China Spatial Fix and ‘Debt Diplomacy’ in Africa

Remy Maduit | Authors published

China’s spatial fix and ‘debt diplomacy’ in Africa
Constraining belt or road to economic transformation?

Pádraig Carmody is a professor in geography at Trinity College, the University of Dublin & a Senior Research Associate in the School of Tourism and Hospitality at the University of Johannesburg, South Africa. Ireland & South Africa.
Ian Taylor is a professor in international relations and African political economy in the School of International Relations, University of St Andrews & Chair/Professor in the School of International Studies, the Renmin University of China in Beijing & a Professor extraordinary in political science at the University of Stellenbosch, South Africa, and a visiting professor at the University of Addis Ababa, Ethiopia. China, South Africa & Ethiopia.
Tim Zajontz is a postdoctoral research fellow in the Centre for African Studies at the University of Edinburgh & a Research Fellow in the Centre for International and Comparative Politics at Stellenbosch University. Scotland & South Africa.

Africa’s integration into the Belt and Road Initiative (BRI), a global program of infrastructure construction (amongst other elements), announced by China in 2013, has been framed by official discourses that promise “win-win” development results from closer cooperation and connectivity. The proceedings of the 2018 Forum for China–Africa Cooperation (FOCAC) summit are riddled with references to the BRI, speaking of Africa as “being part of the historical and natural extension of the Belt and Road” and an “important participant in the initiative”. [i] According to the Chinese government, 37 African countries and the African Union committed to the initiative by April 2019. [ii] Central to the BRI in Africa remains the continent’s integration into trans-regional infrastructure networks and corridors, as part of the new Maritime Silk Road [iii], which complements the land-based “Belt” through Eurasia. Large-scale projects, such as port developments in Djibouti and Lamu, Kenya, and railway lines in Ethiopia and Kenya, have become BRI “flagship” projects that are expected to boost economic growth and generate widespread prosperity.

Notwithstanding the official “win-win” narrative, the BRI has caused major controversies in Africa. Van der Merwe argues that:

[T] he infrastructure plans expose the initiative [BRI] is unashamedly colonial, as it reinforces the legacy of transporting resources towards ports–and not between neighboring states. Even where transport infrastructure is created between states, the assumption is still that this would facilitate the movement of Chinese remotely manufactured goods into markets. [iv]

China’s supposed “debt-trap diplomacy” has caused even more consternation. [v] To the White House, it has been politically instrumentalized to discredit Chinese investments in African infrastructure. [vi] A Chinese “debt trap” would imply an intentional attempt to ensnare the continent in debt and should be refuted. [vii] The quantity and sustainability of debt contracted by some African states for Chinese-built infrastructure have become a valid concern, as have the economic feasibility and long-term benefits of some BRI projects. While Western corporates have welcomed the influx of Chinese loan finance into Africa [viii], a Moody’s executive cautioned: “Unless African investment financed by Chinese loans generates substantial economic gains that boost debt servicing capacity of Sub-Saharan African governments, the credit implications of such lending include higher debt burdens, weaker debt affordability, and weaker external positions”. [ix] The COVID-19-induced global economic contraction has added urgency to these matters.

We undertake a critical assessment of the drivers of the BRI and reveal contradictions that shed doubt on official narratives such as that “openness, transparency, and win-win results are advocated and practiced […] to promote high-quality and sustainable development for all”. [x] While the imperatives driving the BRI have their origins in the dynamics of, and interactions between, the global and Chinese economies, the materialization of the BRI also depends on the political demand in receiving economies for infrastructure. [xi] The BRI has become a welcome source of funding for African governments to implement infrastructure projects that have long been planned. [xii] By implication, there is a need for a strategic-relational coupling between state elites in Africa and those in China (as well as an increasing number of other actors from both public and private sectors) to bring BRI projects into being. [xiii] In this paper, we conceptualize the BRI as a multi-vector and -sector spatial fix [xiv], reflective of both general and specific problems and contradictions of capital accumulation in China and more widely, while also being interwoven with geopolitical dimensions. We then explore the implications of this meta-project for Africa through three case studies of countries heavily involved in the initiative: Kenya, Ethiopia, and Djibouti.

The post-reform evolution of China’s economy and the BRI imperative

Domestic dynamics within China now compel both policymakers in Beijing and market actors to seek opportunities overseas, as overcapacity and over-accumulation cause the export of these excess volumes. After economic reforms began in 1978, China shot for the market, becoming the dominant resource allocation mechanism in that society. [xv] Through a “passive revolution,” where a ruling elite transforms policy course to cement its rule [xvi], an ever more hierarchical and ruthless form of capitalism emerged in China. [xvii] Beijing’s membership in the World Trade Organization in 2001 and thus the strictures of global neoliberalism began a new chapter in China’s internationalization of its economy, with additional tariff cuts and service and agricultural sectors being liberalized. [xviii]

With the reforms, the export-oriented sector rapidly became the engine of growth. In 1980, China exported US$11.3 billion globally, whereas by 2017 this had reached US$2.4 trillion–212 times more. [xix] China is now characterized by “a powerful urban–industrial capitalist class, especially in the southern coastal region, significantly influencing government circles up to and including the Politburo, as well as having close ties with foreign investors and companies based in China for export”. [xx] Indeed, there is a substantial straddling between the public and private sectors, as hundreds of members of China’s parliament are billionaires. [xxi] Allied with the managerial elements in the reduced state-owned enterprise (SOE) sector, they demand huge expenditure on support for the export sector and on constructing infrastructure across the country to facilitate their business interests. [xxii] In the 2000s, this contributed substantially to global commodity price increases, creating a spike that spawned high growth rates across Africa. [xxiii] Although this was celebrated by some as a period when the continent was “rising,” this narrative had little to do with socio-economic realities. [xxiv]

Because of the dynamics described above, contradictions developed and mature in the Chinese economy. Chinese workers are no longer an inexpensive reserve pool of labor since rapid economic growth drove wages substantially higher as shortages emerged in coastal cities where foreign direct investment (FDI) was initially concentrated. The median monthly wage in Shanghai is now US$1135, which is close to that of Poland ($1569) and virtually the same as that of Hungary ($1139). [xxv] For China, since around 2010, wages have increased more quickly than labor productivity, leading to a decline in both the profit share and the profit rate. [xxvi]

To keep export competitiveness and out-compete imports, what matters to an economy is not absolute wage rates but how high they are relative to labor productivity. In response to rising wages some major companies, such as the Taiwanese company Foxconn, which assembles many of Apple’s iPhones, moved their assembly operations to inland China. [xxvii] Such relocations inland motivated the government to improve transport links to the East through the BRI, particularly as getting high technology to market is time-sensitive, given rapid product turnover times, and land transportation is quicker than that by sea. The movement of assembly factories inland represents an initial aspect or element of the spatial fix to profit pressure, but the BRI represents its fullest expression.

