Is COVID-19 enabling debt-trap diplomacy?

Will Mombasa and Port Sudan be ceded to foreign powers to repay debt?

Are foreign powers taking advantage of the economic devastation caused by the coronavirus pandemic to seize control of two of East Africa’s strategic ports from debt-stricken countries? Controversies are swirling around Kenya’s Mombasa and Sudan’s Port Sudan.

Media reports suggest Mombasa could soon be transferred to the ownership of China as collateral for unpaid Kenyan debt. Likewise the United Arab Emirates (UAE) could gain control of Port Sudan.

The Mombasa issue is being viewed by some as yet another example of China’s ‘debt-trap diplomacy’ – a phrase much bandied about by the Donald Trump administration. It refers to Beijing reputedly lending large sums to poorer countries, mostly in Africa, to build infrastructure, with the intention of seizing the infrastructure as collateral when the country inevitably defaults on the interest repayment.

Commentators in Kenya are concerned that this is about to become the fate of Kenya’s main port Mombasa. The government reportedly offered the port as collateral for the billions loaned from China to construct the Mombasa-Nairobi railway – the Standard Gauge Railway (SGR) – in 2014.

Kenya has accepted over US$5 billion in loans for the SGR which has now been extended to the Rift Valley – en route eventually to South Sudan – but is running at a loss. Its losses seem bound to be magnified by the COVID-19 economic crash.

Is Beijing executing a grand strategy of control or just doing business like everyone else?

Overall Kenya’s foreign debt amounts to around US$60 billion – some 61% of GDP – with China holding about US$6.5 billion of these loans. Kenyan media have reported that the 2014 loan agreement specifically waived Kenya’s sovereign immunity on the Mombasa port’s assets and that any dispute arising from the loan would be arbitrated in China.

Regarding Port Sudan, Al Jazeera reported last week that Sudan’s cash-strapped transitional government was preparing to hand control of the country’s principal seaport to Dubai Ports World (DP World), a company owned by the UAE. Dubai has set its sights on Red Sea ports before. A few years ago it was engaged in a tussle – ironically, with China – for control of the nearby port of Djibouti, which is even more strategic as it hosts several foreign military bases.

According to Al Jazeera, anonymous Sudanese officials told it the deal would allow the UAE company to run the South Port Container Terminal at Port Sudan. Khartoum denies this, saying, ‘Port Sudan is an asset that belongs to the people of Sudan.’ Whether or not this is a sign that the UAE is about to be added to the rogues’ gallery of ‘debt-trap’ diplomats remains to be seen.

Certainly China has long been branded the villain in chief of this club. Many Western commentators especially have seen its Belt and Road Initiative – through which it has lent many billions of dollars to countries along the route – as essentially a debt-trap initiative to control the strategic corridor linking China with the Middle East, Europe and Africa.

Whether UAE soon joins the rogues’ gallery of ‘debt-trap’ diplomats remains to be seen

Some analysts see COVID-19 as widening the opportunity for this putative strategy – including the authors of a 2018 Harvard University report on debt-trap diplomacy. The Guardian recently quoted the report’s co-author Sam Parker as saying: ‘I think it’s early stages. But whatever debt leverage China had over countries is going to increase. Whatever bad consequences were going to happen as a result of being unable to repay China, I think the timeline could be severely accelerated.’

The report was written by Harvard’s Kennedy School of Policy Analysis for the US State Department. It identified countries such as Pakistan and Sri Lanka as among those where governments had already ceded a key port or military base to China.

Is all this just Western paranoia, or deliberate disinformation by the Trump administration? Is Beijing executing a long-range grand strategy of control? Or is it just doing business like everyone else?

Sinologist Deborah Bräutigam, Director of the China Africa Research Initiative at the Johns Hopkins School of Advanced International Studies, has long dismissed the Chinese debt-trap theory. She wrote this month that China had lent a total of about US$152 billion to 49 African governments and state-owned companies between 2000 and 2018, accounting for about 17% of African debt, according to the World Bank.

Is ‘Chinese privatisation’ an oxymoron and a euphemism for takeover by Beijing?

The African Union has appealed to the international community for at least US$100 billion to help the continent deal with the health and economic fallouts from COVID-19. The first request was a suspension of debt interest payments – which the G20 agreed to. Bräutigam notes that the World Bank and International Monetary Fund have called on all official bilateral creditors – such as China – to provide immediate debt relief to low-income borrowers.

‘What will China do for its debtors now facing economic collapse? Some fear that a malign China will leverage this crisis to seize strategic assets,’ she says. ‘Others report that a benign China has already “wiped clean” many nations’ debt slates.’

Both are wrong, Bräutigam suggests. Firstly she says Beijing isn’t a pushover when it comes to debt relief or renegotiation. Indeed there are suggestions that China is among the most reluctant of the G20 creditor countries to forgive the huge debt it holds in Africa and elsewhere.

But conversely, in a close analysis of China’s hundreds of loans to Africa, ‘We saw no evidence of asset seizures in Africa, or indeed, anywhere among Chinese borrowers in debt difficulties,’ Bräutigam writes. Not even in the infamous case of Hambantota port in Sri Lanka which has often been cited – including in the Harvard report – as the copybook example of China’s debt-trap diplomacy.

Bräutigam sees it rather as merely a newly elected government with a balance of payments crisis privatising its Chinese-financed port to a Chinese investor in 2017. This brought in over US$1 billion in foreign exchange. ‘Similarly, debt-distressed Republic of Congo concessioned its 535-kilometer Chinese-financed highway to a Congolese-Sino-French consortium, which now operates it as a toll road.’

Bräutigam suggests Western countries should welcome, not condemn, Sri Lanka for privatising a state entity to reduce costs to the fiscus. Indeed she could argue that this was textbook Washington Consensus doctrine. And if China and the UAE didn’t put up the money to run the ports, who would?

The interpretation of the Hambantota episode and maybe others to come seems, however, to hinge on the word ‘privatisation’. Many Western observers would suggest that ‘Chinese privatisation’ is an oxymoron and a euphemism for takeover by Beijing.

It will be interesting to see if Bräutigam’s rather sanguine analysis stands up to what must inevitably be a rash of debt defaults as the COVID-19 economic collapse intensifies. That’s going to up the ante for both creditors and debtors.

Peter Fabricius, ISS Consultant

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Picture: Kirsty McLaren/Alamy Stock Photo

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