China’s $200 Billion Investment In Africa Under Threat – Burning Issues – Free PDF

Neo-Colonialism

•  Neo-colonialism is the term used to define the economic sabotage of underdeveloped countries propagated by developed countries and large multinational corporations.
• With the Belt and Road Initiative China places a country under a vicious cycle of debt burden and after that manipulates the decisions of the country.
•  China-Pakistan Economic Corridor, the flagship of China’s Silk Road project costing some $60 billion, has now brought Pakistan close to a balance of payments crisis.

Chinese Investment

• Chinese investment is in two forms
• Loans($152 billion)
• Foreign Direct Investment($46 billion)
• Point to note: China does not publish data on its overseas lending. Various agencies have their own estimates

China Africa Research Institute

• According to the China Africa Research Initiative at Johns Hopkins University, China loaned $152 billion to 49 African countries between 2000 and 2018
• These are not evenly distributed. Oil-rich Angola accounts for $43 billion in signed loans — nearly 30 percent of the total for Africa.
• China made its first loan to Guinea in 1960.

Foreign Direct Investment

•  Besides showering Africa with credit, China has bet big on direct investments, mainly through its state-owned enterprises.
• From 2003 to 2018, the number has surged from US$75 million in 2003 to US$5.4 billion in 2018.
• Cumulatively, Chinese FDI in Africa has touched $46 billion, according to official data.

Why China made huge investments in Africa?

• Chinese leaders see Africa mainly as a source of natural resources.
• China’s fast-paced growth since the early 1990s has generated a voracious demand for oil and subsoil minerals
• Africa appeared a perfect fit since MNCs had a weak hold on Africa and Beijing could easily outbid them to gain equity stakes.
•  As a result, China has opened its cheque books and become the most active non traditional lender in Africa

Access to quality health care across the continent remains limited, One-third of Africans cannot wash their hands regularly, because they lack access to clean water But the main problem is lack of basic things such as refrigerator to store fruits and vegetables and remain in house Other things such as telecom, broadband etc. to earn minimum basic income

• As the novel pandemic keeps spreading, China’s commercial activities in Africa has seriously been affected.
• The prospects for China-funded projects look bleak as the prices of oil, copper and minerals found in Africa have plunged in the global economic meltdown.

Option with China: Extend Loans

• For one thing, once China extended the credit or made the direct investments in mines, oil fields or roads, it was at the mercy of the recipients, Africa’s national governments and political elites.
• Issue: China has no power to prevent the nationalization of its investments or defaults on its loans.

China on Debt Relief

•  He Haifeng, director of the Institute of Financial Policy at the Chinese Academy of social science, a government think-tank said
• “China is a developing economy with low per capita income and China itself face a downtrend in its economy in the last 3 decades”

• Even the crown jewel of China’s economic engagement with Africa, the trillion-dollar BRI is at risk.
• It is doubtful that Beijing will have the resources to fund the BRI in the future.

China needs a Pragmatic Exit Strategy

• It is unlikely to recover most of its sunken investments or loans because of the economic impact of the virus on Africa.

Latest Burning Issues | Free PDF

Sharing is caring!