From 1977 to 2007, China’s output-capital ratio increased, rising to 0.69 by 2007. Since then, China’s output-capital ratio has again trended downward, falling to 0.54 by 2015. If China’s output-capital ratio continues to fall, it will approach the level that historically was associated with the American Great Depression. [xxviii]

It also reflected this in the declining profit rate. Between 1990 and 2010, China’s business sector profit rate was circa 25%, significantly higher than that in the United States at approximately 10%. [xxix] This profit rate accounted for China’s precipitous accumulation of capital. However, China’s profit rate peaked in 2011 and since then has fallen by 30%. The rate in 2019 was no higher than the annual rate for 2009, which marked the depth of the financial crisis. [xxx] Some estimates also suggest that total factor productivity in China fell at a rate of 2.3% per annum from 2008 to 2010[xxxi], as the country struggled with the middle-income trap, where it is no longer a very low labor cost produced, with most of the world’s high-technology development remaining concentrated in core countries.

China’s profit growth rate has now been considerably lower than the rate of accumulation for some time, thus decreasing the capital-output ratio. In 2017, China’s gross fixed capital formation as a percentage of its gross domestic product (GDP) was 41.89%. [xxxii] The contrast between China’s accumulation or investment rate and its declining profit growth rate has been quite stark since 2011, as Table 1 shows.

Table 1. China’s accumulation rate versus its profit growth rate

Time period	Ratio of accumulation (%)	Profit rate growth (%)
1991–2000	41.9	12.9
2001–2010	45.2	13.3
2011–2014	63	2.7

Data source: Li (2016, 169).

Inter-capitalist competition within China means that profits are unevenly circulated. Thus, even if the economy-wide average rate of the profit stays positive (even as low as 2.7%, for instance), substantial sections of the economy may experience negative returns if the average profit rate falls beneath an acceptable level (dependent on the sector). With profits being squeezed in China, generating new avenues for profit abroad is a key motive for Chinese enterprises’ involvement in the BRI.

Events following the North Atlantic Financial Crisis of 2008 compounded profit-related problems–in 2009. As many Western economies went into recession, the market for Chinese exports contracted. Confronting sluggishness in exports (the basis at the time of its growth model), Chinese policymakers started a massive stimulus package, much of it being spent on infrastructure. [xxxiii] China used more cement from 2011 to 2013 than the United States consumed in the entire twentieth century. [xxxiv] In addition, China’s steel industry produced 300–400 million tons of excess capacity. [xxxv] Largely deployed in construction, China’s gross fixed capital formation swelled from US$1.38 trillion in 2007 to US$5.12 trillion in 2017. [xxxvi]

As a capitalist economy matures, the industry becomes more capital-intensive; thus, investment in machinery rises relative to labor costs, depressing the rate of profit. This results in “the law of the tendency of the rate of profit to fall” [xxxvii], 211–266) as the contradiction between the burgeoning technological forces of production and the social relations of production develops, due to there being an inadequate market for industrial products domestically.

In China, the rapid growth of the economy has spurred wage growth, putting pressure on profit rates and encouraging growth in the organic composition of capital or the substitution of capital for labor, besides generating pressure for offshoring. Marx suggests ways out from the falling rate of profit may be in an escalating rate of exploitation of labor; depression of wages below the value of labor power; relative overpopulation to influence the depression of wages; and foreign expansion through trade. [xxxviii] Other than foreign trade, none of these solutions may be initiated in China, which is in harmony with Marx’s view that crisis tendencies are domestically produced within the capitalist mode of production and, thus, a national resolution is not workable. Thus, locating new markets abroad and exporting surplus material and capital are potential “spatial fixes” for China’s economic problems of over-accumulation and falling profits. [xxxix]

The BRI as a multi-vector “spatial fix”

Capital’s expansive tendency has been at the heart of Marxist theories of imperialism. In Lenin’s [xl] thought, the over-production of capital caused new outlets for investment. Luxemburg [xli] argued that capitalists strove for the continuation of profits through discharging surplus commodities abroad as well as accessing new supply sources and pools of labor. What David Harvey [xlii] termed the “spatial fix,” then, is one reaction to over-accumulation and involves changing geographies of capital investment and sunk costs in long-gestation endeavors such as physical infrastructure. Harvey’s “fix” suggests that capital is “fixed in and on the land for a relatively long period (depending on its economic and physical lifetime)”. [xliii] In a metaphorical sense, this signifies a “particular solution to capitalist crises through temporal deferral and geographical expansion” [xliv] in that surplus capital is deployed abroad in investments with long gestation times. Both are evidence of Chinese engagements in Africa. [xlv]

Whilst Chinese capitalist engagement with the African continent is necessarily historically specific, the “moving out” of Chinese surplus capital, and “loan-debt investment” [xlvi] under the BRI in particular, manifests Spatio-temporal tendencies inherent to capitalist accumulation as described by Harvey. This assessment should be enough to take away some of the rancorous moralizings about whether Chinese capitalist engagement with the continent is superior or inferior to other capitalist ventures in Africa, even if state-owned capital has, to some extent, dissimilar time frames and constraints. [xlvii] As Ayers argues, “‘[c]apitalism with Chinese characteristics’ does not cease to be capitalism; yet absent from the voluminous literature on the role of China (and other emerging states) is a consistent theory of capitalism”. [xlviii] The fundamental logic and impetus of capitalism and capital is the amassing of profits: the “boundless drive for enrichment” and the “passionate chase after value”. [xlix]

Given its export-oriented growth model, Beijing’s currency reserves rocketed from US$200 billion in 2001 to nearly US$4 trillion in 2014. The necessity to reinvest these reserves was one factor that led Xi Jinping to instigate a major new plan, as the dynamics of over-accumulation combined with the specifics of China’s export-oriented economy. Xi initially announced the so-called New Silk Road as a program of massive infrastructural construction across Eurasia to facilitate trade and investment. A Maritime Silk Road was presented later, linking China across the Indian Ocean to East Africa. The project(s) seek to quicken the economic integration of large parts of the world under the Chinese economy, and in time, the political leadership. [l]

