Tuesday, December 7, 2021

As trade war looms, the big Chinese dilemma remains for Botswana & Africa

hina is Africa’s largest trading partner and has already spent tens of billions of dollars in investment and loans – with the promise of much more to come. The question that remains to be answered is whether Africa, Botswana included is getting into a debt trap with the east-Asian economic giant or not.

In a bid to provide answers to the question, and as part of its first annual global financial summit, the Botswana Insurance Holdings Limited (BIHL) assembled experts ÔÇô both local and abroad to address what appears to be a dilemma for most African nations including Botswana.

While some sectors of the global community have been quick to accuse China of positioning itself as a leading economic global leader through a neo-imperialism campaign, others maintain that African countries cannot afford to miss the once-in-a lifetime opportunity to achieve some of its development goals.

Botswana is part of this international trend. As things are, the Chinese government happens to be amongst the largest credit provider to Botswana. Available figures shows that in during the financial year, 2016/2017, Botswana owned foreign governments about P562.9 million, with about 56.7 percent or P319.3 million provided by China. A back of the envelope calculations, working with available public data, shows that the country will now owe China about P239.3 million after the exemptions.

Despite the fact that some African countries are gorging on debt, and could suffocate due to the healthy appetite for the Chinese loans, the powerful East Asian economic powerhouse sees its action as a win-win for Africa.  While access to raw materials is indeed a big part of the reason for China’s foray into Africa, Barclays Bank Botswana Economist Naledi Madala says no one is forcing African countries to take the Chinese loans. It is a voluntarily decision made by grown up men and women ÔÇô whom according to Shigai Mutasa of the Masawara Group and was part of the panelist at the BIHL summit, “usually leaves competent negotiators in the private sector behind when they go for such deals”.

According to Mutasa, African political leaders should consider joining forces with the private sector executives when they travel to China for negotiations as some of them lack key skills to strike a winning deal. Mutasa was answering a question from the floor relating to the capacity of Africa to negotiate with China.

Just a few minutes before the panel discussion, when making a presentation on ‘Funding the Infrastructure Gap in Botswana’, Mamadou Mbaye of FONSIS (Senegal) authoritatively suggested that Botswana may not need to attract foreign lending from Development Financial Institutions and China as it can fund most of its own development through stockpiled reserves.

To realise Sustainable Development Goals (SDGs), according to Mbaye, Botswana needs $1,5 to 2 billion investment into infrastructure a year over the next10 years. This includes investments into infrastructure, clean energy, water and sanitation and agriculture ÔÇô which are mainly green field projects.

“Botswana Stockpiled foreign exchange reserves amounting to three years of current imports, local pensions and insurance companies have built significant capacities. Reserves could be leverage into a global guaranty schemes”, Mbaye said.

While economic pundits who gathered at the Gaborone International Conference Centre for the BIHL summit were in agreement with Mbaye’s suggestion on infrastructure funding for Botswana, the country seems to have already been a step ahead of the golden economic advice.

Just under two months ago, upon his return from China-Africa forum in Beijing, Botswana’s President ÔÇô Mokgweetsi Masisi announced that China has agreed to extend a loan to Botswana for rail and road infrastructure as well as writing off some debt. In addition to the loan and a debt cancellation of P80 million, China has also offered a P340 million ($31 million) grant.

“We got a little bit more than just the loan,” Masisi told the local media on his return from China. To date no one ÔÇô except himself, knows what Masisi meant by “A little bit more….”, a statement that has left many suspecting that Botswana might have just fallen on the Chinese debt trap.

Another leg of the Chinese ÔÇô Africa debt relation is that, typically China’s approach in financing many African states has been provision of soft financing for big infrastructure projects in exchange for its State Owned Enterprises carrying out the work. While in Botswana, the government funded most of the previous big projects that were carried by Chinese SOEs, some of them – like the Sir Seretse Khama International Airport left the two nations with strained relationship. The other case involved Morupule B power plant constructed by China National Electric Equipment Corporation (CNEEC) which later experienced technical problems leading to power outages during 2015.

Former BIDPA Senior Researcher, Professor Roman Grynberg says African countries should be worried about China’s muscle in Africa.

Some like Zambia, he said appear to be in serious risk of default and China has shown that it is willing to take assets in return. China is great power and while they are quite different to the US or Europe they have economic interests and if African countries are foolish with debt levels the Chinese will behave like any other creditor.

“China is the biggest producer of just about every mineral but in time its domestic capacity will decline and will become more reliant on African production. China will increasingly have to do debt for mineral swaps and this will put them in a new position in Africa.”

Despite all these cases and cautions, Barclay Bank Botswana’s economist ÔÇô Naledi Madala maintains that China is not entirely to blame for the misfortunes. She says African states need to do away with “the taker” approach and spend on the right projects at the right time.

Madala said ‘the taker’ approach by most African states is not practiced with China only but also with other DFIs.

Mbaye, who is the Executive Vice President at FONSIS ÔÇô a unit at the Ministry of Finance in Senegal  on the other hand suggested that Botswana has an opportunity to develop its financial sector given estimates that shows that Africa may need $150 to 200 billion investment into infrastructure a year over the next 10 years to realize SDGs.

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