Columns

Spending China's money

Taking priorities into negotiation

Garfield Higgins

Sunday, November 11, 2018

Print this page Email A Friend!


Perseverance is everything. — Yoruba proverb (Nigeria)

On the occasions in which I have had to physically transact business at the Constant Spring tax office I come away feeling like an involuntary subject in an endurance test. Last Tuesday, was an exception. As luck would have it, I joined a line just as a lively exchange on the matter of Chinese investments in Jamaica had got to a fever pitch. The cut and thrust of the conversation between two taxpayers standing in queues made the near-one-hour sojourn a little more bearable.

Taxpayer 1: “China is taking over Jamaica, just like Zambia.”

Taxpayer 2: “That is how banking is, if you can't pay your debt, there are consequences. No one held a gun to their head and said, 'sign here'.”

Taxpayer 1: “Really, I am very suspicious of China giving all these loans to all these countries, especially in Africa.”

Taxpayer 2: “Ok, then, so who else is lending poor countries money at China's low interest? Who?”

And so it went on...

As I listened to the strong but friendly exchanges I reflected on Nelson Mandela's famous perspective on pragmaticism. In 1990, Mandela attended a town hall meeting in New York, USA, chaired by Ted Koppel of ABC Networks. It was Mandela's first trip to the USA following his release after 27 years in prison. Some in the meeting tried their best to unsettle him. Detractors threw in the kitchen sink plus whatever else they could find. He was chided for advocating sanctions against Apartheid South Africa, his support for the Palestinian Liberation Organization, as well as his close friendship with Yasser Arafat of Palestine and Fidel Castro of Cuba.

Mandela listened attentively. Then he eased into his chair, and quietly, but firmly said: “We do not care whether the cat is black or white, as long as it can catch mice!”

He was quoting Deng Xiaoping, Chinese revolutionary and politician. Many credible political historians posit that Deng Xiaoping, more than any other Chinese leader, is responsible for the current impressive economic growth of China.

I believe the pivotal point of the debate about Chinese investments and loans in Jamaica leans on practicality and not ideology. Why are Chinese loans and investments so attractive? The reality is Chinese loans and investments usually come without political strings. Countries which need to borrow for infrastructure and other development purposes are going to borrow from those who are offering the most attractive terms and conditions. How the borrowed funds are used, and what they are used for are key. One does not need a degree in banking and finance to understand that lenders look out for their best interests and the interests of those they represent. Common sense dictates that borrowers need always to do likewise. China needs a lot of the raw materials which many countries in Africa and elsewhere have in abundance. Many of these African countries need additional technology, markets and money to better develop their primary and secondary infrastructure. I believe the cards of the borrowers are as strong as those of the lenders. The Chinese are using the raw materials for their long-term development needs. Are all borrowers using Chinese loans for theirs?

Mismatched priorities

One of the things too many of us love to do is blame others for our own carelessness, sometimes inadvertent oversights, errors and shortcomings. These snippets of a story by Louise Redvers of the British Broadcasting Corporation (BBC), titled 'Angola's Chinese-built ghost town', supports how important it is to rigorously protect our own interests in relation to our unique development needs.

The story said among other things: “The ghost towns of China, Ireland and Spain — full of large, empty house estates — may be a phenomenon that is on its way to Africa.

“Built for people who never move in, they leave those who did with a worthless property they cannot sell.

“Perched in an isolated spot some 30km (18 miles) outside Angola's capital, Luanda, Nova Cidade de Kilamba is a brand-new mixed residential development of 750 eight-storey apartment buildings, a dozen schools, and more than 100 retail units.

“Designed to house up to half a million people when complete, Kilamba has been built by the State-owned China International Trust and Investment Corporation (CITIC) in under three years at a reported cost of US$3.5 billion (2.2 billion).

“Spanning 5,000 hectares (12,355 acres), the development is the largest of several new 'satellite cities' being constructed by Chinese firms around Angola, and it is believed to be one of the largest new-built projects on the continent...

“Apartments at Kilamba are being advertised online costing between US$120,000 and US$200,000 — well out of reach of the estimated two-thirds of Angolans who live on less than US$2 a day.

“However, Paulo Cascao, general manager at Delta Imobiliaria, the real estate agency handling the sales, told the BBC that the problem was not the price, but difficulty in accessing bank credit.

“ 'The prices are correct for the quality of the apartments and for all the conditions that the city can offer,' he said.

“ 'There is no middle class in Angola, just the very poor and the very rich, and so there is no-one to buy these sorts of houses,' “ Elias Isaac, country director at the Angolan Office of the Open Society Initiative of Southern Africa (OSISA), told the BBC.

“Kilamba was financed by a Chinese credit line — which Angola is repaying with oil — so it has technically been paid for.

“But if the houses go unsold, then the Angolan Government will be left with stock on their hands and a potentially wasted investment.” ( BBC, July 3, 2012)

Who should be blamed for this cock-up, the Chinese or the Angolans? It appears that this was simply a vanity project. It evidently bore little resemblance to the immediate development needs of the majority of the Angolan people.

Some years ago I wrote an article for this newspaper in which I argued that the International Monetary Fund (IMF) was not be be assigned the lion's share of blame for the economic mess we had got ourselves into over many decades. I was pilloried by some. I may well get similar reactions for this piece. Nonetheless, I don't subscribe to the view that emerging economies like ours are powerless at the negotiation table.

