kilamba. And then the apartments seemed to stand empty. Visiting Western journalists photographed the long, lonely expanses of buildings. Kilamba City was filled, it seemed, by ghosts.

Until recently. Or so it seems. According to the official Angolan news agency, some 40,000 people moved into Kilamba after their families took advantage of long-term, low-cost mortgages to buy flats with prices ranging from US$70,000 to US$140,000. One account said people are standing in line for days to buy one (photo left).

The news stories on Kilamba, the "ghost town" mainly date from 2012. If it is actually now becoming a thriving town, why hasn't anyone gone back to report on it?

Readers: have you seen Kilamba? Your comments and stories are very welcome. 

Update May 6, 2014: New SAIIA analysis exactly on this topic, by David Benazeraf and Ana Alves, "Oil for Housing: Chinese-Built New Towns in Angola." Highly recommended. 

To visit the original post and the 21 comments, click here.

Monday, September 3, 2018

China's FOCAC Financial Package for Africa 2018: Four Facts

We finally have the long-awaited 2018 Chinese financial pledges in support of FOCAC (Forum on China-Africa cooperation). Although Chinese president Xi Jinping spun the numbers to come to $60 billion (the same as the 2015 pledges in Johannesburg), the Chinese state only seems to be putting $50 billion of its own money at stake, while encouraging Chinese companies to contribute the rest through their own investment projects.
China pledged:

  • US$20 billion in new credit lines
  • US$15 billion in foreign aid: grants, interest-free loans and concessional loans. 
  • US$10 billion for a special fund for development financing  
  • US$5 billion for a special fund for financing imports from Africa.
(These two latter funds are unlikely to be loan-based but details have yet to be released.)

Here is my quick analysis in "four facts".

1. The total Chinese pledge of grants and loans (including commercial rate loans and export credits) has declined from $40 billion in 2015 to $35 billion in 2018

The first pledge of Chinese interest-bearing loans was in 2009 (US$5 billion). In 2009, the loan pledge doubled to US$10 billion, and in 2012 it was US$20 billion. At Johannesburg in 2012, the Chinese pledged a full US$35 billion in interest-bearing loans of various kinds, and another $5 billion in grants and interest-free loans ($40 billion in total). Now at this Beijing summit, we are back down to $20 billion in what look to be more commercial credit lines and export credits, while the concessional loans have been folded into the rest of the foreign aid instruments: the $15 billion.

2. Which makes this is a more concessional package than that offered in 2015. Why? Because China's foreign aid pledge (grants, interest-free loans, and concessional loans) has jumped to $15 billion. This means that China is providing official, concessional assistance to Africa of $5 billion per year, the highest level ever. These resources are likely all to be administered by China's new International Cooperation and Development Agency.

3. China still doesn't challenge the US position as Africa's largest donor. The US disbursed $12 billion just to Sub-Saharan Africa in 2017, and $250 million to North Africa (Chinese figures include both as "Africa". (This could change under the Trump administration's budget cuts.)

4. Debt relief policies have not changed but a lot of Africans won't realize this. Debt relief is (as always) limited to interest-free Chinese government loans maturing at the end of the year. These foreign aid loans are a long-standing and relatively modest part of Chinese finance in Africa.

Since 2006, African overdue interest-free loans from China have been regularly cancelled -- but not everywhere. These are a relatively small part of Chinese lending. In 2018 these debt relief programs are again, as usual, limited to the "least developed countries, heavily indebted and poor countries, landlocked developing countries and small island developing countries that have diplomatic relations with China." 

Monday, August 20, 2018

Beijing's FOCAC Commitments: A "Real Story" Primer


As Beijing gets ready to welcome dozens of African leaders to the Beijing Summit of the Forum on China Africa Cooperation (FOCAC 2018) in September, many will be wondering whether or not China has lived up to the 2015 FOCAC commitments made in Johannesburg.  FOCAC pledges have happened every 3 years since 2000 and I have been analyzing them since 2006. As we prepare for analysis of this new round, this "Real Story" FOCAC Primer should help.


I. The FOCAC cooperation plans are usually funded by different, specific instruments, and different Chinese financiers. The $60 bn pledged at the FOCAC in Johannesburg in 2015 was not all "official foreign aid" and it was not all "loans."

