Tuesday, December 3, 2019

A Quick Look at the Footprint of Chinese Private Security Companies (PSC) in Africa

This guest post by CARI Fellow Dr. Alessandro ARDUINO, from the Shanghai Academy of Social Sciences, is the second of our series "Notes from the Field." We are publishing a selection of posts from our current group of research fellows, with a focus on reflections, research notes and preliminary findings. For his CARI-funded research project, Dr. ARDUINO traveled to Djibouti; this note is partly based on the results of this fieldwork trip and summarizes the initial phase of research into the role of China’s Private Security Companies (PSC) in Africa. 

Photo credit: Alessandro ARDUINO
Since the launch of its Belt & Road Initiative (BRI), China’s engagement with the African continent has been scrutinized through the state-to-state economic and military lens. However, the China-Africa economic and security dimension requires a more complex equation that has to take into account the private security sector variable. While the mainstream narrative focuses on the effective return on investments in the African BRI infrastructure projects, or the opening of new Chinese military bases, there is a growing role for China’s Private Security Companies (PSCs) that are operating on the continent.

In light of China’s “going out’’ policy, the need to support China’s State-Owned Enterprises (SOEs) that are investing in high risk areas has expanded the Chinese market for security services. Risk assessment and mitigation in the African countries participating in the BRI requires a wide range of security services along both the maritime and land routes.

Compared to other areas where Chinese PSCs are operating, the African private security dimension is characterized by several peculiarities. First, the African continent still carries the stigma of mercenaries’ behavior during post-colonial conflicts. Second, well before the launch of the BRI and Beijing’s endorsement for PSCs going abroad, several Chinese companies in Africa, operating in a range of sectors from natural resources extraction to small businesses, organized private armed “militia” to protect their interests against criminal or political violence. Third, while the footprint of the Chinese PSCs is still limited, Africa is witnessing a return of the global soldier of fortune in support of local government and international interests, the most recent example of which is the growth of Russian para-military contractors.

There was a clear historical division of roles between the United States’ support for Africa on military and counterterrorism efforts versus China’s promotion of economic development and trade. Now the division is progressively blurring.

The first Chinese military base abroad was established in East Africa, which was not by chance. The opening of the PLAN Naval base in Djibouti in 2017 was China’s concrete response to a changing security environment. Also, during the China-Africa Defense and Security Forum in 2018, Beijing promoted the discussion of Africa's security capacity-building, increasing defense cooperation and deepening China-Africa military ties.

Recent speeches on Africa by both President Xi Jinping and Premier Li Keqiang clearly illustrate how the Chinese perspective on security is closely intertwined with economic development. Thus, in the African development-security nexus it is compelling to consider the interactions between China’s military and maritime engagement on the continent, peacekeeping missions, and the expanding presence of the Chinese PSCs from Kenya to Sudan. The process of integrating security, conflict resolution, and economic development is still riddled with major shortcomings and unintended consequences.

Nevertheless, an interesting example of integration was observed during the early phase of my research that derived from the maritime security perspective. During a visit to Djibouti, it was clear how the Chinese military base was standing alone in direct proximity and almost as a deliberate challenge to the status quo of older military bases of the US, France, and even Japan. At the same time the Chinese private security sector was already extending feelers in the region from Ethiopia to Djibouti, in order to establish profitable partnerships. For example, during a recent increase in piracy activity from East to West Africa, one company has successfully entered a public-private partnership in the security sector. A Chinese PSC, Hua Xin Zhong An (HXZA), has found a niche market in providing armed guard services aboard Chinese commercial vessels transiting through waters where there is a high risk for hijacking (e.g. Somalia).

The role of HXZA is quite peculiar as it offers a peek into the future of the Chinese PSCs. HXZA is one of the first Chinese security companies that has been able to obtain a permit from the Chinese government to legally carry weapons abroad and to employ foreign consultants. Most importantly, it has proven its ability to work to internationally-recognized standards and to improve efficiency while simultaneously looking at the wellbeing of the local stakeholders.