Within a year of its launch, Beijing established the Asian Infrastructure and Investment Bank with US$100 billion in the capital; 56 states swiftly signed up as members. China also inaugurated a US$40 billion Silk Road Fund, intended for private equity projects. In May 2017, China hosted the Belt and Road Summit, which national leaders from nearly thirty countries attended. Xi Jinping [li] has closely aligned the BRI with his character and rule. Reflecting its immensity, “the projected investment under BRI ranges from USD1.4 trillion to USD6 trillion”. [lii] That the BRI serves as an effective spatial fix for China was openly admitted by He Yafei, vice-minister of the Overseas Chinese Affairs Office of the State Council, who stated that:

China’s fundamental economic readjustments have caused excess capacity against the global economy. With the ensuing knock-on effects of the global financial crisis manifesting in the economic stagnation of advanced nations, coupled with the slowdown in China’s domestic demand, industrial overcapacity, accumulated over several decades, has been brought into sharp relief… [and] has resulted in a steep drop in profits [and] the accumulation of debt and near bankruptcy for many companies. If left unchecked, it could lead to bad loans piling up for banks, harming the ecosystem, and bankruptcy for entire sectors of industries that would affect the transformation of the [Chinese] growth model and the improvement of people’s livelihoods. It could even destabilize society. The Chinese government, guided by the principles laid out at the third plenum, has put forward guidelines for its resolution. The most important thing is to turn the challenge into an opportunity by “moving out” of this overcapacity based on its development strategy abroad and foreign policy. [liii]

President Xi has also argued that China’s neighbors have “extremely significant strategic value”. [liv] The BRI and the associated Industrial Capacity Cooperation (ICC) project to export surplus industrial capacity overseas cannot be separated from domestic considerations in China. [lv] Overcapacity and over-accumulation are, as has been noted, the stimuli behind Beijing’s drive to export the products of excess capacity overseas and transfer surplus capital abroad (China became a net exporter of capital in 2014). This, therefore, represents a multi-vector spatial fix, as the BRI will achieve a variety of objectives simultaneously. Trade remains the primary vector of the spatial fix under the BRI. Already by 2014–2016, trade between the nations involved in the BRI and China had reached more than US$3 trillion [lvi], massively surpassing Chinese investments in the infrastructure and other sectors in those countries. “Expansive accumulation” in the BRI relates to the entire Chinese economy, including trade, and should not be reduced to outward FDI. BRI partner countries provide a spatial fix through the provision of the market, investment, and debt outlets.

In its concrete manifestation of the BRI, the Chinese spatial fix spans a multitude of locales, territories, and scales, firmly integrating Eurasia and Africa into a “China-oriented infrastructural mode of growth in production, finance, and security”. [lvii] The BRI is a way to open up markets for Chinese goods through infrastructural improvements and the spreading of Sino standards. It will also integrate other territories into China-centered global production networks to take advantage of factor inputs or endowments, such as low-cost labor or high-quality and/or low-cost raw materials. “Beijing is attempting to create a connected and cohesive Eurasian entity with China as [the] focal point of the underlying connectivity” [lviii], with an increasing emphasis on advanced manufacturing and innovation domestically. [lix]

These aspects are also securitized as the BRI serves as a geopolitical project to embed allies economically, where loans can be potentially securitized against existing assets. Although highly controversial, this hypothetically allows China to exercise substantial/excessive influence over host governments’ policy regimes if there is debt distress or loans go into default. China prefers to give concessional loans rather than grants to recipient states to maintain political leverage (confidential personal communication, 2019). The diversion of China’s problems overseas via the BRI and associated ICC projects announced in 2014, however, holds within its dynamic challenges for Africa. In particular, so-called “debt diplomacy” has been identified as a major issue of concern.

The BRI in Africa: high costs, limited benefits?

If successfully implemented, the BRI will involve around seventy countries and have a declared total investment in trillions of dollars. [lx] Doubts about the availability of such colossal financing, concerns about the sustainability of the debt incurred by participating states, and the question of how Beijing will respond to such uncertainties is critical. Indeed, Ansar et al. [lxi] found that, in most cases in China, infrastructural investment harmed the economy through the debt channel. The sustainability of BRI financing will no doubt depend in part on the productivity of BRI projects themselves, with a mixed record to date. Some, such as the Chinese purchase of the Greek port of Piraeus, have boomed [lxii], whereas others (some of which are described in more detail below) have experienced severe problems. It is crucial to remember that during China’s transition toward state-steered capitalism, up to 40% of China’s domestic policies were designated as experimental. [lxiii] The BRI can, in this sense, be conceptualized as an extension of an experimental sovereignty regime from China to Eurasia and beyond. [lxiv] Indeed, Narins and Agnew [lxv] see the BRI promoting “a new, aspirational globalist sovereignty regime identity” (original emphasis).

The opacity of Chinese policy on its loan disbursements is of concern. [lxvi] Official data on Chinese loans are not publicly available, and thus, all circulated statistics are approximations. Beijing is not a member of the Organisation for Economic Co-operation and Development (OECD), and it does not take part in that organization’s Creditor Reporting System. Chinese state banks rarely publish information about financing contracts, while recipients of such loans habitually do not make such information known. However, data show that from 2000 to 2017 the Chinese government, banks and contractors extended US$143 billion worth of loans to African governments and SOEs [lxvii], and estimates suggest that loans to Africa by the China Development Bank and the Export-Import Bank of China are approximately 23% of China’s overseas total. [lxviii]

Debt sustainability concerns in Africa have also mounted in light of the COVID-19-induced global economic contraction, which leaves several African states, such as Zambia, Kenya, and Djibouti, on the brink of default. Two key issues regarding the financing of BRI projects in Africa have arisen. The first centers on whether the capital lent will leave recipient countries with an amount of debt that may hinder other investments in sectors that need financing. The second is, will the large amounts going towards countries as part of the BRI spawn an unhealthy dependency on China?

