WHEN THE DEAL IS TOO GOOD: LES­SONS FROM ETHIOPIA AND ECUADOR

Daily Nation (Kenya) - - NATIONAL NEWS -

Crit­ics have ac­cused China of hawk­ing loans by fund­ing in­fra­struc­ture projects in

Africa that make lit­tle eco­nomic sense to the ben­e­fi­ciary na­tions. In the neigh­bour­ing Ethiopia, where China built a $4 bil­lion rail­way line link­ing the cap­i­tal Ad­dis Ababa with Dji­bouti, the gov­ern­ment had to ne­go­ti­ate the reschedul­ing of the loan. The land­locked coun­try had bor­rowed 70 per cent of the funds it used to build the line from the Exim Bank of China, which agreed to ex­tend its re­pay­ment by 20 years. China’s main project in­surer, Si­nosure, in Oc­to­ber 2018 cast doubt on the vi­a­bil­ity of some in­fra­struc­ture projects funded by Bei­jing. The firm has al­ready in­curred losses of more than $1 bil­lion on the Ethiopian-dji­bouti rail­way alone. Mr Wang Wen, the chief econ­o­mist for Si­nosure, said the plan­ning of many of China’s ma­jor in­fra­struc­ture projects abroad has been “down­right in­ad­e­quate”, lead­ing to huge fi­nan­cial losses. “Chi­nese de­vel­op­ers and fi­nanciers of projects in de­vel­op­ing na­tions need to step up their risk man­age­ment to avoid dis­as­ter,” said Mr Wang.

In Ecuador, the Exim Bank of China ap­proved a $1.7 bil­lion loan to build a dam with an out­dated fea­si­bil­ity. Ecuado­ri­ans were told that the dam, sit­ting on an ac­tive vol­cano, would end the coun­try’s en­ergy prob­lems. China, it ap­pears, had strate­gi­cally tar­geted the South Amer­i­can na­tion’s most cher­ished ex­port of oil, as Ecuador now uses 80 per cent of the com­mod­ity to ser­vice the loan. The gi­ant dam in the jun­gle has since cracked, barely two years after it was opened. A cor­rup­tion scan­dal sur­round­ing its con­struc­tion shines a spot­light on how it was con­ceived and im­ple­mented. The dam now runs at half ca­pac­ity and the power chal­lenge was never re­solved. De­spite the hic­cups, Ecuador cedes $125 mil­lion worth of petrol to China ev­ery year to cater for the seven per cent in­ter­est on the loan.

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