Friday, July 31, 2020

Guest Post – Investment in Africa: China vs “traditional partners” – Part 1

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

The highly active and multifarious presence of Chinese companies in Africa and the unrelenting reiteration of a perfectly crafted narrative, have all contributed to the feeling that former colonial powers and other developed countries have disengaged from Africa. Until recently, the lack of Western investment statistics in African countries to compare with China's own statistics and reports of China’s investment and financing (see my post on CARI blog China in Africa: Much Ado about Investment) had convinced Africans of this abandonment. However, in June 2019, Eurostat (the statistical office of the European Commission) published its most recent Foreign Direct Investment (FDI) statistics, referenced in an earlier paper (Investissements en Afrique : La Chine et les « partenaires traditionnels »). On 20 March 2020, Eurostat updated these statistics on European direct investment abroad. In this note I will briefly compare these statistics with those produced by MOFCOM and the Chinese State Bureau of Statistics.

According to Eurostat, in 2018, if I eliminate the Netherlands (internationally known as a tax haven, hence whose FDI is not properly Dutch), France continues to have the largest stock of FDI in Africa (€46 billion). This primacy could very soon be breached by China, which ranks second with a stock lower by only 5 billion euros (€41 billion). The USA are still in third place (extrapolated from 2017 figures because 2018 statistics are still unavailable) ahead of the United Kingdom (€2 million less than China), Italy (€15 million less than China), Germany (€29 million less than China). Luxembourg and Cyprus operate systems similar to the Netherlands, albeit to a lesser degree.

China's expansion is, indeed, very striking, as shown in Table 1. However, it cannot be concluded that traditional partners no longer invest in Africa because Western investors, in order to maintain a given level of investment stock, must at the very least reinvest some of their profits, but also replenish obsolete capital. Indeed, what we are witnessing is NOT that traditional partners have abandoned Africa, but that Africa has gained a new and powerful partner - China.


To go further in the analysis, I undertook a suite of principal component analyses to better understand the structure of the data and to better appreciate the proximity [correlation or lack thereof] between observations. These analyses reported in the above-mentioned paper showed that China's behaviour was just as “capitalist” and “mercantile” as that of Western countries, especially European ones. However, the traditional partners do not favour all the African countries receiving their FDI in the same way... I selected 25 African countries that either had in 2017 FDI stock of at least 1% of the European investment stock or that held a stock of at least 1% of Chinese investment. The year 2017 has been selected here and not the year 2018 for which many statistics are still missing.

These 25 countries benefitted from a total of 96% of the European stock of FDI in Africa and 89% of the Chinese stock.  In other words, European investment was targeted at a smaller number of African countries as compared to Chinese investment. If I assume European investment to be purely economic, the question arises as to whether the greater dispersal of Chinese investment might also be expressing more political (for instance, building a client network for support within UN agencies) than economic objectives. As far as Western countries are concerned, I selected only those with an investment stock in Africa of more than ten billion euros (Germany, the United States, France, Italy and the United Kingdom) for comparison with China. The results are shown in Table 2, Map 1.

Table 2. – Recipient countries and main investor countries



In 2017, three countries climb to the top of the investor countries’ list with the most first, second and third places: China (with twenty places) followed by France (with nineteen places) and the United States (with fourteen places). China's advance is even clearer if I only take into account the number of recipient countries where it tops the list of investor countries (eleven), while France tops the list with eight and the United States with three. This growing Chinese preeminence is politically very important from an African political point of view; however, France and the United States remain the most important investors from an economic point of view. 

It should be noted, however, that a high ranking does not always mean more investment. For example, China is the leading investor in Namibia, but its investment stock there is very small – only a quarter of its investment stock in Algeria. In Algeria, however, China only ranks fourth. It should also be noted that China has taken over the position of a “traditional partner” which today is relegated to second or even third place (e.g., France, Italy, and the United Kingdom). 

