#5 - Chinese Credit and Western Exit

Foreign involvement in East Africa is not novel. The region’s history is coloured by colonial interference which left behind a turbulent state of affairs (Kimenyi and Mbaku 2015). More recent involvement has seen a growing tension between American and Chinese involvement in the region. But what exactly is this interference, and what is the current role of foreign powers in East Africa?
 
My past two blog posts looked at the Grand Ethiopian Renaissance Dam (GERD) – a mammoth hydroelectric dam – almost entirely funded by Ethiopia and set to change the power relations in the Nile Basin. These posts considered the history of the political situation between the Nile riparians, concluding with the immense shakeup the GERD represents to Egyptian hydro-hegemony. 
 
The GERD has become emblematic of a continental tension between American – and broadly Western – versus Chinese investment. Where once the World Bank was the key financier in Africa, today China has stepped in to replace it as the single largest investor (Were 2018). Since the beginning of the century, China has well over tripled its finance for energy projects internationally (Gallagher et al. 2018). While this move fills the vacuum left by Western banks, Chinese investment has also presented risks. 
 
Most obvious is the concerning ambivalence towards environmental standards. Ethiopia’s Gibe III Dam, for example, threatened to impact 500,000 indigenous people who live on Lake Turkana (International Rivers 2012). Activist efforts successfully deterred international financiers like JP Morgan Chase, the African Development Bank and the World Bank (International Rivers 2012). Chinese investors – in the form of China’s Industrial and Commercial Bank of China (ICBC) – were not dissuaded and provided the $500 million of loans in 2010 (International Rivers 2012).
 
There is another dimension beyond environmental concerns. Once again, I refer you to the balance of power in the Nile. Chinese investment is not just a new source of development funds. It threatens to disrupt Egyptian – and by proxy, Western – interests in the region. As I mentioned in my GERD post, Egypt has traditionally dominated the Nile Basin. And it has been supported by American finance and ideology since the Camp David Accords in 1978 (Swain 2011). Crucially, Chinese investment offers the upstream riparians an alternative financial lifeline, especially considering the World Bank opposed construction of the GERD (Mahlakeng 2017). In relieving this financial strain, China has indirectly challenged Egyptian hydro-hegemony. 
 
Such challenges have not gone unnoticed. The U.S. State Department has concretised its resolve. In response to Ethiopia filling the GERD without Egyptian and Sudanese consult, the State Department announced that it would withhold $264 million in security and development assistance from Ethiopia (The Washington Post 2020). This move reflects a bid to protect American interests in Egypt by denying finance to Ethiopia. Egypt more broadly deterred investment in upstream riparians by the World Bank, European Investment Bank and African Development Bank (Mahlakeng 2017). Chinese credit takes the wind out of American threats, however, and provides alternative funding for infrastructure projects.

 
Aside from being an affront to American interests, many Western pundits have argued Chinese involvement in Africa is a geopolitical leveraging strategy. By extending credit for infrastructure projects in Africa, it is argued, China is attempting to create a “debt trap” by locking countries into unpayable loans (Euromoney 2020). Indeed, while not directly financing the GERD, Chinese banks loaned $1.2 billion for the construction of power lines to connect the dam to nearby towns (Bloomberg 2020).
 
Such unscrupulous accounts have been argued to be a reductionist Western view (Were 2018). Not only does it ignore the considerable failures of Western finance vis-à-vis “structural adjustment programmes”, it also ignores the appetite of many African nations for debt (Were 2018). That is not to say, of course, that there are no concerns about Chinese investment. The opaque nature of Chinese finance – China keeps all international investments confidential (Shen 2020) – and the affront to African state sovereignty when overleveraged are certainly considerable issues. It does at least help put the threat of Chinese investment in perspective.
 
It is not my intention by demonstrating this tension between American and Chinese investment to condemn or condone. Both parties have vested interests and both have provided crucial development. In reality, we have a poor understanding of the political implications of Chinese investment in Africa (Shen 2020). In the meantime, credit is demanded in Africa and Chinese pockets are flush.