Let's look at the exact language in Xi Jinping's 2015 speech at the Johannesburg FOCAC Summit:
To ensure the successful implementation of these ten cooperation plans, China decides to provide a total of US$60 billion of funding support. It includes US$5 billion of grant and zero-interest loans; US$35 billion of loans of concessional nature on more favorable terms and export credit line; an increase of US$5 billion to the China-Africa Development Fund and the Special Loan for the Development of African SMEs respectively; and the China-Africa Fund for Production Capacity Cooperation with an initial contribution of US$10 billion.
To elaborate:
  • China Development Bank (commercial)
    • responsible for $5 bn for the CAD-Fund: this is equity investment. This pledge represents only an increase in the fund. It is not guaranteed to be disbursed over 3 years (see point 4 below). 
    • also responsible for the increase of $5 bn for the "Special Loans for the Development of African SMEs". Disbursed over time, probably more than 3 years.
  • Ministry of Finance/Ministry of Commerce (concessional)
    • $5 bn for grants and zero-interest loans. These are administered directly by the Ministry of Commerce. They should all be disbursed by now.
  • China Eximbank (mixed)
    • $35 bn of concessional foreign aid loans and preferential export credits AND export credit lines. Concessional loans and preferential export credits are only provided by China Eximbank. The inclusion of "export credit line" was new for FOCAC pledges.  This could signal commercial rate lines of credit (which China Eximbank also provides) or it could mean the inclusion of China Development Bank. All should be disbursed by now.
    • $10 bn for the China-Africa Fund for Production Capacity Cooperation. This is also an investment fund and is administered by China Eximbank and SAFE (the State Administration of Foreign Exchange, in charge of China's foreign reserves). Disbursed over time.

II. Why would it be a mistake to assume that all Chinese loans to Africa are part of the FOCAC pledges?

At the China-Africa Research Initiative (CARI) at SAIS, we track all Chinese loans in Africa. The two policy banks -- China Eximbank and China Development Bank provide most of them. But we now see China's commercial banks --- ICBC, Bank of China, etc. -- making commercial loans in Africa.

Our CARI database suggests that in the past, only China Eximbank's preferential and concessional loans were included as part of FOCAC's general pledges. For example, our CARI database loan totals for 2013-2015, the last FOCAC period, come to over $42.5 bn -- including suppliers credits, ICBC, CDB, etc. But the FOCAC pledge for that period was only $20 bn. So only about half of that would be specific to FOCAC and reflect the fulfillment of Chinese pledges.

Indeed, a quick look at the loans by lender shows that during that period, China Eximbank committed or disbursed $26.4 bn out of that total. They are the main player for China's loans in FOCAC. Given China Development Bank's more commercial orientation, this is almost certainly going to continue.


III. Some FOCAC commitments are open-ended in time frame and will roll out over more than 3 years.

As one Chinese diplomat told me in 2015, implementing these pledges will go "most likely beyond 3 years or even longer."

For example, at the 2006 FOCAC Summit, Beijing pledged to help set up 3 to 5 trade and economic cooperation zones in Africa. As our research showed, this pledge was not concluded until 2012.  The initiative was led by Chinese companies, not Beijing. Negotiating, securing land for the zones, advertising them: it all took far more than 3 years.

CARI will be publishing more analyses in the lead up to FOCAC here on our blog and on our website. Stay tuned!

Thursday, July 26, 2018

More Bad Data on Chinese Finance in Africa

It is hard to collect data on China's development finance in Africa. That's why we curate a carefully constructed, painstakingly researched database on Chinese loans. We have data project by project, sector by sector. Researchers and policy-makers consult us regularly for more detailed reports on different aspects of Chinese loans. We publish reports on this data and related fielddwork: for example, our first working paper was on Chinese finance for hydropower projects and we have several others on Chinese finance for wind farms in Ethiopia and hydropower in Cameroon.