Special mention should be made of Algeria, which has distanced itself from France (third-largest FDI stock) without being economically lured by China (fourth-largest stock); instead it has opened its doors to both the United States (second-largest stock) and Italy (first-largest stock) which hold a large share of the exploitation and distribution of its oil and gas resources. China's breakthrough is also still very limited in Egypt, Morocco and Tunisia. In fact, North Africa does not appear to be a privileged land for investments by Chinese companies – even in the case of Egypt, which is nevertheless endowed with a "Chinese" special economic zone, the only one in Africa that is reputed to function to the satisfaction of the parties [2].

A final point:  one must avoid any absolutist interpretation of both the Eurostat data and the findings they suggest. Generally speaking, available FDI statistics are not yet very reliable; they capture financial flows that may underestimate actual investment. Furthermore, if one has doubts about the quality and comprehensiveness of Eurostat's FDI statistics and those of UN Comtrade, similar doubts about the quality of those produced in China should also be entertained. For the former, the role of tax havens, as in the case of the Netherlands clearly skews their FDI figures. In the case of China, statistics do not tell us the amount of investment that goes through offshore financial centres (starting with Hong Kong) possibly en route to Africa.

Saturday, July 18, 2020

Did Benn Steil Get it Wrong About China's Intentions for BRI Debt Relief?

On April 15, 2020, the G-20 announced a response to Covid-19's economic distress:  an unprecedented agreement to suspend official bilateral debt service payments for the world's low income countries for the remainder of 2020. The G-20 finance ministers are meeting again and there's one question everyone will be wondering:

Does China intend to live up to its Covid-19 pledge on debt relief? 

One of the most influential stories about Chinese debt relief intentions was an April 24 piece on Foreign Affairs' website, "Chinese Debt Could Cause Emerging Markets to Implode," by prominent Council on Foreign Relations economists Benn Steil and Benjamin Della Rocca.

Steil and Della Rocca argued that China had “added caveats that make a mockery” of its G-20 debt relief commitment.  Beijing planned to exclude hundreds of large Belt and Road Initiative (BRI) loans in low income countries, they charged.

Their source for their analysis was an op-ed in the English language Global Times, widely seen as a source of official views. The op-ed was by Song Wei.

Song, who works at a Chinese think-tank under the Ministry of Commerce, was a Fulbright Fellow a few years ago at Columbia University. She writes frequently on Chinese foreign aid and on African issues.

Her piece on Africa's debt problems was clearly written before the G-20 announcement and did not reference it.  She made the unremarkable point that only China's interest-free loans were eligible for debt write-offs. But then she added that “preferential loans are not applicable for debt relief.”

This was confusing. And I can understand why Steil and Della Rocca misunderstood Song's statement.

So let us (belatedly) help them out.

In April, our team (myself, Kevin Acker, and Yufan Huang) was deeply immersed in the final stages of researching and writing our latest Johns Hopkins University SAIS-CARI working paper:  "Debt Relief with Chinese Characteristics"(June 2020). We had collected and analyzed dozens of examples of debt relief, including China Eximbank's (the sole source of preferential loans in China) restructuring of a number of concessional and preferential loans between 2000 and 2018.

Steil and Della Rocca wouldn't have known -- as we did by then -- that the Chinese term “债务减免” (debt reduction and cancellation) is often mistranslated into English as “debt relief”.

So when we saw the same piece in Global Times, we read the statement "preferential loans are not available for debt relief" differently. Song Wei was simply stating something most China-Africa watchers already knew: Africans should not expect debt write downs or cancellation of anything but interest-free loans, consistent with China's debt cancellation actions in Africa over the past 20 years. Other loans would not be cancelled.

Notwithstanding this confusion, Song's article had plenty of other information that clarified her point.

Most importantly, she described how rescheduling and payment delays (i.e. debt service suspensions like the G-20 pledge) were among the many non-write off measures available for China Eximbank’s preferential loans:
"If any debtors encounter difficulties to pay on time, there may be tailored plans including rescheduling [emphasis added]… adding grants to help bring projects back to life, conducting debt-equity swaps, or hiring Chinese firms to assist operations. . . adopting such measures to help the projects get back on track and gain profit has advantages over simply offering write-offs which may only solve issues on the surface and are unsustainable." 