A literature review reveals many references to the field of private military organizations in Africa, but the recent growth of Chinese PSCs raises significant questions about previous assumptions. I expected to find China’s PSCs acting under a sort of supervision from the the Chinese military or perhaps even closer connections to the Chinese government.  Instead, it appears that China’s PSCs are acting in a semi-autonomous manner and are focused on providing niche services such as the resolution of kidnappings and piracy prevention.

Given the potential security requirements of hundreds of Chinese companies operating in Africa, the interaction between the Chinese PSCs and the local stakeholders requires greater study and accurate analysis. Perhaps most importantly, local stakeholder interests must be actively safeguarded.

Tuesday, October 22, 2019

US-China Cooperation in Africa? Perhaps not in French Africa

This guest post by CARI Fellow Dr. Afa’anwi Ma’abo CHE, from Kampala International University, is the first of our series "Notes from the Field." Over the coming weeks and months, we will publish a selection of posts from our current group of research fellows, with a focus on reflections, research notes and preliminary findings. For his CARI-funded research project, Dr. CHE traveled to Cameroon, which prompted the below thoughts.

Photo credit: Afa'anwi Ma'abo CHE
Following China’s resolve to ‘go global’ at the end of the 20th century, Africa has witnessed a surge in Chinese trade, finance, and investments. China has risen and surpassed the US to become Africa’s leading economic partner. Cooperation, relative to competition, between the superpowers has a greater potential to induce optimal positive-sum gains for the superpowers and for Africa. But the scholarly and policy worlds are shrouded in pessimism about chances of the US cooperating with China in Africa. Three major reasons are often averred for the pessimism: i) the current US administration views Chinese engagements in Africa as imperialistic, debt-trap predatory, threatening to the autonomy of African states, inhibitive to US foreign investment opportunities, and inimical to US national security interests; ii) the US government's aversion to China’s ‘non-interference’ policy, which underpins its engagements in Africa; and iii) several African state leaders' seeming preference for unconditional bilateral partnerships (mainly with China), which are oblivious to liberal democracy, human rights, and public accountability performance profiles of African states, as opposed to trilateral partnerships involving the US and intrusive conditionality constraints.

However, by focusing on the inimical perceptions and preferences of the US, China, and Africa tripod alone, the motivation and capacity of other major players, particularly France, to thwart sustained joint and solo US-China involvement in (French) Africa is overlooked. This blog post avails the opportunity to elaborate.

Roman Serman, a former French presidential adviser, has rhetorically, albeit unconvincingly, asserted that it would be ridiculous to think that France could invoke its long standing Françafrique defense agreements – which, in part, provide France privileged access to natural resources and markets in some French African countries such as Togo – to, for instance, order Togo to tell China, ‘quitter le pays’ (leave the country). But, in March 2019, during his visit to Djibouti, President Macron of France implicitly asked China to steer clear of French Africa.

And Paris has formidable influence it can utilise to serve its interests in Francophone Africa to the detriment of China, principally including: i) the French language, which remains either the sole official or one of the official languages in all Franc Zone countries and almost all former French colonies in Africa (excluding Algeria, Mauritania, Morocco, and Tunisia); ii) the colonial CFA franc currency in the Franc Zone, and perhaps most importantly iii) the aforementioned French secret neo-colonial defense agreements with at least 8 French African countries, which essentially guarantee the concerned African countries, particularly their old ruling elite, France’s protection against internal and external foes in exchange for priority access to natural resources and markets (although some of those agreements have since been revised). Elaborate analysis of how France is using these soft and hard power tools to keep an extractive imperial grip on French African countries has been carried out elsewhere.

How will China respond to France’s anti-Chinese campaign in Francophone Africa? Well, this is a hypothetical question, but given China’s marginal presence in French Africa within the bigger picture of China in Africa, France’s disgruntlement with China’s ‘encroachment’ in Françafrique could lead Beijing to keep only a limited strategic presence in the French African countries that China consider critical to the ‘Belt and Road’ plan, notably Djibouti, Cameroon, and Senegal, while focusing on growing its already relatively greater investment presence in Anglophone Africa. Unfortunately for the people of Francophone Africa, any curtailment to China’s ambitions would only dent any prospects they may have of benefitting from China’s unmatched commitment to the continent.