Rana Mitter has noted that deliberately attempting to entrap countries in debt would risk generating a backlash amongst both populations and, over time, politicians. [lxix] Depending on the politico-institutional context, the latter is, to a greater or lesser degree, accountable to the public. However, the structural power and importance of China as a market may now insulate it from any backlash in particular cases. For example, Michael Sata, who ran an election campaign for the presidency of Zambia on an explicitly anti-Chinese platform, had the Chinese ambassador as his first official visit to the State House after his inauguration and quickly rowed back from any anti-Chinese sentiment. [lxx] Debt entrapment would also discredit the policy of non-interference espoused in the Five Principles of Peaceful Coexistence, although China has already conditioned loans, as with Angola, on having an International Monetary Fund (IMF) austerity program in place. [lxxi]

The narrative of China’s alleged “debt diplomacy” has partly sprung from the opacity of Chinese lending. Neither of the two main lenders, the China Development Bank and the China Exim Bank, disclose their lending terms, although this varies from interest-free loans to fully commercial rates. The African countries under scrutiny in this article, associated with the BRI, and the amount received in loans from China from 2000 to 2018 are presented in Table 2 (note that the data show quantities borrowed after 2000; they do not specify current debt figures given they have made repayments on such loans).

Table 2. Chinese loans to selected Belt and Road Initiative (BRI) countries, 2000–2018 ($ millions)

Year	Djibouti	Ethiopia	Kenya
2000	0	0	0
2001	0	1	6
2002	0	0	6
2003	12	0	0
2004	0	0	0
2005	0	0	0
2006	0	1,900	46
2007	0	207	65
2008	0	0	57
2009	0	619	365
2010	36	555	263
2011	8	1,158	225
2012	64	177	1,191
2013	814	5,933	32
2014	0	773	3,730
2015	0	613	1,670
2016	365	824	1,095
2017	115	735	296
2018	0	234	0
TOTAL	1,414	13,729	9,047

Data source: Bräutigam et al. (2019).

It is important to emphasize that in discussions of the so-called “Chinese debt trap,” Beijing’s share of Africa’s debt is often exaggerated. A Jubilee Debt Campaign report in 2018 found that, on average, African governments owe only 20% of the African government’s external debt to China, and around 17% of external interest payments were identified as being made to China. 32% of the African government’s external debt is owed to private lenders, and 35% to multilateral institutions such as the IMF. [lxxii] Reckless lending to the continent by the Western capitalist world, in particular the immense quantities that may be reasonably characterized as odious debt, has been far more destructive to Africa. [lxxiii] However, Chinese loans have recently increased substantially, and in the BRI, there are signs that several African nations involved in the initiative are now in danger of debt distress, with financial arrangements for infrastructure projects being the main problem. Given its growing loan portfolio on the continent, China is also implicated in the looming debt crisis for the continent in COVID. We now turn to the specifics of flagship BRI projects in our case study countries.

Kenya: piles of debt and a new “Lunatic Line”

In Kenya, the government has commissioned both semi-concessional and commercial loans from China (as well as from global markets) since 2014 to kick-start infrastructure development. This came after Kenya’s ascent into the “lower-middle-income economy” category in 2014, which ended the country’s access to concessional loans from international financial institutions. Beijing’s prominent role started with the China Exim Bank funding 90% of the US$3.6 billion for the 485-kilometer Mombasa–Nairobi Standard Gauge Railway (SGR) line [lxxiv], which has been cast as a flagship project of both the BRI and Kenya’s own “Vision 2030” development framework. [lxxv] The SGR construction drove up Kenyan debt to China from US$756 million in 2014 to US$6.47 billion by 2019. [lxxvi] Kenya has also issued Eurobonds to international markets to the tune of US$6.1 billion. [lxxvii] China accounted for 22% of Kenya’s external debt portfolio by the end of 2018. [lxxviii]

The end of the five-year grace periods for SGR loans drove up debt service payments to Chinese lenders, which reportedly add up to about US$888 million in 2020[lxxix], although Chinese lenders have agreed to pause debt repayments until the end of 2020 as part G20’s Debt Service Suspension Initiative. [lxxx] In 2017, transport minister James Macharia still expected that the SGR would boost Kenya’s GDP by 1.5%, enabling the government to pay back the loans “in about four years”. [lxxxi] Currently, it seems unlikely that Kenya will repay the loans within the agreed 15-year period unless the country gets significant debt relief from other creditors. Since the railway’s inauguration in May 2017, the SGR has failed to yield profits. By May 2020, the SGR had incurred a combined operating loss of about US$200 million. The Kenyan government is contractually obliged to pay a fixed quarterly operation fee of about US$28.8 million to the operator Afristar, which is owned by the China Communications Construction Company (CCCC). [lxxxii] In June 2020, the Budget and Appropriations Committee of the National Assembly found out that Kenya Railways could not pay outstanding dues of about US$350 million to the operator, causing fears of operations coming to a halt. [lxxxiii] A committee report stated that “[t]he committee recommends that renegotiation on the current Operating Agreement by planning to reduce the operation costs by at least 50% be initiated by the government”. [lxxxiv] Yet it seems unlikely that the set operation fees will be slashed by half, considering that such compensation for Chinese firms provides for another means of capital repatriation, which is essential to China’s spatial fix. The losses incurred fortify long-standing doubts about the economic feasibility of the project.

A 2013 report by the World Bank Africa Transport Unit stated that freight traffic within the entire East African Community (EAC) rail network could, by 2030, reach 14.4 million tons annually. The same report concluded that “the construction of a new standard gauge line in a new right-of-way is only justified if additional traffic attracted to the line amounted to 55.2 million tons per year”. [lxxxv] There were clear indications that projected demand would not redeem the immense costs related to the construction of a new SGR and that a refurbished meter-gauge network would have been a sufficient and more economical alternative. Those Kenyan decision-makers who opted for the SGR suggest that the demand for a BRI “flagship” was foremost political.

