In January, Africa’s first electric transnational train made its inaugural 446-mile long journey from Djibouti, the capital of Djibouti, toward Addis Ababa in Ethiopia. It was not only a milestone for the two East African countries but also the most recent accomplishment of China’s New Silk Road Initiative.
Follow the Silk Road
The $1trn “One Belt, One Road” plan aims to re-create the old Silk Road that traced the Chinese Empire’s trade routes with the West. At a time when China’s economy is showing signs of slowing down, the new lines should provide easy access to markets around the globe.
Thus far, China’s insatiable appetite for Africa’s raw materials has driven much of the rapid “Africa Rising” model. Now, however, Beijing is trying to rebalance its economy by steering away from manufacturing and construction and prioritising consumption and services instead. Chinese investment in Africa has followed suit, shifting away from commodities trade to developing infrastructure projects. The hope is that these projects, like the Djibouti-Addis Ababa rail line, will not only transform the way Africans trade with each other but also bring them closer to the Chinese economy.
Beijing, faced with overcapacity in many crucial sectors from steel to cement, is searching for new markets to keep its economy growing. Western markets might be harder to penetrate, but Africa’s developing economies remain open. In the process, China’s economy is becoming inextricably intertwined with African markets: when African exports to China fell by almost 40% in 2015 on account of rapidly decreasing demand for continent’s primary goods, Africa’s economies felt the pinch of falling commodity prices and fluctuating currencies.
At the same time, African demand for Chinese goods keeps rising. In that same year, China sent $102bn worth of goods to the continent, an increase of 3.6% compared to 2014.
Africa is therefore very sensitive to the “triple threat”: falling commodity prices, China’s economic slowdown, and the rising cost of external debt. As these external shocks are closely linked to the economic mood in China, African economies must develop a resistance to such external challenges by diversifying themselves. Of course, steering the appropriate course is a balancing act. After all, Africa can also benefit from China’s expanding middle class with its rising demand for consumer goods. The UN’s World Economic Situation and Prospects 2017 survey points out:
“To leverage this opportunity, African countries need not only to diversify their export product structures but enhance productivity and competitiveness”.
For the moment, the trend appears to be going in the opposite direction. Beijing’s involvement on the African continent has been shifting overall economic structures: in 2016, the state-owned China Development Bank became the biggest overseas creditor in the world, overtaking the World Bank and Asian Development Bank.
Its plan to provide Africa with $1trn financing is based on the conviction that “Africa for the next 20 years will be the single-most important business destination for many Chinese mega corporations”.
A Market for China
Absorbing billions every year, Africa not only creates much-needed jobs for the Chinese but also becomes a market for Chinese products. Eric Olander, a China watcher based in Vietnam, points out:
“The Chinese presence in markets like Vietnam, for example, is staggering […] building consumer brands and mobile phones and technology and clothing. And they are doing it in India. They are doing it in South America. They are doing it in Africa.”
There are, of course, complicating factors. The ambitions behind China’s revived Silk Road may extend beyond simple economic returns. Frans-Paul van der Putten, an analyst of China’s New Silk Road strategy at the Netherlands Institute of International Relations, thinks “it allows China to strengthen its diplomatic influence in Asia, Africa, and Europe, which compensates for the geopolitical pressure it faces in East Asia from the United States and Japan”.
Demand for Chinese products in Africa has also extended into the defence market. More than two-thirds of African countries are now using Chinese military equipment, leading some to argue that the Silk Road has strong military undertones. For good reason: China’s investment in Djibouti’s new railway coincided with Beijing’s first overseas military base, slated to open in the country’s northern region of Obock.
The new military outpost is close to Camp Lemonnier, the largest American permanent military base on the continent. Strategically located at the southern entrance to the Red Sea on the route to the Suez Canal, Djibouti is America’s most important low-profile ally in Africa.
Potential Trump Issues
As China’s military interest is now becoming increasingly apparent in a country that already hosts military bases from the US and France, China’s hitherto economic involvement is becoming more complicated and could lead to new military flashpoints. Djibouti and its authoritarian president, Ismail Omar Guelleh, could easily spark the ire of the Trump administration, which could retaliate either by moving the base or by cutting its substantial foreign aid packages.
Djibouti’s deepening ties with China have already provoked criticism and concern from policymakers in Washington, and the new administration has already signalled that it will move aggressively to check Chinese expansionism. What’s more, Djibouti has already burned bridges with port operator DP World, after losing a trial in which the government falsely claimed the company paid bribes in order to obtain the concession of a container terminal in the country.
In the current political climate, China’s moves on the continent at the expense of other partners will be perceived as part of a zero-sum game. The New Silk Road initiative could, therefore, backfire, increasing political and economic instability and putting the lie to the eye-grabbing dollar figures Beijing parrots at its yearly bilateral summits.
Have your say. Sign up now to become an Author!
The Last Crypto Briefing
This is your last Crypto Briefing. We are switching our entire focus to Mogul News, which you can learn more...
How Eight Governments Are Responding to Blockchain
While it is difficult for many people to separate cryptocurrencies and the blockchain in their minds, they are not synonymous....
Fix Rooms Could Save Lives, Money
There is an epidemic of opioid abuse and opioid overdose deaths, especially in the United States but also in Europe....
Legacy Tech Must be Updated to Rebuild the Customer Experience
After committing to a customer focus, businesses must explore how IT can make the digital business transformation occur for both...