Balancing Growth

Strategic Vision vol. 9, no. 48 (December, 2020)

Weighing the pros and cons of Chinese BRI infrastructure projects in Africa

Letsiwe Portia Magongo & Ruei-Lin Yu

East African countries have an important strategic importance for China’s Belt and Road Initiative (BRI). Kenya, Somalia, and Tanzania lie at the western edge of the Indian Ocean and provide China with crucial access to Africa, whereas Djibouti and Egypt are full-fledged BRI partners in close proximity to the Mediterranean Sea, and therefore help connect China to Europe. Given the recent expansion of Beijing’s influence in this region, it is necessary to develop a clear-eyed view of the beneficial, as well as detrimental, impacts of China’s BRI on the countries of East Africa.

Sailors with the People’s Liberation Army Navy march in a military parade in Djibouti City celebrating the country’s 40th annual Independence Day.

photo: Joe Harwood

The progress of the BRI in East Africa is evident from the ambitious infrastructure projects undertaken in its name. Chinese companies have launched a range of construction projects on harbors, highways, and railways. In Kenya, the main BRI development projects are the construction of a modern port at Lamu, the improvement of the Mombasa port, and the construction of the Mombasa–Nairobi Standard Gauge Railway, a 480 km-long line that connects the port city with the capital, replacing the narrow-gauge Uganda Railway built in 1901 by British colonial authorities. In Djibouti, which is strategically located at the confluence of the Indian Ocean and the Red Sea, China has completed the construction of a fully electrified cross-border railway line running from Addis Ababa to the Red Sea port of Djibouti, and is funding a US$300 million water pipeline system to transport drinking water from Ethiopia to Djibouti. The modernization of the 752 kilometer-long EthiopiaDjibouti Railway cost US$US4 billion, 70 percent of which was financed by China’s Exim Bank.

In 2016, the Chinese People’s Liberation Army (PLA) established a military base in Djibouti near existing American, Japanese and French military bases. The purpose of the PLA facility base is to secure the BRI route and to facilitate multilateral operations. As a result, China’s navy has played a significant role in anti-piracy operations off the Somalia coast and peacekeeping missions in South Sudan. Furthermore, the military base serves the purpose of quick response in case of emergencies requiring Chinese troops in South Asia, North Africa, and the Middle East. Hence, the port is a mixture of both a commercial and military venture, and a symbol of China’s expanding interests.

Barriers to trade

Africa is home to 54 independent states, most of which are landlocked countries without direct access to ports. As a consequence, transporting commodities between these countries has been a barrier to intra-continental and international trade. Due to inefficient transport routes with inadequate infrastructure, it costs nearly 50 to 75 percent more to transport goods in this region than in other parts of the world. Such a situation hinders regional and international trade, and leads the African continent to further isolation from global value chains. Hence, investments in highway and railway infrastructure and power generation is essential to the alleviation of integration bottlenecks.

The Mombasa sea port has a centuries-old history as a harbour city and serves as an important gateway to East Africa.

photo: Erasmus Kamugisha

It is important to note that China’s Maritime Silk Road is expected to reach Africa through the Mombasa Port in Kenya, and extend inland along the Mombasa-Nairobi railway line. The plan also includes the Djibouti-Addis Railway and the NairobiMombasa Railway. Travel time on the 759 kilometer Djibouti-Addis line has been reduced from three days to 12 hours. The Port of Djibouti plays a key role in Ethiopia’s export and imports to and from Asia, Europe, and Africa. The railway has eased the logistical challenges in the African region by providing wider export market access to manufactured goods in Ethiopia.

Unlocking trade opportunities

Nairobi has been a focal point for the BRI and has benefited from Chinese-funded road and railway infrastructure projects that connect cities in Kenya and extend to other regions in Africa. The completion of the Kenyan railway will help link Kenya with Uganda, Burundi, Ethiopia, South Sudan, the Democratic Republic of Congo, and Rwanda. This link will unlock international and intra-continental trade opportunities. In June 2017, the Nairobi-Mombasa railway was opened at an estimated cost of US$3.2 billion. This railway line could replace the estimated 4,000 trucks that use the road on a daily basis.

With regard to the energy sector, China’s banks have been actively funding hydro power projects with an estimated US$5.3 billion in investments. In Ethiopia, the Exim bank of China has invested in construction of hydraulic dams like Tekeze and Gibe III. The World Bank has projected that energy projects funded by China in Africa will have a power-generation capacity of over 6,000 megawatts. This is more than one-third of Africa’s current hydropower generation capacity.

