đź”’ African lessons for Eskom: Watch out for spikes in China loans

EDINBURGH — China is aggressively seeking investments and contracts around the world, and perhaps nowhere is this more visible than Africa, where Chinese companies have won contracts to build dams, roads, stadiums, airports and railways, notes The New York Times. It highlights the conditions attached to taking China’s generous loans. Understandably, South Africans are concerned that Eskom is heavily indebted to China – and the government is refusing to divulge the exact amount and the terms of repayment. The New York Times provides a taste of how deals between African governments and China work. – Jackie Cameron

By Thulasizwe Sithole

The Trump administration has accused China of engaging in predatory lending aimed at trapping countries in debt, acquiring strategic assets like ports, and spreading corruption and authoritarian values, says The New York Times. In response, the US has announced an effort to help American businesses compete.

The model, it says, is common across Africa, where loans from Chinese state banks have financed a construction boom, largely by Chinese companies and workers. “These loans generally have tougher terms than World Bank aid packages. Though interest rates can be low, recipients must repay the loans much faster, according to AidData, a research centre at William and Mary, a university in Williamsburg, Va.”

That has left some nations at high risk of debt distress, analysts are reported as saying. In Kenya, for example, a Chinese bank could take over a port if Nairobi defaults on a $3.2bn loan for a railway project.


Uganda’s debt burden is manageable, analysts say, though the country has increased borrowing. From 2000 to 2014, it received at least $1.24bn in Chinese loans, AidData said. In 2015, it agreed to borrow an additional $1.9bn for two dams to be built by Chinese companies, and it now seeks a $2.2bn loan for a railway.

“We’re streamlining international development and finance programs, giving foreign nations a just and transparent alternative to China’s debt-trap diplomacy,” Vice President Mike Pence is reported as saying in October. The White House has also unveiled an Africa strategy aimed at China, continues the media outlet.

“The idea is to challenge China’s infrastructure program while also pushing back against its trade practices, cybertheft and expanding military facilities and presence in the Pacific and Indian Oceans. But the threat posed by the Belt and Road Initiative to American interests is debatable, and it is unclear how far the United States should — or can — go to compete. The funds set aside by the Trump administration amount to just a fraction of Beijing’s commitment.

“In Africa, American businesses have been largely absent while Chinese companies have put down roots, nurturing powerful allies through both legitimate and illegal means. Some target individual African officials and their family members with cash bribes or deals for services, like legal representation or insurance,” say The New York Times correspondents.

Ugandan President Yoweri Museveni.
Ugandan President Yoweri Museveni.

Uganda’s strongman president for the past 33 years, Yoweri Museveni, has praised Western companies for finally “waking up” to Africa. But he also noted that “the Chinese have already woken up — they are really, really, really very active and fast.”

“So why not take advantage of both?” he asked.

“The African Great Lakes have long tempted outsiders seeking riches, including the European nations that began plundering the continent in the 19th century. But in 2006, four decades after the end of British rule in Uganda, a prize untapped by the colonialists was discovered: oil deposits by Lake Albert that are among the largest in East Africa, enough to transform parts of impoverished Uganda.

“Mr. Museveni’s government negotiated for years with foreign companies before agreeing to a plan for extraction and the construction of a pipeline southeast to the Tanzanian coast, where the oil could be shipped around the world.

“But Mr. Museveni also insisted on building a refinery in Uganda to ease the region’s dependence on imported fuel. The contract went to Russians at first, but they withdrew.”

The New York Times tells the story of Rajakumari Jandhyala, who grew up in suburban Ohio and never imagined she would end up in the oil business, much less on the front line of America’s global competition with China. She spent two decades as a policy adviser on Africa, most recently as an aid official in the Obama administration.

“But in 2016, she heard about a call for proposals to build an oil refinery in Uganda that could be the largest in East Africa, and she put together a bid. She landed an investor in Kenya. She recruited oil and gas executives from General Electric. An Italian contractor joined the group of companies that formed a consortium, too.

“The main problem was the big advantages enjoyed by the competition: two Chinese energy companies, one of them a state oil giant with Beijing’s support,” notes The New York Times.

Ms. Jandhyala, 53, reportedly heard about the plans on a scouting trip to Uganda in 2016, her first visit since working for the Ugandan prime minister’s office a decade earlier as an adviser on a peace process to end an insurgency.