That's why it's frustrating to read in The Guardian about a new report by an advocacy group that claims that in Africa 
China gave the most to the energy sector, providing $5bn a year, 88% of which was spent on fossil fuels. It did not appear to finance any renewable projects on the continent. Nearly three-quarters of the money supported oil and gas extraction, and another 13% supported coal-fired power generation.
This simply isn't true. Between 2000 and 2015, the Chinese provided almost $10 bn in hydropower finance in Africa, and nearly $1.5 bn in solar, wind, and geothermal power. We only show $2.2 bn in coal-fired power, and $1.9 bn in gas-fired power plants during this period. In the power sector, African governments are borrowing far more for non-fossil fuel energy projects.

Hydropower has its own critics, of course. But it doesn't qualify as a fossil fuel.


Tuesday, July 24, 2018

China Responds to Africa's Industrialization Potential

Ethiopia: photo by Tang Xiaoyang
Xi Jinping is in Africa. An often overlooked story in the China-Africa coverage is the Chinese response to African industrialization goals. Not in all countries, not in all sectors, but we have seen considerable Chinese factory investment in places like Ethiopia, Nigeria, Tanzania, and Kenya.
And as we reported in 2016, some African and European firms are hiring Chinese trainers to transfer technology to their African workers. (We saw this in the factory pictured to the left.)
In a forthcoming CARI working paper we report on our findings from the first phase of this research. For now, you can read my analysis in the Washington Post.

Friday, June 8, 2018

Lumpy "SAIS-CARI" Data on People's Daily

This post is a joint product of the SAIS-CARI team 
Source: SAIS-CARI.org

On June 4, 2018, People's Daily published an article titled "Chinese investment boosts Africa’s sustainable development: Expert". We at CARI are glad to see our data utilized and shared with a broader audience. However, we would like to provide three corrections to this article.

Problematic percentage?

People's Daily wrote:  "Statistics by the World Bank show that Africa’s external debt has reached $ 6.01 trillion by 2016. The debt from China was estimated to total $114.4 billion between 2000 and 2016, accounting for 1.8 percent of Africa’s total external debt, according to SAIS-CARI."

There are two problems with this statement. First, the tiny percentage reported here and attributed to SAIS-CARI had us scratching our heads. We believe People's Daily made a mistake in the denominator in calculating the percent: Africa's external debt stock is nowhere near US$6 trillion in or even around 2016. According to the World Bank’s International Debt Statistics 2018,* Sub-Saharan African debt was around US$454 billion in 2016 (using the “most recent year available”.) 
If the debt of the North African countries is included, this brings the World Bank’s figure to about $600 billion in external debt, not $6 trillion (i.e. it is not "$6000 billion"). Clearly a wrongly placed decimal point.

Second, this affects the analysis of the "debt burden" of Chinese loans. Moving the decimal point to the correct place shows that People's Daily should have written 18%. However, even this estimate is not based on our most recent data.

Our current estimate of all Chinese loans committed to African public sector borrowers between 2000 and 2015 is US$102 billion and our preliminary (still unpublished) estimates for 2000 to 2016 are $US132 billion.

It's important to point out that this is not total debt. Some of these loans would have been repaid by now, and not all of these commitments have been disbursed, so the amount of outstanding debt is quite a bit lower than the SAIS-CARI figure of total commitments.

Still, these figures are quite significant and over half of these loans were signed in just four years (2013 to 2016). We have been warning about this debt build up.

We do not know if the World Bank figures on Africa debt stock include Chinese loans. If they do, and if we assume that the World Bank debt stock figures are all current for 2016, then China would account for a maximum of 22% of African debt stock in 2016. The actual figure will be lower than this, as we do not have data on loan repayments or actual disbursements. The bottom line is no matter how much below 22% the actual figure is, it will be far higher than 1.8%.

Lumpy across time, sector, and countries

We have other bones to pick with the sector data. The People's Daily article states that "In 2015, the top 3 sectors financed by Chinese loans were transportation ($4.6 billion), power ($4.5 billion), and industry ($ 70 million). Mining didn’t receive any Chinese financing."

Here is another decimal point problem: our CARI figure for China's industry-related loans in 2015 is $700 million, not $70 million.

Regarding mining: while it is true that in 2015, CARI recorded no Chinese loans going towards Africa's mining sector, this is not the whole story. Our loan data are "lumpy" across time, which is to say that there may be wide variations between years. 2015 happened to be a year with no mining loans, yet our preliminary data shows that mining (a category that includes petroleum) will be the largest Chinese loan-financed sector in 2016, due to a US$10 billion loan from China Development Bank to Angola's state-owned oil company Sonangol. The graph above shows how the sectoral emphasis of Chinese loans in African has changed over the past 12 years.