The SGR has remained uncompetitive compared to road haulers. Reuters reported a container traveling from Mombasa to Nairobi to cost US$800 on the road but $1100 on the SGR. [lxxxvi] Road haulers usually charge $1900 for transporting a 40-foot container from Mombasa to Kampala, whilst the same container, if it travels on the SGR to Naivasha and from there on the road to Kampala, cost US$2180 in mid-2020. [lxxxvii] A Railway Development Levy, consisting of a 1.5% tax on any goods imported into Kenya, that has been introduced to help repay the SGR loans, has a deadweight effect. Kenya has had to increase the cost of doing business in the country, making the country less attractive to investors, to create revenues for debt service. [lxxxviii] The realization of the plan for a regional SGR network that serves the entire Northern Corridor is becoming increasingly unlikely. For one, in light of Kenya’s waning debt sustainability, China has decided not to extend another loan for the remaining stretch between Naivasha and the Ugandan border, causing a situation in which the railway currently ends in the middle of “nowhere”, from where cargo must be transshipped, at additional cost and time. [lxxxix]

Initially, an SGR was planned to stretch along the entire Northern Corridor serving the entire East African region, with connecting lines planned to extend to Kampala, Juba, Kigali, and the Kivus, which would have created revenues for Kenya Railways for transit traffic destined for the country’s landlocked neighbors. [xc] As the Chairperson of Kenya’s parliamentary Budget and Appropriations Committee, Kimani Ichung’wa, put it:

It[’s] time we ask ourselves what we are getting from the SGR and take a walk down to Naivasha. How many trains use this railway? […]. If you read our Public Investment Committee report in the past parliament, you know that the viability of the line ends here (Nairobi) unless you interconnected the port of Mombasa with landlocked countries, but without that interconnection, it is not possible. [xci])

Also, competing rail infrastructure as Tanzania’s SGR, which competes for Rwandan, Ugandan, and Eastern Congolese cargo and whose construction is steadily approaching Lake Victoria under the rigid “supervision” of President Magufuli, further compromises the economic viability of Kenya’s SGR “flagship”. [xcii] BRI projects have also been highly problematic in other countries in the region.

Djibouti: China’s now highly indebted geostrategic hub

Djibouti has received US$1.4 billion in loans from the Chinese to expand the Ghoubet salt port; the Damerjog livestock export port; the Addis–Djibouti Railway (Djibouti’s share being US$492 million); the Djibouti–Ethiopia Water Pipeline; and the Doraleh Container Terminal/Multipurpose and Djibouti Port as the terminal of the Ethiopia–Djibouti Railway, which cost US$590 million. [xciii] Chinese companies are also building Africa’s largest free trade zone there, with the first phase having opened in 2018. [xciv]

It is reported that Chinese finance now accounts for 77% of the country’s debt [xcv] and that it was under pressure from China that the country evicted Dubai Ports (DP) World from the operation of the port next door to its first-ever overseas military base in 2018. [xcvi] DP World is suing the state-owned China Merchants Company for “bypassing its concession agreement with Djibouti and gaining an indirect shareholding in the Doraleh terminal”. [xcvii] Some have suggested this is part of geopolitical and economic competition to dominate the trade through the Red Sea.

There is some evidence that Chinese aid and investment are deployed geo-strategically. For example, Dreher et al. [xcviii] find that African leaders’ birth regions receive substantially more Chinese aid than others in their countries. Djibouti sits astride one of the world’s most important shipping lanes. In 2016, China passed a law that forces all Chinese industries involved in international transportation to provide aid and supplies to its navy if needed. [xcix] Djibouti is the site of China’s first-ever overseas military base, which it had said previously it would have none of. Djibouti also provides a “natural port and railhead for its giant neighbor Ethiopia”. [c]

While some argue that Djibouti has been able to skilfully negotiate its strategic geography to achieve greater policy autonomy [ci], there is a moral hazard attached to loans under the BRI umbrella as politicians in recipient countries are attracted by the quick economic growth and employment creation such projects offer, even as debt has to be repaid over the long term. For example, according to the IMF [cii], real GDP growth in Djibouti averaged close to 7% during 2014–2017, with new infrastructure projects being a major driver. [ciii] However, as noted above, its debt profile deteriorated dramatically during that time. A substantial debt overhang will reduce future economic growth as payments go to debt service rather than social spending, infrastructure development, or other sectors, depressing domestic demand and undermining the economy’s longer-term growth potential. Djibouti’s debt service ratio, i.e. debt service as a percentage of exports of goods and services, averaged 15.6% between 2000 and 2015 but reached a shocking 57.8% in 2017. [civ]

An IMF report [cv] noted that:

Djibouti remains at a high risk of debt distress… solvency and liquidity risks are significant over the projection horizon, and all the debt burden indicators breach their respective policy-dependent thresholds by sizeable margins… All the solvency debt burden indicators exhibit protracted breaches of their respective thresholds. In addition, liquidity risks have increased significantly compared with… 2015.

Indeed, Chinese loans to Djibouti are rather inconsequential in the wider global picture. Yet Djibouti’s annual GDP is only circa US$1.8 billion. While there have been overblown accusations about the “billions” in Chinese loans, the fact is that for a country with such a small economy, like Djibouti, assuming such levels of debt is problematic and particularly serious if that debt is owed to a single source.

Ethiopia: costs and benefits of the “TAZARA of the new era” [cvi]

Ethiopia is home to another BRI “flagship project,” the country’s new, partly electrified SGR linking Addis Ababa with the port of Djibouti. At first sight, the project looked promising in terms of “win-win cooperation.” Landlocked Ethiopia received a “lifeline” on rails to the Gulf of Aden, financed through a US$4.2 billion loan from China Exim Bank. In return, Africa’s second-most populous country was firmly integrated into the BRI and its underlying Chinese-oriented mode of accumulation. [cvii] However, the railway has contributed to the country’s growing external debt levels. As Table 2 shows, by the end of 2018, Ethiopia had contracted US$14 billion in Chinese loans. Ethiopia’s debt-to-GDP ratio, which, following major multilateral debt relief initiatives, stood at 35.1% in 2009, and rose to 59.2% in 2018. [cviii] Ethiopia has faced similar problems to Kenya and fell behind in scheduled repayments for the SGR loans and management fees to the operator. As a result, the Ethiopian government engaged China in negotiations about extending the repayment period from 15 to 30 years–with success. [cix] Equally, the operations of the Addis–Djibouti railway have yet to reach profitability. In 2019, the railway reportedly created US$40 million in revenues; its operating costs, however, were US$70 million, a situation the operators have tried to improve by doubling the number of freight trains that run between the two termini from two to four per week. [cx] Whether there is sufficient demand for this measure remains to be seen.

