How One Country can Show the African Continent how not to Fall into the Chinese Debt-Trap
When Zambia, at the end of 2020, opted out of a $42.5 million repayment, it became the first African nation to default on debt against the backdrop of the pandemic. Economists across the region and beyond rushed to understand what lay behind the default and whether it could affect other African nations affected by the pandemic.
A growing number of experts have pointed out to the undervaluation of Zambia’s debt owed to China, known as the Chinese debt-trap. According to AidData, a research institute that seeks to make development finance more transparent, accountable, and effective, there are 38 African countries that have debt to the Chinese government worth more than 10% of their economies. Ten other countries have hidden debts to Chinese banks amounting to more than 10% of their GDP.
These countries, whose economies are collapsing under the cost of the pandemic, are at risk of succumbing to a combination of sovereign debt and hidden loans.
African countries, it seems, less than a century after the collapse of colonialism, are falling like dominoes to be owned by a foreign power. However, there is one nation in our whole continent which has yet to succumb to China’s lure, and in their plucky fight, we might learn how to reverse this worrying trend.
Despite tremendous pressure, Eswatini recognized Taiwan over China in 1968 and has maintained formal diplomatic relations ever since. In May 2018, Burkina Faso switched to recognize China, thus ending diplomatic ties with Taiwan, making Eswatini the only hold out to China’s advances in Africa. This is a situation that China has long hoped to rectify.
Even though Eswatini is one of the smallest economies in the region, China sees it as a matter of pride and honor that fewer and fewer nations have relations with Taiwan and sees Eswatini’s position as an ongoing challenge. Chinese officials have threatened to “cripple” Eswatini’s business and economic development should it not switch its allegiance from Taiwan to China.
Nevertheless, Taiwan has become one of Eswatini’s closest and most reliable allies and a vital development partner, with dozens of Taiwanese investors backing businesses providing tens of thousands of jobs across the country. Already, apart from direct investment, relations between the two countries have brought about greater interest from Western countries who want to take advantage of this rarity in Africa. Trilateral partnership agreements are starting to spring up with nations like the U.S. whose own economic battles with China have meant that it seeks to assist those nations not in the Sino orbit.
While any nation should look out with caution at any foreign attempts to invest, the difference between the way China and the West use collateral could not be starker.
China’s global infrastructure project, the Belt and Road Initiative has caused dozens of lower- and middle-income countries to accumulate $385 billion in “hidden debts” to Beijing.
However, countries like the United States have tried to adopt more equitable practices of investment, launching a worldwide “Global Gateway” program, as they look to challenge China’s massive financial and geopolitical influence in the developing world.
So, while China offers debt, the West offers aid.
Let’s not be in any doubt, the West is not offering free money out of the goodness of their heart. It is all part of the newly developing “Cold War” between the U.S. and China.
Nevertheless, as in all crises, there remains an opportunity.
Eswatini is today acting almost as a beacon of light to its neighbors, showing them that there is another way. That it is possible to reject the lure of the Chinese yuan and survive.
Eswatini is not some sort of economical paradise, but it is in a much better place to bounce back economically once the pandemic has subsided.
If we look at national debt to GDP across Africa in 2020, before COVID, Eswatini’s was 15.49%, amongst the lowest on the continent. In contrast, some, like the Republic of Congo, Angola, Cape Verde, and Mozambique, are showing results of over 100% of its government debt to GDP, with the latter’s ten times that of its neighbour to the West.
Regardless of what China places on the table, the debt eventually must be paid, and the bill usually falls on the average citizen, unaware of the deals that are being made above their heads. The example of Sri Lanka should be a cautionary tale for all. There are fears that the island nation may soon become a Chinese colony, because of its crippling debt.
Africans should not accept the possibility of being colonized once again, not by foreign powers and not economically. Eswatini provides a possible antidote to this worrying but increasing reality and a path to a different future.