So clearly, although we still do not have much detail on what has happened in the first month of the DSSI, Song Wei's op-ed is not evidence of a Chinese plan to renege on its G-20 commitments.

Unfortunately, Steil and Della Rocca's piece was cited as the source for other articles, for example "China Squeezes Debt Repayments From Virus-Hit Nations" (Asia Times, May 5). But what's sad--and more important--is the way this piece has become part of the conventional wisdom.

Just two days ago David Leonardt, a NYT columnist I follow and respect, wrote that China has "tried to squeeze low income countries for debt payments during the pandemic."

No evidence or links provided, but look closer: Leonardt's charge is simply a clear restatement of the Asia Times headline, which is based on Steil and Della Rocca's piece, which, I hope I've shown, was in error.

Sigh.

If China was simply more transparent none of this would be necessary. But until then, we'll keep trying to tell "the real story".

Thursday, June 25, 2020

Putting a Dollar Amount on Chinese Loans to Low Income Countries


 

The Diplomat has published the analysis Yufan Huang and I did of the World Bank's data on outstanding debt in the 68 low income countries that are eligible to benefit from the G-20 Debt Service Suspension Initiative (DSSI).

Slicing and Dicing the Data
Here are some of the highlights.
  • The World Bank is still the largest creditor in poor countries (US$106 billion). But Chinese is very close (US$104 billion). In sub-Saharan Africa, China (US$62 billion) has outspent the World Bank (US$60 billion) as the biggest official lender to Africa’s poor countries. However, if Angola is removed from the data, the World Bank remains the largest creditor for low-income countries in Africa ($43 billion by China vs $59 billion by the World Bank). 
  • Creditors are owed about $43 billion in total debt service in 2020, and 30 percent of that is owed to China, more than to any other creditor.
  • However, Angola owed China US$19 billion and Pakistan owed US$16 billion. These two made up 34% of the Chinese debt for all the 72 low-income countries.  Half of all the debt service due to China this year is owed by just these two countries (US$6.45 billion).  
Mixing loans from Taipei (Republic of China) and Beijing (People's Republic of China)

We didn't note this in our piece for The Diplomat, but comparing our data at a granular level with the World Bank's figures, we found that, ironically, in some countries they were including debts actually owed to Taiwan as China. This was the case for part of the debt listed as due to "China" in Liberia, the Central African Republic, and all the debt listed as "China" in Burkina Faso between 2014 and 2018. Burkina Faso only established diplomatic relations with China in 2018 and so did not qualify for any official lending. Beijing is happy to claim that Taiwan is an integral part of China, but will loans from Taipei be honored as Chinese loans?

Wednesday, April 1, 2020

Is China Hiding its Overseas Lending? Horn, Reinhart and Trebesch's "Hidden Loans" and Hidden Data

This post, co-written by CARI's Director, Prof. Deborah BRAUTIGAM, and CARI's Research Manager, Kevin ACKER, was originally published on April 1, 2020. It was revised and updated on May 14, 2020 on the basis of a conversation with Horn, Reinhart, and Trebesch (HRT), and a “response to critics” HRT have published on the Center for Global Development blog.


Photo credit: Shutterstock
In a March 30, 2020 article, "Hidden Chinese Lending Puts Emerging-Market Economies at Risk,” the Wall Street Journal revived debate about Chinese overseas lending, referring to a June 2019 working paper authored by Sebastian Horn, Carmen Reinhart, and Christoph Trebesch (HRT), "China's Overseas Lending." This paper, an impressive effort to assemble and analyze a wide range of information on Chinese capital flows, has become well-known for its argument that “half of China’s overseas loans to the developing world are ‘hidden’.”

The HRT paper raised important issues about China’s lack of transparency in their global lending. We appreciate their contributions to these ongoing debates, which have only become more salient as the developing world enters a new, COVID-19-fueled debt crisis.