We realize the “lumpy” nature of some of our data across years, sectors, and countries may not be readily apparent from our website. Stay tuned for a revamped data section of our website later this summer.

And as always, we welcome readers of our blog to comment.

_____

* See also http://datatopics.worldbank.org/debt/ids/.  The World Bank has no data for Equatorial Guinea, Namibia, Seychelles, and South Sudan.

Thursday, June 7, 2018

Guest Post - Year of the Dogs? A new boom and bust for Chinese construction in Africa.

This Guest Post is by SAIS PhD student Yunnan Chen. She previously worked as a Research Officer at the Institute of Development Studies at Sussex University. She has an M.A. in Political Science from the University of British Columbia and a B.A. in Politics, Philosophy and Economics from the University of Oxford.

The fall in global commodity prices since 2014 has negatively impacted many resource-exporting economies in Africa, with implications for the China-Africa relationship. Since 2014, total volumes of China-Africa trade have declined steeply. African exports to China fell dramatically between 2014-2015, and while Chinese exports to Africa continued to rise in 2015, this trend appears to have also reversed: our most recent year of data shows that African imports of Chinese goods have also fallen.

This may indicate the effects of low commodity values, as well as the problems of exchange rate crises in many large economies in Africa, which have impacted economic demand and buying power for Chinese goods. Interestingly, this trend appears to have also affected the market for Chinese contractors. Our new 2016 data for labor and contract revenues (below) illustrates what appears to be a downturn in African construction markets, with consequences for Chinese SOEs and private contractors on the continent.

Our data for contractor revenues come from Chinese government reports published in China’s annual statistical yearbooks. The data since 2000 have shown year-on-year growth in Chinese contract project revenues in Africa. In 2016, the most recent data show total annual revenues to be $50bn. However, this is a steep downturn of $4bn from $54bn USD in 2015. Aside from a slight decline in 2011 (see chart), this is the first year since 2000 that Chinese contract revenues in Africa have fallen. The top five countries for contracts remain Algeria, Ethiopia, Kenya, Nigeria and Angola, which account for 49% of all reported annual contract revenues in Africa.

Correlating to the decline in contractor revenues, we also see a similar decrease in the numbers of Chinese workers in Africa in 2016. Data for this also comes from official governmental reports—which encompass only the Chinese workers who arrive in Africa for specific projects, and do not give figures for traders, private entrepreneurs and small investors who come to African countries independently. At the end of 2016, there were over 227,000 Chinese workers in Africa, according to official sources -- with Algeria hosting 40% of all Chinese workers, close to 100,000. This is a steep decline from 2015—within a year, 36,000 Chinese workers left the continent. As contract revenues decline, it is not unexpected that employment opportunities for Chinese workers overseas are also tighter.

In 2016, the top 5 countries with Chinese workers were Algeria, Angola, Ethiopia, Nigeria, and Kenya, correlating with the top 5 for contractor revenues. These 5 countries account for 65% of all recorded Chinese workers in Africa at the end of 2016. This shows a slight shift from the previous year: Equatorial Guinea and the Republic of Congo have fallen out of the top 5 of countries with most Chinese workers. Angola and South Africa have also seen steep declines in Chinese workers—respective drops in 33% and 86%—that disproportionately outweigh any decline in revenues. Some of the countries that have seen the largest drops in Chinese workers have been in conflict-afflicted states: in South Sudan, Chinese workers decreased from over 5800 in 2015 to 420 in 2016, and in the Central African Republic, 667 workers fell to only 39. This also suggests the salience of security and conflict concerns, not just economic trends.

Though falling numbers of Chinese labourers can also be accounted in completion of large projects, or wider trends of labor force localisation, it is clear in the shifting economic relationship between China and African economies, that Chinese firms and economic actors are also feeling the effects of Africa’s economic downturn.

Friday, May 11, 2018

CARI is hiring!


http://www.sais-cari.org/s/Senior-Research-Assistant.pdf
CARI is seeking a full-time Senior Research Assistant to start in our D.C. office in July 2018. Key qualifications include a B.A. degree, fluency in reading and researching in Chinese, and MS Excel proficiency. This is a two-year position with the possibility of extension.