Tuesday, August 27, 2019

China’s new debt sustainability framework for the BRI

This is a guest post by Dr. Johanna Malm, independent researcher. She was previously researcher at Stellenbosch University’s Centre for Chinese Studies and PhD Fellow at Roskilde University’s Department of Society and Business. Read more about her research here; she can also be found on Twitter as @drjmalm.

In this piece, she analyzes China’s new debt sustainability framework, launched at this past spring’s Belt and Road Forum. She argues that while China has been responsive to some of the recent criticisms of its lending policies, its approach to development finance still differs significantly from that of the IMF.

IMF Managing Director Christine Lagarde and China Vice Premier Ma Kai.
Photo credit: International Monetary Fund (2016)
China’s second Belt and Road Forum was held in Beijing in April 2019. In response to growing international critiques against Chinese lending abroad, China has acknowledged these concerns and adapted some of its practices.

As such, debt sustainability was a significant feature of the Belt and Road Forum. The Chinese leadership sought to address debt issues in several ways. In its official communication during the Forum, Beijing stated that China is committed to preventing and resolving debt risks. China’s Ministry of Finance also published a new document, the Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative. China’s Finance minister Liu Kun encouraged China’s financial institutions, Belt and Road signatories, and international agencies alike to use the framework to improve debt management.

China and the IMF: Three Major Differences

Debt sustainability frameworks are often seen as technical documents that stipulate the recommended terms and amounts of public debt a country can sustainably acquire. However, such frameworks are also inherently political, embodying norms around debt sustainability, such as different conceptions of the relation between public debt and development. China’s approach to this matter differs from that of the International Monetary Fund (IMF).

China’s new debt sustainability framework marks the first time the country’s approach to debt and development has been articulated in an official document with an English translation, thus signaling that it is targeted for a Western audience. Previously, China’s approach had mostly been articulated by representatives from its financial institutions, most vocally by Li Ruogu during his tenure as President for China Exim Bank. As demonstrated by the new debt sustainability framework, China’s approach is still significantly different from the IMF’s approach to debt.

First, the framework makes no mention of Chinese lending terms. In other words, China has not articulated any commitment to provide financing exclusively on concessional terms (Note: a concessional loan has lower interest rates, longer grace period and longer reimbursement period). Although Chinese policy banks still extend loans to developing countries on concessional terms, loans extended at commercial rates are an important part of its lending portfolio. By not mentioning the lending terms in its debt sustainability framework, China leaves space for its banks to lend on commercial rates as they see fit. This can be compared to the IMF’s debt limits policy, which advocates for financing on fully concessional terms to low-income countries.

Second, the framework makes it clear that China does not see debt distress as an obstacle to continued borrowing. The framework states:
“[I]t should be noted that an assessment for a country as “high risk” of debt distress, or even “in debt distress”, does not automatically mean that debt is unsustainable in a forward-looking sense. In general, when a country is likely to meet its current and future repayment obligations, its [public and publicly guaranteed] external debt and overall public debt are sustainable.”
In other words, a country in debt distress can still take up loans from China if the individual loan-backed project is commercially viable and if the borrower is able to service its debts. This statement represents a sharp contrast to the approach of the IMF, which states that non-concessional borrowing to countries in debt distress “would be allowed only under exceptional circumstances” (p. 2 of PDF).

Third, China considers the relationship between debt and growth explicitly in its debt sustainability framework. It states: “Productive investment, while increasing debt ratios in the short run, can generate higher economic growth […] leading to lower debt ratios over time”. This indicates that China sees lending as a catalyst for economic growth, as opposed to the IMF’s debt limit policy, for which growth is enhanced if the loans are concessional.