The Addis Ababa-Djibouti Railway is a critical link between landlocked Ethiopia and the east coast of Africa.

photo: Skilla 1st

These examples illustrate hoe the diversification Africa’s infrastructure has been a major goal of the Chinese BRI. First, improved infrastructure can raise a country’s profile by promoting and attracting more investments from different economic sectors. Second, with improved infrastructure connectivity, economic capacity may increase, thus increasing domestic productivity and foreign investment. This will further reduce the cost of doing business. Unfortunately, there are a number of pitfalls that stand in the way of such progress.

China’s role as an alternative source of funding came at a time when African countries were scouting for alternative sources of capital for their development. It is therefore important that African countries must create a strategy to guide their engagement with China to advance and protect Africa’s own developmental goals.

Graphic: US Government

Regardless of the positive impact of the BRI development in African infrastructure, there are unavoidable challenges that cannot be ignored. Beijing leaders proclaim a policy of non-interference in foreign countries, but their actions often fail to live up to this standard, and are—at the very least—less than transparent. Most BRI investments target developing countries where corruption is already prevalent in the form of autocratic regimes and weak governing institutions that easily succumb to corrupt practices.

The high cost of BRI infrastructure projects in African countries in particular is an unfortunate reality interwoven with the problem of corruption. In that light, a number of countries have reconsidered their BRI projects. In 2018, the government of Sierra Leone cancelled a China-funded airport project at a cost of US$318 million, citing debt concerns. The exposure of systematic corruption, paired with a lack of accountability, has generated a great deal of public criticism. This is particularly true in Kenya.

In 2014, Kenyan activist Okiya Omtatah and the Law Society of Kenya launched a lawsuit to stop the construction of a railway link. The plaintiffs alleged that the contract was “single sourced” and not put out to tender. It was reportedly a US$3.2 billion project between Kenya and China. The Kenyan High Court earlier dismissed the case as the China Road Bridge Corporation (CRBC) and the Kenyan staterun railway defended their position. However, the appeal court’s decision ruled in favor of the plaintiff. The decision was appealed by the CRBC, and the supreme court ruled that the contract between the Kenyan Government and the CRBC failed to comply with Kenyan law in the procurement of the Standard Gauge Railway, which is a critical part of China’s BRI in east Africa.

Boatmen ply their trade in Zanzibar. Loans from the Chinese government funded a new harbor, expansion of Karume airport, and other projects.

photo: Carlos Casados

This court case in Keaya demonstrates the potential consequences of China’s failure to engage in open and transparent conduct. Kenya’s unmanageable debt, which resulted in part from the aforementioned railway, was well beyond the government’s budget. The situation is marked by implausible expectations, opaque contracts, and a closed bidding process. In order to minimize unnecessary corruption costs, it is important for both China and African states involved in the BRI to increase transparency and scrutinize the terms of their contracts. Furthermore, both sides need to raise their level of commitment to engaging in a competitive bidding process.

In sum, participation in the BRI will not guarantee that Africa will reap benefits. Economic and policy barriers present challenges in Africa, as well as in developing countries in other regions. These challenges are evident from cross-border delays, and from burdensome procedures in customs and foreign direct investment (FDI) restrictions. World Bank data indicates that while it takes approximately ten days for imports in G-7 countries, it takes an average of 21 days to import goods into Africa. Moreover, in terms of foreign-firm start-ups, industrial land access, commercial dispute arbitration, and FDI policies, BRI economies are more cumbersome and have more restrictions than Organization for Economic Cooperation and Development (OECD) economies. For example, in Kenya and other developing countries in Africa, establishing a business requires complicated procedures for documentation, extensive transaction periods, overlapping title deeds, and other onerous procedures.

In view of the challenges discussed above, it would be beneficial for African states to implement policy reforms to counter the low, or negative, BRI infrastructure investment returns. The World Bank concludes that the BRI could increase trade among participating countries by 4.1 percent. These impacts could be tripled on average if reforms in trade matched advancements in the transportation infrastructure. Therefore, it is critical for African states to implement economic and trade policy reforms that support their development path and BRI infrastructure development. Moreover, it is important to carefully analyze the project’s returns in order to set realistic economic goals, thereby avoiding the risks of overestimating benefits from projects. Overestimating the economic benefits to be derived from BRI infrastructure projects may result in inadequate use or exploitation of infrastructure.

This examples discussed above illustrate the need to take a long-term perspective on BRI investment in Africa in terms of the amount of capital invested, and the extent to which BRI projects can stimulate the local economy. These risks and challenges need to be addressed by both Chinese and African stakeholders to ensure that BRI investment in Africa is productive for Africans as well as for China.

Children in Malawi pose for a photograph. Malawi remains one of the few nations in Africa that has yet to sign an MoU with China on the BRI.

photo: Dean Karalekas

Letsiwe Portia Magongo is a student at the ROC National Defense University. Dr. Ruei-Lin Yu is a professor at the ROC National Defense University.