CLICK HERE FOR DRAFT POSITION POSTING


To apply, please email your resume, cover letter, the names of two references, and a writing or research sample to sais-cari@jhu.edu, with the subject “SRA application”. Preliminary deadline is June 8th 2018.

The offer is contingent upon funding and university approval. Applicants will also need to complete Johns Hopkins University’s application process - this post will be updated to include a link to the JHU application process as soon as it has been published.


Applicants must be authorized to work in the U.S. SAIS-CARI cannot provide work visas.

Monday, May 7, 2018

Is China winning the (hearts and) minds of African students?


"China is winning over the future of Africa" goes another headline.

Is this the real story?

According to data compiled by Michigan State University, China has now become a more popular destination for African students than the US or the UK. The image to the right from Bloomberg coverage seems to confirm this.

An article in The Conversation by MSU scholars Virginia Breeze and Nathan Moore explains the "dramatic increase ... in part by the Chinese government’s targeted focus on African human resource and education development." This targeted focus is a reality and their data confirm that Africans are taking advantage of this focus.

However, is it true that China is now way ahead of "the West"?

A chart on African students studying abroad by destination country in Breeze and Moore's article makes for a more interesting comparison.

France appears still to be, far and away, the biggest draw for the hearts and minds of African students. FrancAfrique lives on!

A h/t to Libby Holmes.

Monday, March 12, 2018

China To Set Up a New International Development Cooperation Agency

The National People's Congress will vote Saturday on a proposal to set up a new national International Development Cooperation Agency:
Responsibility for the foreign assistance work of the Ministry of Commerce and the coordination of the Ministry of Foreign Affairs and the coordination of the functions of the members of the Ministry of Foreign Affairs have been consolidated. The National Development and Cooperation Agency has been established as a direct agency of the State Council. The specific implementation of foreign aid is still undertaken by the department in charge of division of labor.
组建国家国际发展合作署。将商务部对外援助工作有关职责,外交部队员住协调等职责整合, 组建国家国际发展合作署,作为国务院直属机构。对外援助的具体执行工作仍由用关部门按分工承担。
This is a move long under discussion. As China's aid has grown, this new agency directly under the State Council will enhance the profile of China's assistance program, and give the agency equal standing with other agencies directly under the State Council. It will resemble Britain's Department for International Development, which has similar standing, more than the US Agency for International Development, which is firmly under the US State Department.

a hat/tip to Sigrid Ekman in Beijing

Sunday, March 4, 2018

Secretary Tillerson Heads to Africa: and China is (a?) (the?) Focus

Secretary Tillerson is heading to Africa on March 6th, to Ethiopia, Djibouti, Kenya, Chad, and Nigeria. Although this visit is being framed by some as the Trump administration's response to the fallout from his much criticized recent comment on African countries, it is also clearly being positioned as a response to China's increased engagement on the continent.

A few clips from the special teleconference briefing held for senior State Department officials and journalists March 2, and published on the State website make it clear that State is still influenced by the same mindset that we saw reflected in Secretary Clinton's remarks during her visits in 2011 and 2012. Yet there has also been progress.

The State Department senior official led by mentioning two issues. The first was a general comment on African development challenges. And the second issue was clearly China--though not by name:
The other issue, too, that we’re looking at is how to really keep African resources and also development beneficial for the people of Africa. Right now we’re looking at the growing indebtedness in Africa. That’s not a good thing. We’re looking at other countries, not helpful countries, other countries too, expropriating a lot of resources
When I read that I thought: here we go again. Has the State Department mindset really not changed since 2012? Yet I had to reassess that a bit later, when reporter Laura Koran from CNN asked a question about Tillerson's view of China's role.

