This video has been an express request from all members of the VisualPolitik community on Patreon.
So it is particularly dedicated to all of you. Once again: Thanks so much, a million thanks, for
supporting this project. And for those of you who are not Patreon members and want more information,
we’ll leave you a link in the description. Let's get started.
A vast continent full of riches and a rapidly expanding population. The last continent to join
modernity. A land of infinite opportunities. A territory on which the People's Republic of China
has focused its attention and into which it has poured its capital: Chinese money and companies
now spread throughout this continent. Something that is generating many concerns in the West.
Over the last few decades the economic and social landscape in Africa has begun to change.
From despair there was a shift to almost total optimism, a fierce and irrepressible optimism.
From 2000 to 2018, extreme poverty was reduced by more than 30%, average life expectancy
increased by more than 10 years and infant mortality was halved. In addition,
some economies began to evolve so fast that they got their own label: the African lions.
Suddenly, the last continent, the forgotten continent, was beginning to take off.
So how could we not get caught up in the excitement when at last,
FINALLY, Africa was ready to start the race for modernity?
Hold your horses, though, because the Sars-cornavirus-2 pandemic has
dealt a severe blow. And I'm not just talking about the impact on health.
In the midst of all this euphoria, investment projects began to mushroom across the continent.
Obviously, investment has to be financed; But as Africa was growing, that was no longer
a problem. Quite the contrary. With interest rates at rock bottom in developed countries,
many agencies and institutions around the world began to channel more and more capital
flows to Africa, causing the continent's external debt to double in just a few years.
It wasn't a problem. They could afford it. Economies were growing so much that
external debt was not a burden. In relative terms, for many countries,
their situation apparently even improved. But of course, with the impact of the pandemic,
that scenario was turned upside down virtually overnight.
Suddenly Africa faced its first recession since the beginning of the new century,
poverty started to rise again and many governments started to have serious
problems in the face of debt repayments. And not only that, the pandemic itself
increased spending while reducing revenues, which multiplied the financial needs of many States,
a situation that caused public debt to rise sharply, as you can see on the screen.
To make matters worse, the rating agencies downgraded the credit rating of a lot of
countries, to the point that today, 93% of African governments assessed by these
agencies are below investment grade. That is, their debt is considered junk
bonds. Which means much less available money and much more expensive money.
We are talking about a debt problem, a problem that could eventually lead
to a financial and economic crisis. Countries as prosperous as Kenya,
Ethiopia and Cameroon have started to have some problems in the last decades.
And this is where all the alarm bells have gone off, firstly because of the
risk of new humanitarian crises in Africa, and secondly because
of the geopolitical risk that this entails. Because, if we’re talking about debt and Africa,
we also need to be talking about China. For example, the United States government,
during the time of the Trump Administration, went so far as to denounce the perverse
use by the People's Republic of China of what is known as "debt-trap diplomacy".
Now, what were they getting at and is there any truth to it? How far
do China's intentions go? What on earth is the U.S. government talking about?
Listen up. (CHINA'S BUYING UP OF AFRICA)
Since Xi Jinping came to power, Africa has gained more and more prominence in Chinese diplomacy.
As president of the Asian giant, in addition to promoting forums and meeting spaces, the Chinese
leader has made four tours of the continent. So we could say that Xi Jinping's presence in
Africa has been much greater than that of any other major international leader. And it shows.
Chinese politics have followed in the footsteps of China's growing economic ties with Africa... Or
perhaps it was economics that followed politics... Which came first, the chicken or the egg?
The thing is that since 2000, China's trade with Africa has increased by over
2000% to reach over $200 billion in 2019. And that is not all. If in 2006 there were
800 Chinese state-owned companies operating on the African continent,
today there are more than 10,000 public and private companies present, which has made China
also become, along with the United Kingdom and France, the largest investor in the region.
To give you an idea, 40% of the infrastructure market,
a significant percentage of mining activity and more than 12% of
all industrial production in Africa is already in the hands of Chinese companies.
Companies like Transsion, the Shenzhen-based mobile phone manufacturer that leads the African
market and operates local factories. Factories like the one that opened in 2011 in Addis Ababa,
the capital of Ethiopia, where it manufactures more than 1 million mobile terminals each year.
We are talking about an exposure that just keeps growing. Gambles such as,
for example, the one presented by the Chinese ambassador to Nigeria on 21 September 2021,
when he announced that the launching of one of China's largest banks in the African country
was being finalised through the front door. ("China has chosen Nigeria for a specific reason.
It’s oil. Nigeria being an OPEC member state, records its oil sales in dollars. This move is to
persuade the energy sector in Nigeria to accept payments for its oil in yuan." (Arthur Dong,
professor of strategy and economics at Georgetown University’s McDonough School of Business)
But wait a minute, because if one thing has stood out in recent years, it has been debt.
You see, China has become the largest foreign lender in all of Africa. According to Johns
Hopkins University's Africa-China initiative, official borrowing by China's government and
large state-owned enterprises totaled more than $150 billion between 2000 and 2018.
As an example, over the past two decades China has financed 1 in 5
infrastructure projects on the continent. And take note, because many of these loans,
whose specific terms and conditions are kept secret at Beijing's express request,
apparently include strategic sovereign assets as collateral or even payment with raw materials.
This could be the case in Angola, for example, the country that has received
the most loans from China by far and the repayment of which would be made largely
with barrels of oil. As we shall see, this could be one of the Asian power's main objectives.