“From a shared work space in Washington, she recruited partners for what she hoped would be the first project for Yaatra Ventures, which she founded in 2015 to invest in African infrastructure.”

Uganda received more than 40 proposals to build the refinery, including a bid involving Dongsong, a private hydropower and mining company in the southern Chinese city of Guangzhou. A proposal made outside formal channels came from the China National Offshore Oil Corporation, or CNOOC, the country’s third-largest state oil company, says The New York Times.

“Both companies had offices in Kampala, the capital of Uganda, and had worked closely for years with the Ministry of Energy and Mineral Development. Dongsong was building a $620m phosphate mine and fertiliser factory in eastern Uganda. CNOOC was one of three foreign companies that had struck deals to extract oil.

“But their proposals included tough terms, according to interviews and an internal government assessment reviewed by The Times.

“Dongsong wanted a sovereign loan guarantee — making the Ugandan government responsible for the project’s debt if it failed — and insisted that 60 percent of labor and materials come from China. CNOOC, meanwhile, wanted greater access to the oil fields themselves.”

The American consortium, meanwhile, tried to set itself apart, proposing that Uganda’s state oil company and other East African nations own up to 40 percent of a new private company that would build and run the refinery. The consortium would finance the project by selling shares to investors as well as by borrowing, but it was not asking for a sovereign guarantee, according to The New York Times.

“The American proposal meant less debt risk for Uganda, but there were questions about the consortium’s ability to raise the money. The Chinese bids, by contrast, promised immediate financing from Chinese state banks. And at the energy ministry, officials were longtime proponents of Chinese companies.

“At the end of the day, we are developing a lot of capital-intensive projects,” said Robert Kasande, a top energy official. “We need the financing. The Chinese can do that.”

China, Cameroon, Investments
James Arthur Edongue, chief port logistics for the Port Authority of Kribi, explains a mandarin language China Harbour Engineering Co. (CHEC) billboard in Kribi, Cameroon, on Wednesday, Aug. 1, 2018. Since the initial agreement to build the port at Kribi was signed in 2009, 10 Chinese firms, including CHEC and its holding company, China Communications Construction Co., have obtained concessions to mine bauxite, iron ore and other minerals. Photographer: Adrienne Surprenant/Bloomberg

The New York Times tells how Ugandan soldiers with Kalashnikov rifles stand guard at Dongsong’s headquarters in Kampala, a hilltop villa with a swimming pool and sweeping views of the capital. Lü Weidong, the company’s founder, flies in several times a year.

Lü, 50, a former bank manager who belongs to a political advisory body controlled by the Communist Party, said he ventured to Uganda after a chance meeting with the country’s consul general in Guangzhou. Soon, he got the mine deal. 

Dongsong’s presence in Uganda has been laced with controversy, including that its mining license had been acquired through fraud. “The company has faced problems in China as well. A court in Hebei Province said last year that Mr. LĂĽ had set up a shell company to pay bribes to two state bank officials who were convicted on corruption charges”.

LĂĽ denies any wrongdoing, says The New York Times, and his legal problems do not appear to have bothered Ugandan officials.

Museveni and other officials appear to be rethinking the nation’s reliance on China, it opines. “While Western energy companies have also been implicated in Ugandan corruption cases. China took a hit in the most recent big scandal: In 2016, officials uncovered shoddy construction at the two dams, which remain unfinished.”

The New York Times emphasises the involvement of US diplomats in pushing the commercial agenda in Africa. Deborah Malac, the United States ambassador to Uganda, has pushed for American investment there. “I think the big lesson is that we have to be aggressive,” she reportedly said.

She spoke to Museveni a dozen times; meanwhile there were “a lot of interested parties beholden to the Chinese who tried to derail the process”.

In October, President Trump signed a bill creating a new agency to replace the Overseas Private Investment Corporation and give out $60 billion in financing — double the previous amount, though still a fraction of what China has pledged to spend.

Meanwhile, G.E. has begun selling its stake in the oil field services company in Ms. Jandhyala’s consortium. Its exit could weaken Ugandan confidence in the deal, and there is still uncertainty about the group’s ability to secure financing, adds The New York Times.

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