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China’s Debt Imperialism: The Art of War by Other Means?

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The Belt and Road Initiative, China’s ambitious attempt to create a global infrastructure corridor spanning 65 countries and connecting 60 percent of the world’s population, is the biggest imperial coming-out party in modern history. Not by armed conquest but by a strategy of debt-financed diplomacy, from Sri Lanka to Montenegro, from Islamabad to Mombasa, China is deploying its $3.2 trillion credit surplus to establish a 21st century Oriental Empire, impoverishing entire continents through the allure of roads, railways and bridges. DAVID NDII conducts a global cost-benefit analysis.

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Therefore the skillful leader subdues the enemy’s troops without fighting, captures their cities without laying siege, he overthrows their kingdom without lengthy operations in the field.” ~Sun Tzu

Colombo. On June 8, Fly Dubai’s last flight departed from Sri Lanka’s spanking new Mattala Rajapaska International Airport. It was the only airline flying there. Sri Lanka’s national airline stopped flying there in 2015. The “world’s emptiest airport” as its been known since it opened in 2013, is now officially a lily white elephant. The airport is a stone’s throw from Habantota, the world’s emptiest sea port that has made Sri Lanka the poster child of China’s predatory lending. The two are the largest of a slew of ill-fated mega-infrastructure projects that were supposed to transform Habantota, which happens to be the home town of former President Mahinda Rajapaska (for whom the airport is named, or rather, who named it for himself), into Sri Lanka’s second city.

It has not quite worked out that way. Rajapaska lost elections in 2015 in a cloud of corruption scandals, after a decade in power during which he buried Sri Lanka in a mountain of Chinese debt. After weighing its options the successor government ceded the Habantota port to China in exchange of a partial debt write-off. It has not helped. Sri Lanka is still caught in China’s debt trap. Last year, it turned to the IMF for a bailout. This year, Sri Lanka is looking to raise US$ 1.25 billion from China to keep up with its debt repayments.

Podgorica If you are an imperialist looking for a European client state, you could not do better than Montenegro. It is small (population: 620,000; GDP US$4 billion), vulnerable, and in a most strategic location on the Adriatic coast. Its hinterland includes Serbia and Hungary, both landlocked, as well as the Black Sea countries (Romania, Bulgaria and Ukraine) whose access to the sea, the Bosphorous, is controlled by Turkey.

Montenegro has been mulling a grand motorway from its port city of Bar to Boljare on the Serbian border for a long time, a distance of only 165 kilometres, but the country is extremely rugged, making the cost prohibitive. Two feasibility studies done in 2006 and 2012 for the Montenegro government and the European Investment Bank concluded that the highway was not economically viable. Then China came along.

The first 41 kilometres of the highway, built with an EUR 800 million Chinese loan, has nearly bankrupted Montenegro, forcing the government to raise taxes, freeze public wages and cut welfare spending. Borrowing close to 20 percent of GDP to build a quarter of a road is unwise. Unable to proceed, Montenegro has signed an MOU with the Chinese contractor to complete and operate it as a toll road on undisclosed terms. The fear now is that the Chinese have extracted onerous revenue guarantees. The contractor is none other than the state owned corruption scandal prone China Road and Bridge Company, the builder and operator of Kenya’s new standard gauge railway.

Montenegro has been mulling a grand motorway from its port city of Bar to Boljare on the Serbian border for a long time, a distance of only 165 kilometres…Two feasibility studies done in 2006 and 2012 for the Montenegro government and the European Investment Bank concluded that the highway was not economically viable. Then China came along. The first 41 kilometres of the highway, built with an EUR 800 million Chinese loan, has nearly bankrupted Montenegro, forcing the government to raise taxes, freeze public wages and cut welfare spending. Borrowing close to 20 percent of GDP to build a quarter of a road is unwise.

