Duality of African Debt

Date: 4 Sept 2022

Author: Indescribled 

Tags: Africa, Economics

Chinese President Xi Jinping at the Forum on China-Africa Cooperation in 2018, image

China recently announced that it would be waiving 23 interest-free loans for 17 African countries, reigniting discussions and accusations that China has pursued a so-called "debt trap" strategy of diplomacy. The West, primarily the United States and its bourgeois media, is the primary source of, and loudest voice supporting, the narrative around the Chinese debt trap. Much research has gone into the accusations, the outcome of which has shown that, in reality, the United States, the IMF, and the World Bank are the most likely to be guilty of debt traps. The duality in the responses to debt by the US and China says a lot about which side is really the debt trap - the US, and the West, is unsympathetic and even manipulative in regard to Africa’s debt, while China’s response is one of cooperation and support.

The bourgeois media consistently lies in any way that favors their bourgeois self-interest, and that is exactly what is happening with the debt situation in Africa. While western politicians and bourgeois news outlets warn of a debt trap, the actual situation as reported by African sources themselves tell a very different story: that African countries owe three times as much debt to western firms than to Chinese lenders. Not only is the amount owed higher, the interest rates are also higher for Western loans. Meanwhile, loans from China have lower interest rates, and many are associated with the Belt and Road Initiative (BRI), which, for example, has helped Kenya build rail and renewable energy infrastructure. In the long term, the BRI loans help African countries to upgrade their infrastructure, without taking over ownership and double-dealing them into an exploitative, purely extractive relationship, as had been the case during colonialism. Disregarding reality, United States Vice President Mike Pence made disparaging and vitriolic remarks about China in 2018, which included: “In fact, China uses so-called ‘debt diplomacy’ to expand its influence”, “Sri Lanka took on massive debt to Chinese state companies to build a port”, and “We’ll be giving foreign nations a just and transparent alternative to China’s debt-trap diplomacy”. 

Is China using debt to expand its influence, or the United States projecting it's own intentions onto China, a common fascist propaganda tactic? Let us look at what each country has done with debt in Africa. In 2005 the Group of Eight (G8, includes Canada, France, Germany, Italy, Japan, Russian, the United Kingdom, and the United States) wrote off $40 billion in debt to 18 countries, 14 of which were in Africa. Debt relief was not given due to need, it was given based on eligibility—meeting “HIPC targets for good governance, curbing corruption and fraud, opening up economies and liberalizing trade,” as well as being endorsed by the International Monetary Fund (IMF) and World Bank boards. The Heavily Indebted Poor Countries (HIPC) Initiative is an IMF project targeting 39 countries in the global south based on specific criterion. The IMF requires that HIPC countries must “commit to poverty reduction through policy changes”, primarily via policy changes including opening up economies and liberalizing trade. These countries, generally already in debt to the West, the IMF, or the World Bank, have to commit to opening up and liberalizing trade—which further traps vulnerable economies into exploitative relationships and debt cycles at the mercy of western monopoly interests. 

For example, in early 2022 the World Bank, because it had debts and agreements with Kazakhstan, forced that country on a track of what they called Green Development—meaning privatizing the nationalized oil and gas sector. As a result of these policy demands, the Kazakh government began dismantling the nationalized industry. This forced neoliberalization immediately led to a spike in prices and a lowering of standard of living, sparking mass protests in several regions. These mass protests were in turn used as cover for an attempted color revolution. The ensuing violence and chaos were only put down once the Collective Security Treaty Organization (CSTO) was activated, bringing in assistance from Russia and others.

Returning to Africa - as foreign investment increases, the debt situation is likely not going to improve, and even if US debt is written off, as it was in 2005, it will come back even worse through rising western investment, which is exactly what has happened. In 2019, U.S. Assistant Secretary of State for African Affairs, Tibor Nagy said “[w]e went through, just in the last 20 years, this big debt forgiveness for a lot of African countries. Now all of a sudden are we going to go through another cycle of that? ... I certainly would not be sympathetic, and I don’t think my administration would be sympathetic to that kind of situation.” (Emphasis added) Nagy was referring to the HIPC program; the same program that forces countries to open up to foreign trade and investment and liberalization in exchange for debt relief, only to saddle them with more debt, and no sympathy.

Conversely, what has China done in Africa? As of March 2022, there were 43 African countries partnered with the BRI. The BRI is a development strategy and framework, proposed by Chinese President Xi Jinping, that focuses on connectivity and cooperation. The program began in 2013 and is open to countries across the world and seeks to improve global infrastructure, interconnectivity, and trade. China has been deeply involved in projects building infrastructure across Africa with low-interest loans. Unlike with neoliberal and neo-colonialist projects from the west, BRI partners in Africa retain ownership of national infrastructure and industries, and are not forced into neoliberal privatization schemes benefiting foreign monopolies. In the interest of advancing cooperation, China is waiving 23 interest-free loans for 17 African countries. Not only is China waiving loans, Africa is also receiving food assistance, and even more importantly, Chinese investment in agricultural production and processing with the stated goal of “help[ing] realize food self-sufficiency.” Self-sufficiency allows African countries to make their own decisions, not relying on outside influence from a country that they import food from. 

“Alas, for lack of organization, we are forced to beg for food aid. It's this aid that instills in our spirits the attitude of beggars.”

“He who feeds you, controls you”

— Thomas Sankara

These recent loans are not the only instance of China helping Africa in debt. Between 2000 and 2019 China wrote off 94 interest-free loans, worth $3.4 billion. Even earlier, 85% of the zero-interest loans China made to Africa during the 1980s and 90s were canceled. The idea that there is suddenly an attempt to create a debt trap in Africa is , at best, incorrect. At worst, intentionally malicious. China has a clear record of forgiving African debt, and to this day is supporting infrastructure growth— in energy, transportation, and agriculture. 

In the same statement, Pence also said that Sri Lanka took on massive debt to China in order to build a port. What is the actual situation in Sri Lanka? In July of this year Benjamin Norton and Multipolarista reported that “[a]s of 2021, a staggering 81% of Sri Lanka’s foreign debt was owned by US and European financial institutions, as well as Western allies Japan and India.” The distribution of Sri Lanka’s foreign debt can be seen in the accompanying chart from Sri Lanka’s Department of External Resources. It is true that Sri Lanka took on debt for the port, but, as BBC host Ben Chu said, “[t]he Hambantota port, well, that was instigated by the Sri Lankans, not by the Chinese. And it can’t currently be used by Chinese military naval vessels, and actually there’s some pretty formidable barriers to that happening.” All things considered, the situation seems to be the opposite of what Pence has said - Sri Lanka has taken on a massive debt to the west, not to China

The exploitation of Africa by the United States and other western forces is nothing new—the entire US was built upon generations of slavery and genocide of innocent African people. The relationship between the US and Africa began with the violence of slavery; the violent exploitation of the continent has not stopped. On the other hand, China’s first serious interaction with Africa consisted of support for movements of liberation and anticolonialism. Mistakes have been made, but overall the Chinese have played a vastly different role on the continent than Western Powers—one of cooperation and assistance. US politicians would do well to remember this, and Communists would do well to teach a correct understanding of the situation and its history to the masses.

China’s foreign policy can be summed up in two sentences. First, to safeguard world peace we oppose hegemony. Second, China will always belong to the Third World. It belongs to the Third World today, and it will do so even when it becomes prosperous and powerful, because it shares a common destiny with all Third World countries. China will never seek hegemony or bully others, but will always side with the Third World.

— Deng Xiaoping, 1984