Here, verbatim, is the State Department response to the CNN question about China, in italics. (I've highlighted several of the more pertinent sections and added commentary):
Yeah. Okay. So here’s an interesting point is that we, the United States, especially part in – by region. So in the Africa region, we are going to have a heart-to-heart discussion with the Chinese. We’ve invited the Chinese to come to Washington to talk about their programs in Africa. 
And so on the one hand, the unhelpful role is the providing low-interest but really concessionary loans which really indebts the country. So for all of us who worked on HIPC – in other words, getting African countries post-colonial period off of debt – to see these countries re-indebted again is not only outrageous and terrible, but for us it’s really just – I mean, we spent so much time getting them off of debt, and to see them to go back on debt is just terrible. 
And it goes back to not only corruption in some of these states, but also the ease in which not only China – and you’re talking Russia, Iran, and other countries providing low-interest loans. And this is really kind of another forum of impoverishment and poverty, because it’s – unlike HIPC, we can’t really kind of repay loans back to banks, and so this is going to be a very tough issue to address. 
[I agree that debt levels are rising, and with low commodity prices, some countries are having trouble earning enough to repay their debts. Chinese government policy bank loans contribute to that (the major influence, in the case of Ethiopia and Angola). At CARI we have been beating the drum about this recently based on evidence: our tracking of a rising trend in signed Chinese loans.

Yet having worked for the World Bank, done research on debt, and taught about the debt crisis for years, I see debt owed to China as having very different implications for developing countries compared with debt owed to the Paris Club. And in several other countries, we see debt owed more to the traditional lenders: World Bank, supplier's credits, commercial banks, etc.]
The other issues aside too, though, is China builds things. We don’t construct. And so in that regard China can play a helpful role. The other issue, too, is that China has some really good ideas on development in developing areas, such as how to do better healthcare, how to do water production. So those are things that are good. Also China did a good favor for us in Sudan, providing an engineer battalion to provide assistance to the UN operations there. 
So when you look at China, it’s a very complex relationship. We have a lot of areas and issues that we’re in conflict, but the issue comes in is that we’re trying to find the areas where we can build some type of support and cooperation that will be to the betterment of Africa. But one area that’s not to the betterment is these loan rates, which is terrible.
[This is more promising and far more positive than in Secretary Clinton's time. Cooperation over common challenges. Acknowledging Chinese contributions.]
So we’ve looked at countries, and we’re doing data dumping. Some – a lot of countries in Southern Africa and parts of the east and west are having anywhere from 50 percent to in one case 200 percent of GDP debt. And 80 percent and 50 percent are probably Chinese loans, and that’s really not acceptable, and that’s an area that we really need to address and focus on. 
Hmmm. Our China Africa Research Initiative (CARI) team has data on this. Let's see what they have to say next week.
So when you said “countering China,” I think the better word is probably how are we going to resolve tensions, problems. How can we make China much more supportive of the overall development of Africa. Because what we don’t want to see is – let’s say, for instance, Congo, which is very rich in resources – where you see Russia, China, North Korea, Iran taking out resources, yet the Congolese don’t receive very much in benefits. 
How do you resolve that? How do you develop, how do you get these countries to really benefit from the resources that they have, yet at the same time these countries such as China, Russia, Iran is also developing but also they give back a lot to the Africans? And that’s an issue and a question we need to pursue during this trip over.
If I understand what the official was saying here -- and that's a bit of a challenge -- s/he's asking: How do you develop? If we're talking economic development, China has some ideas and some very recent experience. I'm not so sure we have either. But the conversation will be interesting.

Our CARI team is going to try to provide actual numbers on this Chinese debt for the countries where Secretary Tillerson is traveling. We'll be providing a briefing package for media early in the coming week.

Thursday, February 22, 2018

Guest Post - China in Africa: Much Ado about Investment - Part 3

This guest post, the third of three, is by Dr. Thierry Pairault, research director at France's Centre National de la Recherche Scientifique (CNRS). [1]

There is another approach in attempting to understand China's FDI in Africa: counting the number of Chinese enterprises. Thus, according to a report by McKinsey published in 2017, Dance of the Lions and Dragons, "there are more than 10,000 Chinese-owned firms operating in Africa today." [2] Maybe yes, maybe not. In any case, the report gives no precise definition of what a Chinese enterprise in Africa is, except that it would be "Chinese-owned" implying a business owned by a Chinese natural or legal person. I doubt that statistical services regard an enterprise as "Chinese" on that sole ground.

I already dealt with this issue when Algeria's administration and press had peremptorily applied the data of the National Registry of Commerce and asserted that there were 790 "Chinese enterprises" in Algeria. This was not the case. [3]

Among the enterprises regarded as "Chinese", we must distinguish several categories.