The relatively successful developmental state in Ethiopia is now unraveling, because of external debt pressures, in which China plays an important part. [cxi] Debt is both a vector and an outcome of dependence, and despite substantial Chinese manufacturing investment in Ethiopia, its principal export to China is still sesame seeds. Irrespective of the developmental constraints that have arisen from Ethiopia’s indebtedness, the BRI infrastructure projects, especially the new SGR, at least principally bear developmental spillovers by linking the country’s (Chinese-run) special economic zones (SEZs) with export markets. However, as we have argued elsewhere, the Ethiopian experience of the Chinese-inspired SEZ model has itself been problematic, with employment created being low-skilled and low-paid (and feminized) and linkages to the local economy remaining minimal. [cxii]

Conclusion

The BRI is a peculiar medium upon which to pin African development hopes unless there are serious and qualitative adjustments toward the goal of Africa’s structural transformation. [cxiii] This transformation’s goal must be “to break with production for production’s sake (or surplus for surplus’s sake) and to organize a society geared to optimum consumption and optimum output under genuine human needs: a society in which the surplus and its utilization were democratically planned.” [cxiv] Africa’s resources must be taken control of by Africans and used to lessen inequality and promote sustainable development: “autonomous and hence continuous development will only occur when the periphery can establish exchange relations… which do not tie it into a system of dependency likely to perpetuate the underdevelopment created by… subordination to the dominant institutions of international capitalism.” [cxv]

With its rise and incorporation into the global structures of power and governance by the normative principles of capitalism, China has joined these “dominant institutions”; South-South solidarity coming from this direction is likely to be voided by content, despite the progressive rhetoric that envelops the BRI. [cxvi] As Ehizuelen and Abdi [cxvii] note, participation in the BRI is conditional on the involvement of Chinese firms overseas, whether in construction, the operation of projects, or the supply of materials. As a result, the initiative acts as an indirect subsidy for firms, especially state-owned enterprises (SOEs), suffering financially from industrial oversupply.

Regarding the spatial-fix foundations of the BRI, infrastructural spatial fixes do not take place in smooth social spaces. Rather, they must deal with the actuality of contradictory and multifaceted social dynamics. [cxviii] Violence against Chinese workers and managers in Africa has already occurred and if the dynamics identified above and associated with the BRI intensify, an unfortunate situation—not least for China—may develop. This is not new, of course: Lenin [cxix] noted that the drive to export capital overseas, and the subsequent need to defend that capital, propel states to project their political, and sometimes military, power abroad, motivating expansion and simultaneous competition with other capital-exporting countries, although the dynamics of globalization and interdependence may have altered this. China has become much more involved in African security in recent years. [cxx]

The BRI is designed to serve China and the needs of the Chinese Communist Party (CCP). However, according to Jones and Jinghan [cxxi], “top leaders did not meticulously plan projects like BRI; rather, they are loose internal struggles for power and resources shaped “policy envelopes,”…. BRI is already unfolding in a fragmented, incoherent fashion, departing significantly from both its original design, in 2013, as part of “periphery diplomacy,” and from formal, top-level plans issued in 2015. This may generate outcomes that, far from reshaping the world in China’s image, could undermine Chinese foreign policy objectives.”

They argue that fragmentation, decentralization, and internationalization, increasingly characterized the Chinese state where regional states and SOEs, for example, may ignore central guidance, even if President Xi has increased “cadre discipline and ideological control.” The BRI and increased authoritarianism in China are related. As Kenderdine and Ling [cxxii] argue, “through exporting the capital-works project model under the ‘Belt and Road’ brand, ICC is effectively an acceptance of the reversal of the 3rd Plenum market reforms, avoiding the hard transition to a consumption-driven economy.”

Some econometric and modeling studies find that “Chinese-financed infrastructure reduces spatial inequalities and speeds up the diffusion of economic activity across geographic space” [cxxiii] or that “with moderate assumptions on BRI investment, the simulation results showed a global welfare gain of 1.3% of global GDP by 2030”. [cxxiv] However, such projections are notoriously unreliable and neglect the temporal dimension of debt overhang. And, because of the COVID-19 pandemic and its economic impact, African governments are now seeking to renegotiate the terms of loans provided by Chinese lenders and increasingly calling on Beijing to provide debt relief measures. The IMF estimates that sub-Saharan Africa’s GDP will shrink by 1.6% in 2020 because of the effects of the virus, depressed oil prices, and reduced commodity prices. [cxxv] This has come together with the decline in demand by China for African imports (because of the virus) to produce a perfect storm that has highlighted the problems associated with taking on excessive external debt: “The coronavirus outbreak has revealed cracks in the China–Africa dynamic. Gone are the days of Chinese big loans and major borrowing”. [cxxvi] Interestingly, even before COVID-19, studies found that most of Africa would see little growth from the project: “[T]he non-BRI area sees some gains with an increase of 0.3%, most of which is captured by Ethiopia, Europe, and the Rest of High-Income countries”, with some countries suffering because of trade diversion. [cxxvii]

Whilst the spatial fix may see a reorganization of fixed capital to serve as a safety valve for China’s crisis tendencies, the temporal nature is critical. The BRI fix may buy time for Beijing, but the contradictions of China’s development model may become obvious. [cxxviii] China’s current economic problems make apparent the fact that it is very much integrated into the global capitalist system and that capital accumulation in China follows the same logic and experiences similar flaws as capitalist development does elsewhere. Spatio-temporal fixes are in the long run unsustainable [cxxix], partly now because of global ecological constraints [cxxx], but also because they depend on fragile social, political, and institutional fixes. [cxxxi] While deferring the moment of reckoning, they do not address long-term problems.

Indeed, Kenderdine and Ling [cxxxii] argue that the capital being exported under the ICC “is essentially local government debt with unpriced risk, [and] that a debt-deflation scenario is being exported to China’s trading partners… which is introducing unaudited risk to the global capital pool.” The BRI is part of the global system of accumulation and its dynamics. [cxxxiii] This interacts with the priorities of the CCP, which as Lake [cxxxiv] notes is Leninist in orientation, empowering it “or China as a whole to act on behalf of subordinate peoples without their consent or even acquiescence.” The spatial fix of the BRI helps ease the crisis of overaccumulation in China by transferring capital to new spaces, with the prevailing regime of capital accumulation being thus expanded as new spatial systems are produced, and capital is redirected to zones where more profitable returns can be generated. These extra spaces, as seen in Africa, are then bequeathed new infrastructures to construct diverse and swifter circuits of production, dissemination, and utilization–but with Chinese interests at heart. For Africa to intensify its vulnerabilities as some sort of footnote to China’s contradictions and CCP priorities will yet again highlight the continent’s desperate need for structural transformation and auto-centric developmental visions.

