Has China activated Debt trap diplomacy with the cancelation of Cameroons debt?

 In recent years China has been the 1st economic partner of Cameroon since 2007 after former French President Nicholas Sarkozy reduced economic ties with the former French colony, thus enabling China to fill the gap. Ever since Chinese debt finances have been on the rise representing about one third of the total debt of 5.8 trillion francs CFA (10 billion dollars) of the country.

In recent times, it was reported in Chinese media that, China has cancelled 3 trillion Francs cfa (5.3 billions) of Cameroon debt which according to the China African Research Institutes (CARI) was almost representative of the country’s total debt from China.

However this forced the Chinese government to react through its foreign secretary spokesperson stating that this was interest free intergovernmental that the country had not paid by the end of 2018 which stood at $78.4 million.

China’s foreign policy with African countries

At the 2018 Forum On China African Corporation in Beijing, President Xi of China pledged 60 billion to African countries, but with a change of policy from development to business. Thus forcing African countries to embark on projects with economic returns and feasibility so as to reduce the rate of credit defaults of many African countries, and especially critics from the west on China’s predatory lending practices of increasing African countries debt which cannot be service against strategic assets.

Debt Trap or much needed investment?

From 1970s to the 90s, developing countries debt compounded at an annual average of roughly 20%, rising from $300 billion to 1.5 trillion. This resulted to the soaring of external public debts of some the poorest countries from slightly 20% of GDP in 1970 to about 140% of GDP by 1994. Thus some interest payments eventually rose from $230 million to $1.3 billion. As a result of activists, 33 African countries had their debt waived or restructured.

sources: International Debt Statistics, World Bank; Lucas Atkins, Deborah Brautigam, Yunnan Chen, and Jyhjong Hwang 2017. ”China-Africa Economic Bulletin #1: Challenges of and opportunities from the commodity price slump,” CARI Economic Bulletin #1. Notes: China Africa Research Initiative, Johns Hopkins. Sub-Saharan Africa countries excluded: Equatorial Guinea, South Sudan, and Namibia due to data availability issues. Seychelles and South Africa excluded because they are not low-income countries.

In recent times critics fear that a significant number of African countries which are now moderate or high debt distress, may trigger another crisis, this can been seen in Ghana’s public debt which stands at 72% of GDP, Nigeria, Kenya, and Ivory Coast are roughly 22%, 58% and 49% respectively. China is at the center of African emerging debt crisis and is accused of “debt trap diplomacy. The assumption seems to be that “China’s own economic and geostrategic interests are maximized when its lending partners are in distress”.

The “debt trap diplomacy” is it merely western rhetoric or a reality?

The reality of Africa’s debt to china is not particularly remarkable when taken against the aggregate of Africa’s external debt stock. A few African countries: Angola, DRC, Ethiopia, Kenya and Sudan account for over half of Chinese lending in Africa. African elections such as Djibouti, Kenya and Angola debt obligation to China are high and many are alarming, as they would be regardless of creditor. Thus the high likelihood that some of this debt will be restructured.

Evidence for Chinese debt trap diplomacy can be seen in Sri Lanka port at Hambantota where the Chinese government took control of the port for a lease period of 99 year for failure of Sri Lanka to service the loan.

The same month of the African Forum, Chinese government pledged to invest $5 billion in Venezuela, a rich country in the throes of an economic crisis, unable to make interest payments on $50 billion in international bonds. In exchange, Venezuela will increase oil exports to China by a million barrels a day.

In Malaysia with the coming to power of Mahathir Mohamad after May elections with a wave of anger from previous government corruption scandals under former prime minister Najib Razak which saw the Malaysian debt soaring to over 1 trillion ringgit($251 billion) in the famous 1MDB state fund scandal, has lead the new government reconsidering China-financed projects. These includes the East Coast Rail link projects, a 690 km line that would have connected the country’s port on the South China Sea and Straits of Malacca, as well as two natural gas pipelines. In August, after a visit to Beijing- where he said countries like his didn’t want “a new version of colonialism” in which he cancelled the projects.

In the wake of the fallout in Malaysia, Imran Khan’s win in Pakistan’s July national elections raised questions about whether the new government in Islamabad would also walk back from Chinese debt. In fact, not long after Khan’s cabinet was installed, officials expressed concern about the former government’s deal with China. While those complaints were walked back as Pakistan faced the loss of US military aid and a possible balance of payments crisis just months later, one project was scaled back by $2 billion. Given the $60 billion size of the flagship China-Pakistan Economic Corridor, that’s just a drop in the ocean.

Kenyan President Uhuru Kenyatta denied that Mombassa’a massive Kilindini Harbor, the largest port in East Africa, had been listed as collateral for a multibillion-dollar Chinese loan to fund a railway. China also denied the report. In Djibouti, similar concerns have been raised over China’s recent acquisition acquisition of a stake in a port there. 

China’s geopolitical strategy in Cameroon

A specialist of China-African relations in Francophone nations Xavier Auregan notes the importance of the Gulf of Guinea as a strategic hub for china, explaining that a foothold there strengthens its interests in West Africa from Ivory Coast to Gabon. Cameroon possess the ability to bring together the energy infrastructure of West Africa.

From the early 2000s China has granted several debt relief to Cameroon $34 million, $32 million and $30 million in 2001, 2007 and 2010 respectively.

China seriously committed to Cameroon in 2011 by agreeing to build finance the new port in Kribi, with the completion in 2035, this port will be the biggest deep water port in the region. The kribi port will also extend the reach in West Africa of China’s Maritime Silk Road an initiative Senegal signed on last year. It’s part of the famous Chinese’s plan under President Xi’s Massive multinational One Belt Road economic development plan.

The Chinese influence in Cameroon is not only limited to the restricted to the port. China is responsible for 90% of the road construction and restoration in the country since 2014, and Chinese companies account for over 70 percent of mega projects in Cameroon.

Some Chinese companies have been throwing concrete towers around Kribi, in anticipation of its transformation into a thriving regional commercial hub.

China in recent times has granted several scholarships to Cameroonian and recently issued 34 scholarships for the 2019/2020 academic year out of 50000 scholarships committed to Africa at the recent China African forum, and has received several critics from Chinese social media users who wondered why the money shouldn’t be used for educating China’s own disadvantaged. In response, a number of Chinese government officials, scholars and experts began posting articles on Weibo explaining the benefits of investing in Africa, noting the abundance of natural resources.

Most critics believe China sees geostrategic and long term vision of Cameroon in the region. Thus, as China needs maritime foothold in West Africa, Cameroon’s debt burden is a gift with long term consequences.

By NGU AMABOH ACHU, Financial analyst