Implications Moving Forward

Since the end of World War II, the IMF has been the most influential institution in setting public debt management norms for developing countries. China began to challenge the IMF’s position when it started to increase its overseas lending at the turn of the 21st century. As I have shown in previous research (see here and here), the IMF had no choice but to adapt its own debt sustainability framework in 2013 to allow for developing countries to take up loans on commercial terms from China. This policy change was born of the political impossibility of the IMF to prevent developing countries from taking up Chinese loans.

However, this shift in the IMF’s position was not widely publicized, and the Fund still hopes to get China to conform to its own ideas of debt sustainability. As the IMF notes, the effectiveness of its debt sustainability framework “hinges on its broad use by borrowers and creditors”. For instance, in April 2018, the IMF opened a China-IMF Capacity Development Center in Beijing, which organizes courses directed at Chinese officials working on BRI-related issues. The courses offered include a workshop on debt sustainability frameworks in low-income countries.

The IMF’s Managing Director Christine Lagarde reacted to China’s new debt sustainability framework by stating that the framework represents ‘positive steps’ by Chinese authorities. However, she also said that infrastructure financing through the Belt and Road should only go where it is needed and where the debt it generates can be sustained.

In sum, recent events show that, while China has grown more sensitive to international pressure around its role as a development finance provider – especially when the critiques emanate from other developing countries – its new debt sustainability framework also demonstrates that it is willing to challenge to the IMF’s approach. China’s approach to development finance reflects the country’s own experience as a borrowing country. State-led development finance worked well for China’s own development and it is this model that China replicates in its lending to developing countries today.

This also highlights that, beyond notions of ‘good’ and ‘bad’ lending, China’s and the IMF’s different approaches have different benefits and drawbacks. While China’s approach can spur growth by providing significant amounts of development finance to countries in dire need of investment, the IMF’s more cautious approach prioritizes lower debt burdens for developing countries. While respective definitions of “sustainable debt burdens” might differ depending on developing countries’ priorities both approaches might prove beneficial for borrowing countries.

Monday, July 1, 2019

Did China "Seize" Sri Lanka's Hambantota Port for Unpaid Debt?

Photo credit: Deneth17 (Wikimedia Commons)
Africans have been leery about Chinese loans ever since an Indian polemicist coined the term "debt trap diplomacy" to describe the sale of 70% of the shares of Sri Lanka's Hambantota port to a Chinese company-- a highly politicized Sri Lankan investment seen by some as a white elephant, and by others as an important future commercial asset that was developed prematurely, given its original feasibility timeline.

Now The Economist has mis-characterized my analysis of Hambantota in a June 29, 2019 story, "China is Thinking Twice About Lending to Africa," by suggesting that I examined 3000 projects and found that Hambantota "was the only example of such an asset being seized to cover a debt."

This is not what I argued. I wrote in The American Interest that Hambantota is the only example "that has ever been used as evidence" for this accusation. But even this example does not support the claim.

Some recent reports, including one by the Rhodium Group, described Hambantota as an "asset seizure" by China in response to debt problems related to the port. This is not how I and other researchers who have examined this case closely see Hambantota.

The port was clearly troubled, although much of this can be attributed to Sri Lanka's domestic politics. But the important point is that it was not Hambantota's loans that were pressing on the Sri Lanka government. It was international sovereign bond payments. Two thirds of the Hambantota loans were at a fixed rate of 2 percent, with a five year grace period, while one early loan for the first phase, at $307 million, was at a fixed rate of 6.3%. These rates were far lower than Sri Lanka's commercial borrowings from bond markets.

As one analyst notes:
Although Hambantota port was leased to CM Port, the loans obtained to construct Hambanota port were not written off and the government is still committed to loan repayments as per the original agreements. The money obtained through leasing Hambantota port was used to strengthen Sri Lanka’s dollar reserves in 2017-18, particularly in light of the huge external debt servicing due to the maturity of international sovereign bonds in early 2019. 
Privatizing 70% of Hambantota to CM Ports for $1.1 billion was one way in which foreign exchange could be brought into the country, allowing a balance of payments crisis to be staved off. It was not an asset seizure.

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. 


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.