---

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[xxxviii] Ibid.

[xxxix] Harvey, D. 2016. Abstract from the Concrete. Cambridge, MA: Harvard University Graduate School of Design. 

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[xlii] Harvey, D. 1982. Limits to Capital. Oxford: Blackwell. 

[xliii] Harvey, D. 2003. The New Imperialism. Oxford: Oxford University Press. 

[xliv] Id.

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[xlvii] Lee, C. 2017. The Specter of Global China: Politics, Labor, and Foreign Investment in Africa. Chicago: University of Chicago Press. 

[xlviii] Ayers, A. 2013. “Beyond Myths, Lies and Stereotypes: The Political Economy of a ‘New Scramble for Africa’.” New Political Economy 18 (1): 227–257. doi:10.1080/13563467.2012.678821. 

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[lxx] Carmody, P. 2016. The New Scramble for Africa. Cambridge: Polity Press. 

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[lxxvii] Id.

[lxxviii] Munda, C. 2019. “Kenya’s Debt Repayment to China, India Increases.” Business Daily (Nairobi), March 19. http://www.businessdailyafrica.com/datahub/kenya-#s-debt-repayment-to-china-india-increases/3815418-5031450-ygd6n9/index.html. 

[lxxix] Olander, E. 2020. “Kenya-China Debt Relief Talks Stall.” China-Africa Project, July 10. https://chinaafricaproject.com/2020/07/10/kenya-china-debt-relief-talks-stall/. 

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[lxxxii] Mutai, E. 2020. “Chinese SGR Operator Faces 50 Percent Pay Cut.” Business Daily (Nairobi), September 24. https://www.businessdailyafrica.com/bd/economy/chinese-sgr-operator-faces-50-percent-pay-cut-2370644. 

[lxxxiii] Id.

[lxxxiv] Id.

[lxxxv] World Bank. 2013. “The Economics of Rail Gauge in the East Africa Community.” The World Bank Africa Transport Unit, August 8. https://africog.org/wp-content/uploads/2017/06/World-bank-Report-on-the-Standard-Gauge-Railway.pdf. 
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[lxxxvi] Mirire, D. 2019. “Kenya Opens $1.5 Billion Chinese-built Railway Linking Rift Valley Town and Nairobi.” Reuters, October 16. https://www.reuters.com/article/us-kenya-railway-idUSKBN1WV0Z0. 

[lxxxvii] Andae, G. 2020. “Kenya Railways Cuts SGR Tariffs in Fresh Push to Woo Transporters.” Business Daily (Nairobi), June 23. https://www.businessdailyafrica.com/corporate/shipping/Kenya-Railways-cuts-SGR-tariffs/4003122-5581632-ttrlq7z/index.html. 

[lxxxviii] Taylor, I. 2020. “Kenya’s New Lunatic Express: The Standard Gauge Railway.” African Studies Quarterly 19 (3–4): 29–52. 

[lxxxix] Mirire, D. 2019. “Kenya Opens $1.5 Billion Chinese-built Railway Linking Rift Valley Town and Nairobi.” Reuters, October 16. https://www.reuters.com/article/us-kenya-railway-idUSKBN1WV0Z0. 

[xc] Kacungira, N. 2017. “Will Kenya Get Value for Money from Its New Railway?” BBC, June 7. https://www.bbc.co.uk/news/world-africa-40171095. 

[xci] Anyanzwa, J. 2020. “Renegotiate SGR Loan Terms to Avoid Default, House Tells Kenyan Treasury.” East African (Nairobi), June 22. https://www.theeastafrican.co.ke/tea/business/renegotiate-sgr-loan-terms-to-avoid-default-house-tells-kenyan-treasury-1443668. 

[xcii] Zajontz, T. 2020a. “The Chinese Infrastructural Fix in Africa: A Strategic-Relational Analysis of Zambia’s “Road Bonanza” and the Rehabilitation of TAZARA.” PhD diss., University of St Andrews. 

[xciii] Zhou, L. (2017. “How a Chinese Investment Boom Is Changing the Face of Djibouti.” South China Morning Post (Hong Kong), April 17. 

[xciv] Maritime Executive. 2018. “Djibouti opens Chinese-backed free trade zone.” https://www.maritime-executive.com/article/djibouti-opens-chinese-backed-free-trade-zone. 

[xcv] Dahir, A. L. 2019. “A Legal Tussle over A Strategic African Port Sets up A Challenge for China’s Belt and Road Plan.” Quartz Africa. https://qz.com/africa/1560998/djibouti-dp-world-port-case-challenges-chinas-belt-and-road/. 

[xcvi] Bräutigam, D. 2020. “A Critical Look At Chinese ‘Debt-Trap Diplomacy’: The Rise Of A Meme.” Area Development and Policy 5 (1): 1–14. doi:10.1080/23792949.2019.1689828. 

[xcvii] Dahir, A. L. 2019. “A Legal Tussle over A Strategic African Port Sets up A Challenge for China’s Belt and Road Plan.” Quartz Africa. https://qz.com/africa/1560998/djibouti-dp-world-port-case-challenges-chinas-belt-and-road/. 

[xcviii] Dreher, A., A. Fuchs, R. Hodler, B. C. Parks, P. A. Raschkyk, M. J. Tierneyl. 2019. “African Leaders and the Geography of China’s Foreign Assistance.” Journal of Development Economics 149 (September): 44–71. 

[xcix] Maçães, B. 2018. Belt and Road: A Chinese World Order. London: Hurst. 

[c] Styan, D. 2019. “China’s Maritime Silk Road and Small States: Lessons from the Case of Djibouti.” Journal of Contemporary China 29 (122): 191–206. doi:10.1080/10670564.2019.1637567. 

[ci] Styan, D. 2016. “Djibouti: Small State Strategy at a Crossroads.” Third World Thematics 1 (1): 79–91. doi:10.1080/23802014.2016.1175316. 
Le Gouriellec, S. 2018. “Djibouti’s Foreign Policy in International Institutions: The Big Diplomacy of a Small State.” In African Foreign Policies in International Institutions. Contemporary African Political Economy, edited by J. Warner and T. Shaw, 389–402. New York: Palgrave Macmillan. 

