Duncan Miriri

NAIROBI, Kenya (Reuters) – Members of Kenya’s National Youth Service use machetes tirelessly to remove dense vegetation that blocks railway tracks over a century.

China’s Belt and Road in Africa is going through a very low tech phase to establish the trade routes of the future.

It’s impossible to finance the 1,000km ultra-fast train link between Mombasa, Uganda and Mombasa. This abruptly ends in the country, 468 km from the border. Kenya now wants to complete the route through a revamp of 19th century colonial British-built tracks.

China has lent hundreds of billions to African countries as part of President Xi Jinping’s Belt and Road Initiative, which saw Chinese institutions funding the majority of infrastructure projects in mainly developing countries. However, credit has dwindled in recent years.

Analysts and academics point out that COVID-19 has caused significant damage to China and its creditors. They also attribute the slowdown in growth to factors like a declining appetite for foreign large-scale investments from Beijing and a crash in commodity prices, which have made African debt servicing more difficult, as well as some borrowers being reluctant to accept lending agreements backed with their natural resources.

Adam Tooze of Columbia University said that China’s foreign investment programs are “not in the go-go phase anymore.” Tooze said, “There is certainly a balance from the China side,” and added that Beijing’s current surplus in the account was “dwindling somewhat.”

Chinese investments in the 138 targeted countries by BRI dropped 54% last year from $47 billion to 2019, the lowest since 2013. According to Green BRI, an analysis group based in China that studies the initiative, this is the lowest Chinese level of investment.

According to Baker McKenzie’s report, Chinese banks have decreased their financing of infrastructure projects by $11 billion to $3.3 billion between 2017 and 2020 in Africa. This is despite the fact that Africa hosts 40 BRI countries.

These are bad news for the governments that had hoped to obtain Chinese loans to help build roads and rail lines connecting landlocked countries with sea ports, and trade routes to Asia. According to The African Development Bank (AfDB), the continent faces an annual infrastructure investment gap of approximately $100 billion.

“The pandemic is actually making things worse. Akinwumi Adesina the bank president stated, “Those numbers will rise.” He cited the need for more infrastructure to support the health service. 

Other BRI projects have been affected by hold-ups, including a Nigerian railway project worth $3 billion and a Cameroon highway costing $450 million.

China’s Ministry of Foreign Affairs did not respond to our request for comment.

Beijing officials claim that both sides enjoy a beneficial, cooperative relationship. They also state that loaning is transparent and done in an open and honest manner.

Zhou Liujun (vice chairman, China International Development Cooperation Agency), said to reporters that when providing concessional and interest-free loans in Africa, we take into account the repayment ability and debt status of recipients countries and follow the law.

Unnamed Chinese officials said Beijing intended to slowly implement BRI in order to control default risk by projects and countries.

“RAILWAY WILL BE BUILT”

Kenyan officials said that Kenya’s rail project was long-term and could be finished over time without stating a specific timeline. According to them, the COVID-19 presents the world with unprecedented and unforeseen challenges.

James Macharia (Kenya’s transport minister) stated that “Eventually this standard gauge railroad will still be completed because it is part what we call Belt and Road Initiative.”

Already spending $5 billion for its new railway link, the government can’t afford to spend $3.7 billion more. Only dirt roads can get to the last station that was connected.

Engineers working in the Rift valley are not building infrastructure anymore, they instead repair and maintain colonial-era viaducts. This operation is estimated to cost around 10 billion shillings (roughly $91 million).

These knock-on effects are evident. Construction of a new railway line across Uganda has been delayed due to its supposed link with the Kenyan.

It is the reason for the delay in a $2.2B loan from China’s Export-Import Bank of China Exim Bank (Exim Bank), David Mugabe spokesman for Uganda’s Standard Gauge Railway Project to Reuters. 

In Nigeria, the government turned to London-headquartered Standard Chartered (OTC:) Bank this year to finance the $3 billion railway project https://www.reuters.com/article/nigeria-railway-funding-idUKL5N2OE43A initially slated to receive Chinese backing. Standard Chartered did not comment due to confidentiality agreements.

Cameroon’s $450m highway connecting the capital Yaounde with Douala (whose financing was provided by China’s Exim Bank) stalled in 2019. The bank had stopped paying out further tranches.

Exim Bank didn’t respond to our request to discuss its loans to Cameroon, Uganda, and Cameroon.

MALAYSIA TO BOLIVIA

Zhou Yuyuan, Senior Research Fellow at the Centre for West Asian and African Studies at the Shanghai Institutes for International Studies, said the COVID-19 crisis had strained Chinese lending institutions and African finances alike.

Beijing would be likely to support more Chinese corporate investment on the continent in future to take over the financing of the state, said he. He said that Africa’s economy would recover once the pandemic has ended. This could boost China’s corporate investments.

The “project of century” President Xi has faced more obstacles because of the pandemic. Chinese investments in BRI nations has dropped steadily since 2015. They peaked at $125.25billion in 2015. Only 2018, however, saw an improvement of 6.7%.

In 2018, Pakistan https://www.reuters.com/article/us-pakistan-silkroad-railway-insight-idUSKCN1MA028 balked at the cost and the financing terms of building a railway. The previous year, there were signs of growing problems for BRI, after China’s push in Sri Lanka https://www.reuters.com/article/us-sri-lanka-china-insight-idUSKBN15G5UT sparked protests.

AidData, a research lab at the College of William and Mary in the United States, said in a study https://www.reuters.com/world/china/chinas-belt-road-plans-losing-momentum-opposition-debt-mount-study-2021-09-29 at the end of September that $11.58 billion in projects in Malaysia had been cancelled over 2013-2021, with nearly $1.5 billion cancelled in Kazakhstan and more than a $1 billion in Bolivia.

Brad Parks (one of the authors of this study) said that “a growing number of policymakers from low- and middle-income nations are putting off high-profile BRI initiatives due to overpricing corruption and debt sustainability issues.”

China’s foreign minister responded to AidData reports by saying that not all debts were unsustainable. He also said that the BRI has “consistently upheld the principles of shared consultations, shared contributions, and shared benefits” since its inception.

“RESOURCES ARE FINE”

Debt sustainability is a key issue.

Last year, Zambia’s producer became Africa’s first sovereign default in a pandemic era. This was after it failed to make payments on its $12 billion worth of international debt. According to a recent study, more than half that debt is owed to Chinese lenders public and private.

Beijing announced in 2018 that it would restructure the billions of dollars worth of Ethiopian debt.

Many African governments find it increasingly difficult to borrow money on commodities like metals and oil.

Uganda’s transport and works minister Katumba Wamala said that “we can’t mortgage oil” to Reuters. She confirmed that the country refused to guarantee untapped oil from the west in order to obtain the loan for the railway.

According to Yvette Babb (a fixed income portfolio manager at William Blair based in the Netherlands), Africa’s financial squeeze has forced African governments to make better strategic investments for debt sustainability.

She said, “There’s no inexhaustible amount of capital.”

($1 = 110.2500 Kenyan shillings)