Islamabad. Pakistan sits between China and the Persian Gulf. When China buys oil from the Middle East and Africa, it has to be shipped 6000 kilometres round India, through the Straits of Malacca to the South China Sea. The Malacca Dilemma refers to China’s vulnerability to a potential trade blockade on this narrow sliver of ocean between Indonesia and Malaysia.

Enter CPEC. CPEC stands for the China Pakistan Economic Corridor. Billed as a crown jewel of the Belt and Road Initiative, CPEC is an ambitious and costly modernization of Pakistan’s infrastructure centred on a transport corridor linking China’s “landlocked” hinterland to Pakistan’s Arabian sea port of Gwadar. The corridor cuts the distance of China’s western border to the sea by half, from four to two thousand kilometres. China has already taken control of the Gwadar port on a 40-year lease and is building an airport and industrial parks— effectively making it a Chinese enclave inside Pakistan. Costed at US$40 billion when it was launched in 2013, CPEC’s price tag has escalated to US$ 62 billion.

Four years on, Pakistan is in deep financial trouble. The CPEC projects are bleeding the country and destabilizing the economy. In addition to CPEC debt, Pakistan is now living on a Chinese financial lifeline —US$5 billion so far — to stave off a foreign exchange crisis. A succession of devaluations have failed to stem the tide, and foreign reserves are now down to less than two months requirements. Pakistan is now caught between the proverbial devil and the deep blue sea: to go for an IMF bailout or to settle into becoming a Chinese client state. An IMF bailout would put pressure on Pakistan to scale down CPEC and expose the secretive financing to western scrutiny.

CPEC stands for the China Pakistan Economic Corridor. Billed as a crown jewel of the Belt and Road Initiative, CPEC is an ambitious and costly modernization of Pakistan’s infrastructure centred on a transport corridor linking China’s “landlocked” hinterland to Pakistan’s Arabian sea port of Gwadar, cutting the distance of China’s western border to the sea from four to two thousand kilometres. China has already taken control of the Gwadar port on a 40-year lease and is building an airport and industrial parks— effectively making it a Chinese enclave inside Pakistan. Costed at US$40 billion when it was launched in 2013, the price tag has escalated to US$ 62 billion. Four years on, Pakistan is in deep financial trouble.

What is China up to?

There are two readily apparent economic objectives that China could be pursuing, one immediate, and one longer term.

The immediate objective is investment diversification. China is sitting on US$ 3.2 trillion of foreign reserves accumulated from its trade surpluses with the rest of the world, more than those of the next four countries combined (Japan $1.27 trillion, Switzerland $740 bn, Saudi Arabia $900 bn, Russia $460 bn). Most of this money is held in safe but low yielding American and European government securities, with just over a third (US$ 1.2 trillion) in US government securities. Analysts estimate that another one third is held in other US dollar-denominated securities.

The longer term objective is sustaining its economic rise. China’s economy may be the world’s biggest but it is still a middle-income country, with an average income of less than a fifth of Singapore. One of the big questions out there is whether China will escape the “middle income trap”. The middle income trap is the observation that while many countries easily transition from poor to middle income status, only a few managed to transition from middle to high income. Of 103 countries that were middle income in 1960, according to an analysis by the World Bank, only 13 had transitioned to high income status by 2008, almost fifty years later.

China is sitting on US$ 3.2 trillion of foreign reserves accumulated from its trade surpluses with the rest of the world, more than those of the next four countries combined. Most of this money is held in safe but low yielding American and European government securities…Returns on these have been pretty dismal since the global financial crisis. But outside these markets there aren’t many assets that can absorb money on this scale. The BRI can thus be seen as a strategy by China to create such assets.