[cii] IMF. 2019. “Djibouti 2019 Article IV consultation: Press Release; staff report; and statement by the executive director for Djibouti.” https://www.imf.org/en/Publications/CR/Issues/2019/10/23/Djibouti-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-48743. 

[ciii] IMF. 2017. Djibouti Staff Report for the 2016 Article IV Consultation—Debt Sustainability Analysis. Washington DC: International Monetary Fund. 
Zhou, L. (2017. “How a Chinese Investment Boom Is Changing the Face of Djibouti.” South China Morning Post (Hong Kong), April 17. 

[civ] World Bank. n.d., a. “‘Djibouti’, World Bank Public Documents.” http://pubdocs.worldbank.org/en/424751554825674224/data-dji.pdf. 

[cv] IMF. 2017. Djibouti Staff Report for the 2016 Article IV Consultation—Debt Sustainability Analysis. Washington DC: International Monetary Fund. 

[cvi] Harking back to the glory days of Chinese solidarity with Africa, in China, the Chinese-built and -operated Addis Ababa–Djibouti line is commonly called the “Tanzania Zambia Railway of the New Era” (新时代的“新坦赞铁路”; xin shidai de“xin tan zan tielu”).

[cvii] Sum, N.-L. 2019. “The Intertwined Geopolitics and Geoeconomics of Hopes/Fears: China’s Triple Economic Bubbles and the ‘One Belt One Road’ Imaginary.” Territory, Politics, Governance 7 (4): 528–552. doi:10.1080/21622671.2018.1523746

[cviii] World Bank. n.d., a. “‘Djibouti’, World Bank Public Documents.” http://pubdocs.worldbank.org/en/424751554825674224/data-dji.pdf.

[cix] Chen, Y. 2019. “Ethiopia and Kenya are Struggling to Manage Debt for Their Chinese-built Railways.” Quartz. https://qz.com/africa/1634659/ethiopia-kenya-struggle-with-chinese-debt-over-sgr-railways/. 

[cx] Wondewossen, B. 2020. “Ethiopia: Ethio-Djibouti Railway Vows to Reverse Losses.” AllAfrica. https://allafrica.com/stories/202009230063.html. 

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[cxiii] Carmody, P. 2017. “Assembling Effective Industrial Policy in Africa: An Agenda for Action.” Review of African Political Economy 44 (152): 152. doi:10.1080/03056244.2017.1333412. 

[cxiv] Foster, J. 2007. “The Imperialist World System: Paul Baran’s Political Economy of Growth after Fifty Years.” Monthly Review 59 (1): 1. doi:10.14452/MR-059-01-2007-05_1. 

[cxv] Brett, E. 1992. Colonialism and Underdevelopment in East Africa: The Politics of Economic Change, 1919-1939. Aldershot: Gregg Revivals. 

[cxvi] Taylor, I. 2017. Global Governance and Transnationalising Capitalist Hegemony: The Myth of the “Emerging Powers.” London: Routledge. 

[cxvii] Ehizuelen, M., and H. Abdi. 2018. “Sustaining China-Africa Relations: Slotting Africa into China’s One Belt, One Road Initiative Makes Economic Sense.” Asian Journal of Comparative Politics 3 (4): 285–310. doi:10.1177/2057891117727901. 

[cxviii] van de Merwe, J. 2019. “The One Belt One Road Initiative: Reintegrating Africa and the Middle East into China’s System of Accumulation.” In Mapping China’s “One Belt One Road” Initiative, edited by L. Xing, 197–217. London: Palgrave MacMillan. 

[cxix] Lenin, V. 1948 [1917]. Imperialism, the Highest Stage of Capitalism. London: Lawrence and Wishart. 

[cxx] Alden, C., and Z. Yixiao. 2018. “China’s Changing Role in Peace and Security in Africa.” In China and Africa: Building Peace and Security Cooperation on the Continent, edited by C. Alden, A. Alaq, Z. Chun, and L. Barber, 39–66. Basingstoke and New York: Palgrave MacMillan. 

[cxxi] Jones, L., and Z. Jinghan. 2019. “Understanding China’s ‘Belt and Road Initiative’: Beyond ‘Grand Strategy’ to a State Transformation Analysis.” Third World Quarterly 40 (8): 1415–1439. doi:10.1080/01436597.2018.1559046. 

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[cxxiii] Bluhm, R., A. Dreher, A. Fuchs, B. Parks, A. Strange, and M. Tierney. 2018. Connective Financing: Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries. Willamsburg: College of William and Mary. 

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[cxxv] UNCTAD. 2020. Assessing the Impact of COVID-19 on Africa’s Economic Development. Geneva: United Nations Conference on Trade and Development. 

[cxxvi] Deutsche Welle. 2020. “COVID-19 pandemic to transform China-Africa relations.” https://www.dw.com/en/covid-19-pandemic-to-transform-china-africa-relations/a-53724530. 

[cxxvii] Maliszewska, M., and D. van der Mensbrugghe. 2019. The Belt and Road Initiative: Economic, Poverty and Environmental Impacts. Washington, DC: World Bank. 

[cxxviii] Bello, W. 2019. Paper Dragons: China and the Next Crash. London: Zed Books. 

[cxxix] Harvey, D. 1982. Limits to Capital. Oxford: Blackwell. 

[cxxx] Moore, J. 2015. Capitalism in the Web of Life: Ecology and the Accumulation of Capital. London: Verso. 

[cxxxi] Jessop, B. 2013. “Finance-Dominated Accumulation and the Limits to Institutional and Spatio-Temporal Fixes in Capitalism.” In Fragile Stabilität–Stabile Fragilität, edited by S. Jansen, E. Schröter, and N. Stehr, 303–328. Wiesbaden: Springer VS. 

[cxxxii] Kenderdine, T., and H. Ling. 2018. “International Capacity Cooperation: Financing China’s Export of Industrial Overcapacity.” Global Policy 9 (1): 41–52. doi:10.1111/1758-5899.12509. 

[cxxxiii] van de Merwe, J. 2019. “The One Belt One Road Initiative: Reintegrating Africa and the Middle East into China’s System of Accumulation.” In Mapping China’s “One Belt One Road” Initiative, edited by L. Xing, 197–217. London: Palgrave MacMillan. 

[cxxxiv] Lake, D. 2017. “Domination, Authority, and the Forms of Chinese Power.” Chinese Journal of International Politics 10 (4): 357–382. doi:10.1093/cjip/pox012. 

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