But regarding the debt to China,
look at what Uganda's finance minister said in a 2018 letter to President Museveni:
("Given what is happening in our peer countries as regards to China debt,
we strongly believe we should protect our assets from possible takeover” Matia Kasaija,
Minister of Finance of Uganda in 2018) So with all this in mind, I think there
are a few questions we need to ask ourselves: What exactly is China looking for in Africa? Is
there a debt trap, and if so, what would be the implications for the African continent
of this whole process we have described? Listen up.
(THE DEBT TRAP)
The question, the big question I think we are all wondering is:
What exactly is China looking for? What price does it really demand in
return for its financial support? And no, I am not referring to the interest rate.
In 2017, the Trump Administration began putting the idea of the Debt Trap on the table.
According to this theory, the Chinese government would basically be promoting the delivery of
official loans to developing countries with the essential objective of indebting them
up to their necks in order to control them and to be able to take advantage of them,
that is to say, to obtain concessions. So to see if this makes sense or not,
let's change the question slightly: If they are correct, what exactly
are the benefits that China could get? Okay, I think the first of these is very
obvious. China devours raw materials and if Africa has anything, it is precisely natural resources.
More than a third of all the oil China imports and 20% of the cotton consumed by the Chinese textile
industry comes from Africa. And that’s without even mentioning resources such as manganese,
essential for steel production, or coltan, vital for the electronics
industry and the largest reserves or which are found, precisely, in this continent.
And these are just four examples in a long list.
In this way, the loans could have a double function: on the one hand,
to build the infrastructure that China needs to be able to exploit all these resources;
on the other hand, to "trap" the governments in order to control these very resources.
But beyond this issue, if there’s one thing that has stood out lately,
it is the political mileage. Yes, yes, that’s right.
The political use of debt to win support in exchange for improved
loan conditions or extended repayment terms.
For example, in 2020, of the 53 countries that signed a statement of support for China at the
UN Human Rights Council after the passing of the National Security Law in Hong Kong,
25 were African. And three other major countries: Nigeria, South Africa and Kenya,
although they did not support the law, did not join in the criticism against Beijing.
And exactly the same happened with the denunciations against the persecution
of the Uyghurs and other ethnic minorities. Many African countries have
supported China in international organizations. Likewise, the votes of African countries are also
supporting the election of Chinese representatives to lead important international institutions,
as is the case of the Food and Agriculture Organization of the United Nations, led from 2019
by a representative of the Chinese government thanks, in large part, to African votes.
Okay, so it's clear that this is all happening. The debt
granted to African governments gives Beijing a huge negotiating leverage.
But is this the whole story?
Africa needs capital, it needs infrastructure,
it needs investment. And here China could be playing an important role. Because the question
we can ask ourselves is, has Africa improved or not improved over the last two decades?
(“I don’t think there is a deliberate plan by China to indebt any country at all.
I think China is fulfilling a very important role, which is in terms of
infrastructure support,” Akinwumi Adesina, President of the African Development Bank)
What’s more, no matter how much we talk about the debt trap
and no matter how much we are told by Washington, we cannot ignore one reality:
the People's Republic of China has become Africa’s largest lender, but by no means the only one.
China controls about 25 percent of Africa's external debt, which is a lot,
yes, but it also means that the remaining 75 percent is
in the hands of other countries or agencies. Just the World Bank and
the IMF have close to as much presence in Africa's debt as China. It’s only Zambia,
Djibouti and the Democratic Republic of Congo that have the majority of their debt in Chinese hands.
But, let's recap: China is gaining political mileage out of its growing relations with Africa,
but apparently Africa needs Chinese investments.
Hold on, though because there's another factor to consider.
Not everything is so straightforward. China funds whatever it wants, which is fine, but
we need to be clear about that. //// Emphasizing word for word//// China funds whatever it wants.
And do you know what? Maybe the problem lies in the fact that many of the projects promoted do
not make economic sense. Which is exactly what has happened within China itself.
For example, a 2016 Oxford University study found that more than half of all
infrastructure projects in China over the past 30 years have underperformed.
According to this study, only 28% of the projects could be considered economically interesting.
Put another way, what if the Chinese model doesn't work? The Chinese government generates
enough resources to waste on oversized or unnecessary infrastructure. But that
is not the case with African governments. Perhaps this is an unintended consequence
of China's debt. There needs to be a lot of caution on this issue.
If projects have poor economic returns, it means that they may
not generate enough to repay the debt. Of course, it doesn't have to be that
way. Africa needs investment and no one could have anticipated the impact of the coronavirus.
It is clear that Foreign Direct Investment is better than mere financing and it is also
clear that Beijing will use every tool at its disposal to gain political advantage,
even if it means making deals with corrupt leaders and signing loans for questionable purposes.
But, if there is anyone ultimately responsible, it is the African leaders themselves.
In any case, let's be optimistic, built capital prevails, China is very interested
in Africa's prosperity and now everything points to the fact that we are entering a
cycle of rising commodity prices. A cycle that could give the African continent the
resources it needs to overcome the blow dealt by the pandemic and return to the growth path
it has been maintaining for the last 20 years. I don't know, personally, what do you want me to
say? Maybe there is such a thing as debt diplomacy... But I don't think we should
exaggerate or look for ghosts around every corner. If the Chinese presence in Africa is a concern,
what Western governments will have to do is look for ways to improve investment
in this continent and the integration of African countries into the global economy.
But this is just an opinion, my opinion. Now it's your turn: Do you think China is
really using debt strictly as a political weapon? What do you think Western powers
should do? Should they fight back, should they counter China's growing influence in Africa?
Leave us your answer below in the comments. And as always if
you found this video interesting don't forget to like it. Thank you very much
to all the patrons who support us and have made this video possible.
Take care and see you next time.