• April 18, 2024
  • Last Update April 18, 2024 6:55 PM
  • Nairobi

Traps behind huge Chinese loans

Traps behind huge Chinese loans

The large and seemingly generous funds that have been made  available to Kenya by China for development are, in actual fact, like the sword of Damocles hanging by a thread over our heads.

When Kenya thought Chinese funding would be better than conditional loans from the International Monetary Fund (IMF), the International Bank for Reconstruction and Development and other donors, her very  sovereignty was put at stake and we may now have to bite the rod while it is still hot and risk losing some teeth rather than wait until it gets hotter and lose the whole mouth.

Dubbed “debt-trap diplomacy”, China’s presence through the Belt and Road Initiative that was unveiled in 2013 to expand maritime and land infrastructure through Europe, the Middle East and Asia, with prospects in Africa, is currently in 68 countries. But it is a weapon more lethal than any chemical warfare being staged in the strong room of any military nation.

Brahma Chellaney, a professor of strategic studies at the Centre for Policy Research in New Delhi, India, and a former adviser to India’s National Security Council, contends that: “Just as European imperial powers employed gunboat diplomacy, so is China using its sovereign debt policy to bend other states to its will.” In fact, he argues that since China chooses projects according to their long-term strategic value, “they may yield short-term returns that are insufficient for countries to repay their debts”.

As the second largest economy in the world in terms of gross domestic product, in excess of $11 trillion, China holds a key political leverage over several emerging and less developed economies, Kenya included. Indeed, this could see them swap the debt for equity, which in turn would expand China’s global footprint by pushing a number of countries into debt servitude.

Debt in itself is not bad if it is an investment tool with viable goals that are aligned with the fiscal policies of a country. But the manner in which China resorts to solving debt issues with states that fail to pay back the debt exposes these deals as deadly traps. For instance, when Sri Lanka failed to own up to its loan obligations to China amounting to $1.1 billion, its sovereignty was eroded and they ceded control of their Hambantota Port to the China Merchant Port Holdings.

Djibouti ended up having to lease one of its military bases to Beijing for $20 million in 2016, effectively giving China its first overseas armed forces post. Meanwhile, Pakistan just received about $1 billion to boost its plummeting foreign currency reserves. With growing speculation that the country will receive another bailout from the IMF, Islamabad’s future looks bleak.

In small definitive economic terms, China could start to determine the price of bread, sugar, flour and rice in Kenya and other countries, and to a large extent the kind of investors in selected sectors in coming years, whether we like it  or not

Even though Kenya boasts top strategy and economy experts, we have been exposed to the Chinese shaving razors. As shown by the Kenya National Bureau of Statistics in its economic survey of 2018, Kenya’s GDP is about $74.9 billion – simply put, if you divide China’s GDP into 100 pieces, Kenya will form just one piece. In fact, Kenya’s public debt to GDP is over 56.2 per cent, and about 66 per cent of our external debt is attributed to Chinese loans. In total, Kenya owes China more than $8 billion; about 12.3 per cent of the total national debt or just 10.7 per cent of the country’s GDP (author’s analysis), which is unreasonable and de-economising.

Putting such an economy at ransom is highly risky in light of what comes in (in terms of imports) and what goes out (exports). Many eastern African nations such as Uganda, Tanzania and even Ethiopia rely hugely on the Mombasa Port. It is not something we can afford to lose. Neither is the Jomo Kenyatta International Airport, just in case they were to decide to mortgage that important facility.

In small definitive economic terms, China could start to determine the price of bread, sugar, flour and rice in Kenya and other countries, and to a large extent the kind of investors in selected sectors in coming years, whether we like it  or not. This is an issue that needs urgent judicial, legislative and executive decisions, if not a referendum.

I am not criticising the Beijing economy. Indeed, their technology is known to be almost equal to none. However, we must bear in mind that the borrower is a slave to the lender. While we cannot do away with economic giants such as China, we do need to stop digging ourselves deeper into the debt hole.

We need strategic partnership meetings and streamlined reasoning from top institutions and consultants to make Kenya better for coming generations. We should be grateful that we have oil reserves, coffee, tea and other valuable resources that can ignite our economy, if only proper leadership was engaged to deal with corruption once and for all.

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