China has followed the export-led industrialization model of Japan and the Asian Tiger economies. This model will soon run its course. China’s average manufacturing wage has increased three-fold in dollar terms over the last decade, and is now on a par with the poorer former communist eastern European countries. To make the transition will require China to move up the product value chain, or as a recent paper by investment bank UBS put it, from “made in” to “created in” China. This will entail moving its factories abroad, some closer to markets, some to low-wage locations. Some of the BRI initiatives do seem to be gearing up for this. CPEC is an obvious case. China’s Great Wall company has a manufacturing plant in Bulgaria, which is in the hinterland of the Montenegro motorway.

It still begs the question why it needs to roll out the biggest building project since the Great Wall of China. Japan and the other Asian Tigers did not have to. And the BRI’s scale and aggression defies these rational economic objectives. If it goes to plan, it will span 65 countries, accounting for 60 percent of the world’s population and 40 percent of global economic output, and cost between four and eight trillion dollars That is not economics. It is empire building. It is not inconceivable that China is operating on a nineteenth century imperialism blueprint. Indeed, the Belt and Road Initiative graphics that litter the internet conjure images of Chinese power men around a world map sticking pins on strategic targets.

It is off to a rough start. Mahathir Mohammed, Malaysia’s comeback prime minister has cancelled three big BRI projects worth $22 billion signed by his predecessor, who is now facing corruption charges. He says he is trying to save Malaysia from bankruptcy. Even Burma’s steely generals have got cold feet. They have cancelled a port project citing fears that it could end up like Sri Lanka’s Habantota. Earlier this week, the Prime Minister of Tonga, rallying fellow South Pacific Island nations to negotiate debt forgiveness with China, expressed his fears that China could seize strategic assets.“If it happens in Sri Lanka, it can happen in the Pacific.”

Habantota is turning out to be a strategic blunder.

Did China actually set out to trap countries into debt or has the Belt and Road Initiative gone awry? It is conceivable that China is unfazed by the political blowback. Folklore has it that the Chinese take a very long term view of things. But it is more likely that China did not anticipate the blowback.

China seems to have underrated the vulnerability of its would-be client states to the vagaries of global capitalism and overrated the grip of the regimes that it is corrupting on power. China will not be the first great power to do this. The USA has been muscling and blundering its way, wreaking havoc around the world by conflating its interests and political values for the better part of a century.

Did China actually set out to trap countries into debt or has the Belt and Road Initiative gone awry? […]China seems to have underrated the vulnerability of its would-be client states to the vagaries of global capitalism, and overrated the grip on power of the regimes that it is corrupting. China will not be the first great power to do this.

The real Achilles heel of the debt traps is that China has little recourse should any of its distressed debtors default. Western lenders can and often take concerted action on defaulters (a la Greece and “the troika”), but China is a lone ranger.

In China, economic illiteracy on this scale is not without precedent. Sixty years ago, Chairman Mao had the brilliant idea that industrialization could be drilled down to producing copious amounts of grain and steel. The government set a target of doubling steel production within a year and overtaking Britain’s production in 15 years. China’s peasant farmers were herded into communes. Villagers were forced to set up backyard furnaces. Pots, pans and other metal possessions were seized and melted up to meet production quotas. Trees were decimated and even furniture burned to fuel the furnaces. The Great Leap Forward, history’s most monumental political blunder, cost between 20 and 40 million lives.

It is noteworthy that Kenya is the BRI’s only touchpoint on the African continent.

Kenya’s SGR, Uhuru Kenyatta’s erstwhile legacy project, has turned out to be the bugbear that this columnist among others warned that it would be. Its freight capacity is a third of what was promised, and it cannot be competitive without a hefty public subsidy. Uhuru Kenyatta’s administration has increased Kenya’s foreign debt two and a half fold, from US$9 billion to US$25 billion. The railway alone accounts for a third of this increase; another third is by sovereign bonds for which the country has nothing to show.