The overwhelming majority of these enterprises are small and micro businesses that are locally incorporated. Legally and statistically speaking, they are all local enterprises even if they are "Chinese-owned". Most often, these businesses are registered by Chinese migrants who invested the savings they earned locally as employees. Not only is the capital built up small, but also it is not, strictly speaking, Chinese FDI, as it does not result from any financial flow from China to some African country.

Let us see how this works with an example. Qin Jianjun is a Chinese national who, starting from scratch, created two companies both incorporated in Algeria, the first in 2006 in the construction industry, the second in 2014 in real estate development. In order to further boost a business that hires about 1,500 local people on its construction sites, Qin Jianjun decided to "sinicize" both enterprises, i.e. to make them look "more Chinese". This is why they are now introduced as subsidiaries of a company incorporated in China... in 2015. In this case, an "Algerian" company became "Chinese". [4]

At the opposite extreme, we find the African subsidiaries of large enterprises incorporated in China. Strictly speaking, these overseas subsidiaries are the only entities that deserve to be designated as "Chinese enterprises" (i.e. overseas business units with legal personality that are controlled by a group incorporated in China).

These two extreme categories are in stark contrast: generally small businesses vs. large companies; local businesses vs. subsidiaries controlled by a Chinese enterprise; no Chinese government support vs. Chinese support (central or provincial government); private vs. (mostly) public... Merging both categories into a single one is like adding apples and oranges.

Between both extremes, we find a wide variety of situations. Among other formal structures, there are representative offices (daibiaochu), executive offices (banshichu), branch offices (fengongsi)…. These various management units are mostly not legal persons and are therefore rarely registered in the local Registry of Commerce. Furthermore, the presence of many of them is often limited to the duration of one contract, or other operation.

Consider Algeria's "Century Project", the construction project of the East-West Motorway. A consortium formed by China's CITIC corporation and China Railway Construction Engineering Group (CRCC) has won the bid for a motorway. Some thirty companies incorporated in China (including the subsidiaries of some foreign firms) have been participating directly or indirectly in the motorway project (see Figure 1).

Very few had a more formal structure than a command post, and even fewer have registered in the Algerian National Registry of Commerce. Even the Consortium, which was incorporated in the British Virgin Islands, has not completed the registration initiated some years earlier when negotiations were underway.

Whatever the way the number of "Chinese-owned firms" is computed, it can at best testify to the Chinese economic presence but in no way serves to label their precise nature: investors, contractors, small business people...

As my two previous posts also demonstrate, words such as "Chinese investment" have a very specific meaning especially when they are technical, legal, economic or statistical terms. Indulging in unsuitable semantics when analyzing can only lead to approximations that are detrimental to the understanding of the phenomena studied; consequently, such bias can only be prejudicial to the implementation of any strategy, co-operation or opposition.

Figure 1. -  CITIC-CRCC Consortium. Source: Author. For the genesis of this diagram, click here   
Acronym key:
CECC or CCECC: China Civil Engineering Construction Corporation.
CITIC: China International Trust Investment Corporation.
CRCC: China Railway Construction Corporation Limited.
SASAC: State-owned Assets Supervision and Administration Commission.
Xinjiang Prod. And Const. Corps: Xinjiang Production and Construction Corps.




[1] Dr. Thierry Pairault is research director at France's Centre National de la Recherche Scientifique (CNRS - National Center for Scientific Research) and at the Center of Studies on Modern and Contemporary China at the École des Hautes Études en Sciences Sociales (EHESS - School of Advanced Studies in Social Sciences). Please see http://pairault.fr/sinaf/ for more information about his work.
[2] Dance of the lions and dragons. How are Africa and China engaging, and how will the partnership evolve?, June 2017.
[3] Thierry Pairault, "Algérie, quelle présence chinoise ?" published in A. Adel, Th. Pairault et F. Talahite (éd.), Algérie-Chine : approche socio-économiques, Paris, Eska, 2017, p. 34-45.
[4] The whole story is told in a post on my website: "L'entreprise chinoise est en fait algérienne...", https://www.pairault.fr/sinaf/index.php/chine-algerie/919.