China's Belt and Road Stretches to Africa

First aired on April 29, 2019

David Dollar of Brookings hosts Deborah Brautigam of John Hopkins for a discussion of Africa in China's most recent globaniliation push, the Belt and Road Initiative (BRI).

Brautigam provides a nuanced and expert perspective on the appeal of China's involvement for African countries, and the difference between the media interpretation of China's BRI and what the data currently say.

She finds that lending and investment in Africa from China comes from a variety of sources, including Chinese development banks, private actors, and state-owned enterprises. After crunching the numbers, Brautigam says she hasn't been able to find any evidence for any "debt-trap diplomacy," whereby China would use high-interest loans on risky projects to try to "trap" countries in debt and thus force them to give concessions. Most major projects like Kenya and Ethiopia's railways are a mixture of concessional (lower) rates of interest and traditional commercial loans, which doesn't exactly sound like price-gouging. Out of the thousand or so projects they have information on, they can't really find evidence of China using its hold on African debt for leverage. This doesn't rule out some future change, but it's not the current situation.

Brautigam notes that using natural resources as collateral is in fact a way for countries to access capital markets, and that Japan had once done the same thing with China back in the seventies. Nevertheless, most countries in Africa don't actually use loans collateralized by natural resources.

It can be difficult to determine the exact amounts of the loans and who's backing them, but Brautigam notes that this is also the case with lending contracts from many western institutions like the World Bank. From a debt perspective, it also makes a difference if it's the state or private companies or state-owned enterprises which would be implicitly backed by the government that receives loans from the African perspective. From the Chinese side, it also matters who makes the loans and investment, because it determines whether the Chinese government would be left holding the tab if the money went into bad projects (which, let's be realistic, some of it is bound to do).

She also notes a weakness on the Chinese side. They have a tendency to fund mediocre projects, because they expect project proposals to be brought to them rather than helping develop the projects. This gives disproportionate leeway to Chinese firms to bring what might be sub-par projects from a development perspective, in that they may not generate much revenue or growth.

The numbers don't show that Chinese construction is of any worse quality than western construction, but Brautigam does note the importance of oversight. Countries that can afford to hire engineering consultants to oversee projects will tend to have better results on projects, and countries that can afford teams of lawyers to cover the contracts will get better terms than countries that have fewer experts facing off against Chinese legal teams.

As regards labor exports, which have generated a fair fuss, Brautigam notes that Chinese companies look largely like local or western companies in their use of imported expertise relative to local labor. In many African economies, it's difficult to find managers and supervisors, because the local human capital levels are relatively low.

To my eye, part of the issue seems to come with the numbers being tossed around. Just like a billion dollars can be a lot or not very much depending on what you're comparing it to, a couple hundred thousand people can be a lot or a little depending on what you're comparing it to. Africa is a big continent, and China currently has around 200,000 Chinese workers working there.

Relative to the size of the continent, however, I don't really see that as a gigantic labor force. (All of China, which is about the size of the US, covers approximately the area of the Sahara Desert). What's more, the imported Chinese labor is concentrated in countries with small populations for the size of the projects they want to engage in (Algeria), or countries with very low human capital accumulation (Angola).

Overall, then, it looks like China's operations in Africa are looking rather more like the rest of the world's operations there than the media might lead us to believe.