Recently, I heard a most interesting programme on the BBC, which centred on China's loans and investments in Africa. In the discussion, Laura Miti, the head of a non-government organisation in Zambia which advocates for more transparency in government finances, was very critical of Zambia's decision to build, as she put, “two new shiny airports” and “roads to nowhere”, with a Chinese line of credit. Miti also made the point that while it was nice to have “two new shiny airports”, the Chinese funding would have been better used to solve long-standing basic needs. Recall that most of Zambia's old debt was written off some years ago by rich countries as part of a programme to give the poorest countries some economic breathing space. Today, Zambia is firmly in debt again. According to the BBC, “Over the last five years Zambia's debt has tripled as a share of national income, and most of it is owed to China.”

Why? Miti says this is due to recklessness by Zambia's politicians. Zambia's natural resources include copper, cobalt, zinc, lead, coal, emeralds, gold, silver, uranium, natural gas, tin, bauxite, nickel, petroleum, and phosphate. Should the Chinese be blamed for Zambia's debt?

Smarter negotiations?

Many countries in Africa are now taking a smarter approach in their negotiations with China. Angola has established a system which channels Chinese line of credit to its basic development needs. Last month, Sierra Leone cancelled plans to build a $318-million Chinese-funded airport project.

A story in Face2Face Africa said, among other things: “The Sierra Leonean Government has cancelled all contracts with a Chinese construction firm that was tasked to build a new $318-million airport facility in March, expected to be completed in 2022.

“The project, launched by the former President Ernest Bai Koroma, was to complement the planned construction of a new city and an exclusive economic zone, local media report.

“The aviation ministry is reported to have said in a letter that it was 'uneconomical to proceed with the construction of a new airport when the existing one is grossly underutilised'.

“President Julius Maada biography is reported to have lost interest in the planned Mamamah International Airport to be constructed by the China Railway Seventh Group as part of his new direction of clearing the country's debt incurred by his predecessor.

“After he was sworn into office, Maada Bio appealed to the IMF to resume implementation of the country's Extended Credit Facility Programme aimed at restoring economic stability as Sierra Leone was drowning in an external debt of US$2 billion and domestic debt is 4.9 trillion Leones (US$587 million).” ( Face2FaceAfrica, October 9, 2018.)

Emerging economies are increasingly approaching the negotiation table with China in a much more strategic fashion. Some have now employed highly trained international communication, trade and commerce experts who not only can interpret, but can also explain specific cultural and other nuances. Smart is common sense.

Clearing the air

Earlier this month, our Minister of Finance and the Public Service Dr Nigel Clarke explained that “90 per cent of the loans from China will be repaid in 10 years”. A Jamaica Observer news story with a similar headline said, among other things: “Dr Clarke said that 99 per cent of the loans secured from China on behalf of Jamaica are at fixed interest rates of two and three per cent, which 'are among the lowest interest rates in our entire loan portfolio'.

“ 'Loans from China [also] represent a mere 3.9 per cent of the total $2-trillion debt of Jamaica. When you hear a loan being executed of (about) US$200 million from the China EXIM Bank, bearing in mind that at current exchange rates US$200 million is roughly $25 billion and then in a debt size of $2 trillion, it is just about one per cent.' “ ( Jamaica Observer, November 1, 2018)

The same Observer news item also reported inter alia: “Prime Minister Andrew Holness, a day before, noted that the loans secured on behalf of Jamaica are done at the best interest rates and that there is no need to fear Jamaica's relationship with China.

“ 'I don't think that there needs to be any fear-mongering. The Government of Jamaica has been very strategic and the sovereignty of Jamaica is always foremost in my mind. So when we engage, we engage with that as a non-negotiable part of the partnership.' Holness said.” ( Jamaica Observer, November 1, 2018)

It is interesting that when Jamaica was borrowing money at nine, 10, 11, and 12 per cent some financial experts held their peace. It is also interesting that many of our local investors who have shied away from investing in local infrastructure, are suddenly seeing the myriad opportunities that have been here for decades, now that the Chinese are investing.

I believe Jamaica's decision to use much of the Chinese line of credit to improve the road infrastructure, in particular, is prudent. It is evident that our road network, especially in the major urban centres, were built for traffic loads of the 70s and 80s. On a typical workday we collectively waste hundreds of production hours stuck in traffic jams. One does not need to be a transport economist to figure that our failure to transport goods and services more efficiently is costing this economy dearly.

Job, Jobs, Jobs

“The busy man is troubled with but one devil: The idle man by a thousand.” This is mostly true. I believe the Andrew Holness-led Administration understands the importance of people being put to work. The Stastical Institute of Jamaica says unemployment, at 8.4 per cent, is the lowest in 50 years. This should be music to the ears of all right-thinking Jamaicans.

Jamaica's best days are ahead. I am betting on Jamaica, full stop!

I have discovered in life that there are ways of getting almost anywhere you want to go, if you really want to go. — Langston Hughes

Garfield Higgins is an educator; journalist; and advisor to the minister of education, youth and information. Send comments to the Observer or higgins160@yahoo.com.

ADVERTISEMENT




POST A COMMENT

HOUSE RULES

1. We welcome reader comments on the top stories of the day. Some comments may be republished on the website or in the newspaper � email addresses will not be published.

2. Please understand that comments are moderated and it is not always possible to publish all that have been submitted. We will, however, try to publish comments that are representative of all received.

3. We ask that comments are civil and free of libellous or hateful material. Also please stick to the topic under discussion.

4. Please do not write in block capitals since this makes your comment hard to read.

5. Please don't use the comments to advertise. However, our advertising department can be more than accommodating if emailed: advertising@jamaicaobserver.com.

6. If readers wish to report offensive comments, suggest a correction or share a story then please email: community@jamaicaobserver.com.

7. Lastly, read our Terms and Conditions and Privacy Policy



comments powered by Disqus
ADVERTISEMENT

Poll

ADVERTISEMENT
ADVERTISEMENT

Today's Cartoon

Click image to view full size editorial cartoon
ADVERTISEMENT