By Carlton Joseph
Towards the end of last year, China’s growing economic influence in the Caribbean and Africa became a hot topic of discussion. Many people in the Caribbean expressed deep concern that the contracts that their governments were signing with China did not benefit their countries, the debt created could not be repaid and that the Chinese would eventually own the major assets of their countries.
While these are genuine concerns, a major issue which certainly needs to be addressed is political leadership. Clearly, political leaders in the Caribbean and Africa have exercise a great deal of power and do not consult or share contract information with the general population and all too often incompetent and corrupt government officials enter into contracts on behalf of their countries without fully assessing the projects which they are implementing.
Every project must have a plan for revenue generation that would repay the debt created. This is basic economics, whether a Chinese state-owned corporation or an American or British company implement the project. For example, if you purchase a house and you cannot pay the mortgage, the bank will take your house. This is how the system works. So you must determine where the revenue is coming from before you proceed to borrow money to make the investment in any project.
Let’s us look at Chinese economic influence from a global perspective. The United States (and its Western allies are afraid of China’s growing economic power and influence in the world. They have dominated world trade and set the rules of economic, political and military engagement and expect that this would continue indefinitely. China is encroaching on their power, and they do not like it.
In 2013, China introduced its Belt and Road Initiative (BRI). It is the most expensive infrastructure project in history. Chinese companies are constructing roads, pipelines and railroads in 152 countries and international organizations in Asia, Europe, Africa, the Middle East, and the Americas.
Critics claim that China is using the debt trap to take away host country sovereignty. Do countries in Africa, the Caribbean, and Latin America have their sovereignty today? What has the current economic system done for these countries? These countries have been forced to accept the International Monetary Fund (IMF) Structural Adjustment programs, that have pauperized the majority of the population, sold off their assets to foreign corporations and if their governments refuse to accept the economic programs of the West, their governments are destabilized with economic sanctions and their leaders have been removed by military coups.
Most governments in the Caribbean, Latin America and Africa do not have the financial or human resources to build infrastructure projects that are critical for their development, and they need to deal with China. Countries must focus on infrastructure projects that will generate revenue, employ local people, foster entrepreneurship and develop the country. Countries must build power plants, railroads, roads and other critical infrastructure projects.
The World Bank reports that there is a global infrastructure investment deficit, and that annual investment needs range between USD 2.9 trillion and USD 6.3trillion. The largest investment needs lie in transport and energy and infrastructure. China is risking its resources to facilitate development in many countries around the world. One cannot expect the Chinese to do nothing if countries default on their commitment. One cannot blame the Chinese for incompetence in Africa and the Caribbean.; every country must seek its own interest and do what is best for their citizens.
China has acknowledged the risks common to many major infrastructure projects: debt risks, governance risks (corruption and procurement), stranded infrastructure, environmental risks and social risks, and have decided to accept those risks.
Many have complained that the Chinese are negotiating contracts in which everything is imported from China. This is not China’s problem; the host country is expected to negotiate in its own interest and where it is necessary, the people need to demand renegotiations of contracts in order to ensure that the country benefits from these projects.
Recently, Prime Minister Mahathir Mohamad of Malaysia accused the Chinese of taking advantage of the previous corrupt government of his country and halted the $20 billion contract for building ports, pipelines and a rail link. He then renegotiated the contract. China agreed to reduce the price tag for construction by 30 per cent and allow more Malaysian workers on various projects. At the joint reopening ceremony, Mohamad said, “the Chinese are willing to listen to our views, and, in the end they accommodated our problems.”
To counteract the BRI, U.S. officials have created a new USD $60 billion agency that will approach countries where China is investing. They are pitching the same old public-private deals, and using the same economic assessment models. In addition, they advocate Japanese investment as an alternative.
In response to the Japan alternative, Indonesian Minister Luhut Pandjaitan reminded the Japanese that they built Jakarta’s local subway but the Chinese deals on future projects are much better. PM Mohamad remarked “The U.S. approach is always with a big stick and very little carrot. This has not happened with the Chinese. That’s not the Chinese way.”
The United States government describes the BRI as a way for Chinese to exert control and increase Chinese power around the world. Vice President Mike Pence said, “We don’t coerce or compromise your independence. The US deals openly, fairly. We do not offer a constricting belt on a one way road.” Really? Pence should visit US policy regarding Venezuela and other Latin American countries.
In just a decade, trade between China and Latin America has multiplied more than 20 times as regional partners have signed hundreds of agreements and broken ground on dozens of key energy, transport and infrastructure projects in strategic locations. Researchers estimate that in the last decade more than 2,000 Chinese companies have settled in the region, and generated more than 1.8 million jobs.
This is serious development. The Chinese give countries the infrastructure projects that they decide are necessary for the development of their countries and they agree to pay for their services and enter into a contract. They must do their due diligence and ensure that their countries negotiate the best deal for their people. People cannot expect to sign corrupt deals that benefit them and their family or political associates, and not consider how the debt will be repaid, then complain that the Chinese are taking advantage of their countries.
Leaders who sign these deals presumably went to universities and they claim that they have the expertise to run their countries. This is the time to prove that they are worthy of the peoples’ trust and do what is right for their countries. The IMF and its structural adjustment programs have not benefitted those countries. So leaders in the Caribbean and Africa should pull the intellectual assets as well as entrepreneurial, engineering, managerial, legal, social, psychological and other pertinent skill sets together, and negotiate mutually beneficial deals with the Chinese. Remember, the future of all economies is improved when well-being rises around the world.
(Trinidad-born Carlton Joseph who lives in Washington DC, is a close observer of political developments in the United States.)