WHEN THE DEAL IS TOO GOOD: LESSONS FROM ETHIOPIA AND ECUADOR
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In Ecuador, the Exim Bank of China approved a $1.7 billion loan to build a dam with an outdated feasibility.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.