However, we take issue with the "hidden lending" analysis done by HRT, specifically for Africa. The authors’ argument that half of China’s overseas loans are “hidden” rests primarily on a comparison of their estimates of Chinese loan commitment data between 2000 and 2017 to the Debtor Reporting System (DRS)’s confidential and unpublished Chinese loan commitment data for the same period, held by the World Bank. The paper cites the China Africa Research Initiative – SAIS-CARI – as one of the many sources for its estimates of China's overseas loan commitments.

A number of African countries do have worrying debt concerns, and China is a substantial lender on the continent. However, HRT appear to have overestimated lending to some countries while underestimating lending to others. Our annual estimates for signed Chinese loan commitments to African governments and their state-owned enterprises are available on our website. The researchers have not released their own data on Chinese loan commitments, although their data set of debt stocks can be found here. These debt stocks were computed by the authors based on their commitment data, using assumptions about loan terms – interest rates, grace periods, and maturities.

In the original version of this post, we based our analysis on Figure A3 in their Appendix (reproduced below from the original paper), which they described as providing a list of their "30 top recipients of Chinese loans as of 2017”. This figure, ordered by percent of debtor GDP, included 14 African countries.

Note: We have added the red box to this graph reproduced from Horn, Reinhart, and Trebesch, “China’s Overseas Lending,” July 3, 2019.

We pointed out in our original post that this graph was clearly not based on SAIS-CARI’s Africa data. When we compiled our own list of the top recipients of Chinese loan commitments for African countries during this same period, we saw a number of sharp discrepancies.  

After the original version of this blog post was posted, we engaged in a productive conversation with the Kiel papers’ authors. They informed us that they had made a mistake in the note for Figure A3. The figure does not show the 30 top recipients of Chinese loans as of 2017. Rather, it shows the 30 countries with the highest Chinese debt to GDP ratios. They noted that they have now revised this language in a new draft of their paper.

Even once this misunderstanding was clarified, it remains clear from Figure A1 below, included in their CGD blog response, that in some cases their data on commitments still differs significantly from ours. The HRT researchers have published their estimates of borrowers’ Chinese debt stocks on their personal websites. However, as of May 12, they have not published their estimates of Chinese loan commitment data. Therefore, it is difficult for us to pinpoint precisely where or why these calculations diverge. Furthermore, HRT note that their data includes loan commitments to private borrowers. CARI data is limited to loan commitments to African governments and their state-owned enterprises, which is roughly equivalent to “public and publicly guaranteed” (PPG) borrowing, and specifically does not include private borrowers. This further clouds the comparison.

Note: We have added the red boxes to this graph reproduced from Horn, Reinhart, and Trebesch, “China’s Overseas Lending: A Response to Our Critics” (May 2020). HRT note that although they have estimates on public and publicly guaranteed Chinese loan commitments, their data in this graph also includes Chinese loan commitments to private borrowers, which our data excludes.

Although HRT assembled this graph to argue that their data is similar to ours, this new graph underscores our point. We believe that some numbers that lie behind the Kiel paper’s analysis are being overestimated, and others underestimated. Some of these differences are clearly significant. Importantly, our differences include most of the countries with the largest loan commitments, highlighted in the two red boxes which we have added above.

Borrower Debt: Loan Commitments versus Disbursements

Loan commitments do not become debts all at once, and some are never disbursed at all. Disbursements of Chinese loans can be particularly slow. Misunderstandings of the difference between loan commitments and disbursements still remain quite common, even among financial reporters covering China-Africa issues. For example, the Wall Street Journal story relied on HRT’s research to highlight Nigeria as a case of “hidden lending.” The reporters suggested that Nigerian government statistics – which state that Nigeria’s outstanding external debt to China was about $1.9 billion by the end of 2017 – are in error. “In reality,” the Wall Street Journal article said, “the total debts Nigeria owed to China were more than double that amount, according to the research.”

