Driver of development, neo-colonialism – or both?

Military honours for the Hungarian Prime Minister Viktor Orban at the Belt and Road Forum 2017 in front of the Great Hall of the People in Beijing, China.
Political article
With the Belt and Road Initiative, China is pushing global development in a manner unparalleled to date. But how sustainable are the “new silk roads”? Switzerland wants a piece of the cake and has signed a memorandum of understanding with China.

“Thanks to the new silk roads, East Africa now has its first motorway, the Maldives its first inter-island bridge, Belarus its own auto industry, Kazakhstan has access to the sea for the first time and goods can now be transported by rail on the Eurasian continent. The rail link between Mombasa and Nairobi for its part has created 50,000 local jobs”. Such was the announcement made by China’s Ambassador to Switzerland Geng Wenbing, at the conference organized in early September in Andermatt by the Swiss delegation to the OSCE Parliamentary Assembly under the theme The New Silk Roads as a Driver of Sustainable Development Goals.

The infrastructure development programme now commonly called the New Silk Road – encompassing streets, ports, railways, factories – was unveiled in 2013 by Chinese President Xi Jinping in order to connect China with the rest of the world and facilitate the importation of the commodities needed by the Middle Kingdom for its spectacular growth. It is a project of gargantuan proportions to which 126 countries and numerous international organisations have since signed up. The figures are staggering. It is expected to handle 40 per cent of world trade and reach 60 per cent of the world’s population. The exact amount being invested is not known, but estimates range from 1,000 to 8,000 billion US dollars. China alone plans to invest 600 to 800 billion US dollars by 2021.

“The Belt and Broad Initiative (BRI) is neither a Chinese one-man show nor a China club”, said the Chinese Ambassador. Club or not, Switzerland joined the BRI in April last by signing a Memorandum of Understanding with the BRI, being one of the first Western European countries to do so. The memorandum between Switzerland and China does not provide for increased Chinese investment in Switzerland but broaches the subject of cooperation between enterprises, banks and insurance companies in third countries with the support of the respective governments. And this raises a number of questions.

Opposition to China in Ethiopia

The fact is that by no means all projects are working as well as the Chinese Ambassador would have us believe. Was it by chance that he made no mention of the 750-km rail link between Ethiopia’s capital Addis Ababa and Djibouti, Africa’s first fully electrified cross-border rail connection? The stretch was inaugurated in January 2018 and cost 2.8 billion euros, which Ethiopia must repay to China over 15 years. Among other things, a brand-new but little used railway station was built outside Addis Ababa.

The new construction is intended to replace the old railway built by the French in 1901 and decommissioned at the start of the 21st century. I took the old train in 1993 and for a foreign tourist it was indeed full of charm, but its two ramshackle cars took a whole day to get from Addis Ababa to Harar near to the Somali border. Today the train covers that distance in less than seven hours, and one can therefore understand the enthusiasm of the authorities over the new link and its modern technology. According to media reports, however, the ordinary local people are highly critical of the new railway as just another gigantomaniac project by Addis Ababa’s elites. Most of the stations are located far from where they are needed and therefore do not contribute to the local economy. This contrasts starkly with the old rail line and its stations, part and parcel of which was a vibrant chaos of hawkers, restaurants and hotels. While the Chinese operating company maintains that the new railway has created 20,000 local jobs in Ethiopia and 5,000 in Djibouti, now jobless former rail workers complain of the low wages and poor working conditions being offered by the new railway. The principal problem, however, is land – this is the main complaint being voiced by the Oromo people, the worst affected ethnic group. The land belongs to the State and the dispossessed communities have not been properly compensated.

Lack of transparency and over-indebtedness…

The Ethiopian railway is a good example of the potential of Chinese projects, but also of their risks. The lack of transparency is the principal problem that has been identified. There are no official studies, surveys and data on the BRI projects offering any information about its cost-benefit ratio and impacts on local people; Beijing does not disclose its lending conditions. The upshot is that countries either contract new debt with China or become even further over-indebted to that country, which entails not just economic but also political dependence. Djibouti, whose debt to China is 80 per cent of its GDP, is now home to China’s very first military base abroad. China’s Ambassador in Andermatt had no interest in such objections; instead, he underlined that “the industrial corridor between Pakistan and China has boosted Pakistan’s GDP by 2.5 per cent”. He fails to mention the downside, which is that Pakistan’s debt to China, already estimated at 19 billion US dollars, has ballooned with the BRI. In the case of the Maldives, its estimated 1.5 billion debt to China makes up 30 per cent of GDP.

It was pointed out at the Andermatt conference that multilateral investment banks have drawn up guidelines designed to ensure social, financial and environmental sustainability. Although these guidelines are often and justifiably criticized by NGOs as not going far enough, they do nonetheless have the merit of provoking a discussion of the topic of sustainability and of providing a reference framework. Yet a good many countries regard these lending criteria as overly restrictive. A high-ranking Swiss official, for example, commented that “there is no shortage of money in multilateral forums, but of viable projects.” The solution was Chinese loans, which are easier to obtain. Yet there is no doubt that anyone who contracts billions in loans does enter into a certain dependence. The former European colonial powers and the USA, which in many respects has taken over their role in the 20th century, sense a kind of neo-colonialism behind China’s strategy of development and expansion. It is yet to be seen whether it will prove just as calamitous for developing countries as historical colonialism.

What is not in dispute is the enormous need for funds if sustainable development is to be realized. The OECD estimates that it will take investments to the tune of 6,900 billion US dollars to realize the UN Sustainable Development Goals (SDGs) by 2030.

…environmental and human rights impacts, corruption

The human rights implications of China’s projects are of major significance, especially for labour standards and public consultations. The environmental ramifications of every infrastructure project for water resources, the soil, air, biodiversity and climate change are considerable – especially when the project revolves around the exploitation of oil and gas deposits, these being sectors which, it should be noted, are hardly compatible with the environmental change called for under the 2030 Agenda.

Corruption is yet another problem being compounded by the lack of transparency around lending. “Globalization has helped pave the way for the export of corruption through investments,” says Greta Fenner of the Basel Institute of Governance, “and it is a problem that affects not just developing countries. When it comes to governance, the BRI carries massive risks of corruption. Major infrastructure projects entail enormous sums of money, and this invariably against the backdrop of an obvious power imbalance. It is of secondary importance whether it is China or some other lender that is involved.”

It should be mentioned that progress is also being made in the discussions around the New Silk Road, starting with the Green Investment Principles for the Belt and Road and a Debt Sustainability Framework recently approved by China, both of which underscore Peking’s commitment to more sustainable investment.

What is Switzerland doing?

And what part is Switzerland playing in the BRI? The agreement with China creates a platform that should enable Chinese and Swiss companies to work together on BRI projects, while taking special account of financial and debt-related aspects of sustainability. A working party is expected to set up the platform. When Swiss enterprises are involved – and there seems to be unanimity on this – at least certain human rights and environmental standards must be upheld.

The Andermatt Declaration adopted by the conference acknowledges these beautiful principles, and Switzerland can surely play a part in ensuring that they are also respected. Another of the aims of the Declaration, however, is to create an environment favourable to private investment in infrastructure as well as public-private partnerships (PPPs). This aim is also clearly expressed in the Memorandum of Understanding between Switzerland and China. Still unanswered is the question of whether in fact public funds are to be used to support Swiss companies, banks and insurance providers abroad. And if so, under what terms and conditions.