China’s investment and its economic activities & ambitions in Africa are no secret. Analysts have often stated that in order to attain power over the vast unexploited natural resources of Africa, China has been practising ‘economic colonialism’ via loans and investments.
By luring non-suspecting, poor nations of Africa into ‘debt traps’, Beijing has made multiple attempts to build-up command and influence in the continent.
However, in the present circumstances of global economic meltdown where the prices of oil, copper and other minerals have plunged down, the Chinese ambitions have taken a severe blow.
On one hand, the coronavirus has already dented the Chinese economy as the economic output of the communist nation has fallen by about 6.8% in the first quarter. On the other hand, Beijing is under tremendous pressure to pardon tens of billions of dollars of loans that it had offered to the African nations since the early 2000s.
Furthermore, the mistreatment of African residents in China during the COVID-19 outbreak has added fuel to fire and raised diplomatic tensions with Beijing.
The trillion-dollar deal Belt and Road Initiative (BRI) infrastructure program, the magnum opus project of China’s economic engagement with Africa, now stands on thin ground.
Additionally, the absence of references in the communique of the recent Politburo meeting of the Chinese Communist Party to BRI indicates at the uncertainty of Beijing to have enough resources to fund the BRI in the future.
China’s Investment in Africa
China’s perspective on Africa is quite clear – Beijing views the continent as an untapped treasure with an enormous abundance of natural resources. The quick growth of China in various sectors in the 1990s had demanded a huge need for oil and subsoil minerals, and Africa appeared to be an apt bearer of the needful.
Easily outbidding the giant multinationals to gain equity stakes in mines and oil fields, Beijing laid out cunning plans to seize all-important raw materials of the continent. Gradually, China became the most active non-traditional lender in Africa.
According to the China Africa Research Initiative, Beijing lent $152 billion to forty-nine African nations from 2000-18. According to the World Bank calculations, the value of Chinese loans to sub-Saharan African nations was $64 billion as of 2017.
Along with the credits, China, mainly through its state-owned enterprises has eyes fixed on direct investments as well. According to official data, the Chinese FDI in Africa rose from $7.8 billion to $46 billion between 2008 -18.
The Chinese government may seem to have got its investments’ worth. Commodity trade between China and Africa almost doubles from $107 billion to $204 billion in 2018, based on data provided by Beijing.
Regardless of all these major developments, critics often question if China could have increased its trade to Africa, with better trade procedures which did not involve committing a whopping $200 billion in bilateral loans and FDIs.
China’s whole idea was to have direct control of the African resources that it has been eyeing at since decades, for which Beijing ended-up shelving more money than the open market rates.
Once Beijing increased the credit or made the direct investments in mines, or oil fields, it was at the mercy of the beneficiaries – Africa’s national governments and political bosses. China would be powerless to block the nationalization of its investments or defaults on its loans.
If supply interruption happens due to conflict in Africa or along China’s long sea lines of communication, the so-called benefit of direct control will be ineffective because for now, Beijing lacks the military muscle to defend its mines and other investments in Africa.
China’s venture in Africa also bombed due to wrong investments at the wrong timings. Its venture in Africa concurred with the zenith of the most recent commodity supercycle, inflating costs of raw materials, this time is driven by Chinese demand. As a result, Chinese firms paid a high price for assets that lost a massive value after the downfall in the commodity prices.
Now with COVID-19 pandemic which is set to ravage Africa’s brittle economy, Beijing requires a realistic exit strategy. China must come to terms with the fact that it may never recover most of its investments or loans because of the global pandemic. The smartest way forward would be to write off its loans on compassionate gesture and win the hearts of the people.
OpEd By Minxin Pei. Edited By Vipasha Kaushal.