We believe this assessment is wrong. Our data, which tracks officially-signed loan commitments, does estimate that Nigeria signed about $5 billion worth of loans with Chinese financiers between 2000 and 2017. (Appendix 1 elaborates). However, there is no “hidden” lending here. The difference between loan commitments and the amount of external debt owed to China is accounted for entirely by two factors: (1) the amount of debt Nigeria has already repaid, and (2) the lag between loan signing and disbursement (i.e. the moment when the committed loan actually becomes a debt on Nigeria’s books).

We appreciate that HRT have (as they note in their “response to critics”) now downwardly adjusted their estimate of Nigerian debt to China by US$ 2.6 billion. However, we believe that this example may only be the start of some necessary adjustments to their debt data.

* * *

In February 2020 researchers at the IMF voiced veiled criticism of the Horn, Reinhart and Trebesch estimates. We agree with the IMF. The Horn, Reinhart and Trebesch estimates of the debt that African governments owe to China are calculated from their unpublished loan commitment data. From what we can see in their new Table A1, we believe that they have overestimated some of the African “debt” to China (the IMF’s main concern regarding low-income borrowers) and underestimated it in other cases. 

Furthermore, because the World Bank’s Debtor Reporting System data used by HRT are not publicly available, we are not able to independently verify discrepancies between DRS data and our own estimates of aggregate commitment amounts. Since this is the core of HRT’s argument that 50 percent of Chinese loans are "hidden", this remains a very important missing puzzle piece. Without access to both sets of “hidden” data on loan commitments, however, it is impossible to know which way these apparent mistakes tip the scales.


-----------------------------------------------------------
Appendix 1: Commitments and Disbursements: the Nigeria Case

Thanks to Nigeria’s highly transparent Debt Management Office (DMO), we can track repayments and disbursements annually for each loan Nigeria has signed with China. Tracking repayment is easy: the DMO lists the amount of debt service paid on each loan in each year, separated into principal and interest payments. To calculate disbursement (as these amounts are not usually made public), we take advantage of SAIS-CARI’s data on interest rates. Using the interest rate, we can calculate the amount outstanding on each individual loan from the interest payment made on that outstanding balance the following year. We then compare the year of loan commitment from SAIS-CARI data with the schedule of repayment as published by the DMO. 

The data show that it can take up to 7 years from the year of loan signing for loans to be fully disbursed. Some projects move even more slowly, with disbursements beginning years after loan signing. This means that a loan signed in 2020 may not be fully disbursed until 2027 (at which point the commitment becomes the same as the debt).

Take the Chinese loan for the 78 km Abuja Light Rail Project, signed in 2012 for USD 500 million. Based on the interest payment of USD 2.7 million in 2013 and the interest rate of 2.5%, only USD 109 million was disbursed in the first year. Therefore, to count the full amount of the loan in 2012 would be to overestimate Nigeria’s debt to China by USD 391 million. 

The loan for the hydroelectric project in Zungeru is another good example. Originally signed in 2013 for USD 984 million, the project was repeatedly delayed, and Nigeria did not start servicing this loan until 2017. In 2018, only USD 4.2 million was paid in interest on this loan, suggesting that by 2017 only USD 168 million had been disbursed.

As shown in table 2 below, many of the loan commitments China made to Nigeria from 2000-2017 were not fully disbursed by 2017, in addition to the loans mentioned above. Based on our calculations, the outstanding balance of Nigeria’s debt stock to China was USD 1.94 billion, which almost perfectly matches Nigeria’s self-reported figure of USD 1.93 billion. The discrepancy with the total loan commitments of USD 5.3 billion is accounted for by the USD 580 million that had already been repaid, and the USD 2.8 billion that had yet to be disbursed. “Hidden lending” is not a problem in Nigeria, and we wonder how much of a problem it actually is in other countries.

[1]  i.e. in order to find the outstanding balance on a loan in 2017, we divide the interest payment made in 2018 by the interest rate.


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. 

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.