Public debt service now stands at KSh 860 billion (US$ 8.6 billion), a staggering 72 percent of the last financial year’s tax receipts. The question that is frequently asked now is whether, if Kenya cannot pay, the Chinese will take over the port of Mombasa. Word on the streets of Mombasa is that the port was pledged as security for the railway loans. In a manner of speaking, they already have. The Chinese have a concession to run the railway until 2027. That includes a take-or-pay freight assignment contract, which is to say, the Kenya Ports Authority, the port operator, has to meet the railway’s freight target or pay the railway for the unused capacity. In effect, the port is working for the railway.

The question that is frequently asked now is whether, if Kenya cannot pay, the Chinese will take over the port of Mombasa. Word on the streets of Mombasa is that the port was pledged as security for the railway loans. In a manner of speaking, they already have.

“It is not uncommon for a country to create a railway, ” said Charles Elliot, the Kenya Protectorate commissioner who oversaw the construction of the Uganda railway. “But it is uncommon for a railway to create a country.” Almost 120 years later, after it emerged that Kenyan workers are routinely subjected to physical punishment by Chinese, following which the Chinese ambassador dismissed this as Chinese culture, Kenyans are wondering whether the railway heralds a new age of Oriental colonialism. On this, my take is that China and Kenya’s political class have bitten off more than they can chew.

Seeing senior public officials grovelling and making excuses for these Chinese excesses gives perspective to history, from the chiefs who sold their people into slavery to those who signed away their lands to European imperialists for blankets and booze. We get it.

Related Links

Letter by US Senators to US Government on IMF China Belt and Road Initiative

David Ndii
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David Ndii is a leading Kenyan economist and public intellectual.

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Controlling COVID-19: Lessons from East Asia

As authorities the world over restrict the movements of their populations, and governments benchmark their responses on the worst affected regions, there are lessons to be learnt from South Korea which has eschewed lockdowns in favour of early detection through mass testing, contact tracing and treatment.

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By the third week of March 2020, the number of COVID-19 deaths in Italy had overtaken the number of deaths in China. Authorities all over the world are restricting the movements of their populations as part of efforts to control the spread of COVID-19.

For the time being, more and more governments are benchmarking their responses on the very worst outbreaks in Wuhan and northern Italy. But lockdowns inevitably have adverse economic impacts, especially for businesses, particularly small ones heavily reliant on continuous turnover. Are there other ways to bring the virus under control without lockdowns?

South Korean lessons?

The Republic of Korea, or South Korea, is one of a handful of mainly East Asian economies that have dramatically reduced the number of COVID-19 cases as well as related deaths. On 29 February 2020, the country saw 909 newly confirmed cases.

By 25 March, the number of newly confirmed cases fell to 100. It has gone from having the second-highest rate of infection globally to eighth place, behind China, Italy, United States, Spain, Germany, Iran and France, all with varying rates of testing.

For now, South Korea has checked the spread of infections. It has managed to slow the spread of COVID-19 without imposing lockdowns, even in its most infected city, Daegu. How have they responded differently to the crisis?

Korean-style pandemic management

The key to South Korea’s response has been mass testing. South Korea has done the most COVID-19 tests by country, with over 300,000 tests as of 20 March 2020, or over 6,000 per million inhabitants. Germany, in second place, had done 167,000 by 15 March 2020, or 2,000 per million.

The infected who show no symptoms (i.e., the asymptomatic) or only have mild symptoms are more likely to transmit the virus to others. As such, undetected cases are more likely to spread infection, mass testing has checked the spread of the virus by identifying and breaking its chains of transmission.

The median incubation period, between infection and symptoms first appearing, is about five days, during which time asymptomatic individuals may unknowingly infect others. Mass testing detects infections early, so that individuals can self-isolate and get treatment instead of infecting others.

South Korea had built up its testing capabilities following the Middle East Respiratory Syndrome (MERS) outbreak in 2015. It was thus prepared with test kits and facilities for rapid development, approval and deployment in case of future outbreaks.

After South Korea confirmed its first case of Covid-19 on 20 January 2020, hundreds of testing facilities, ranging from drive-through kiosks to hospitals and local clinics, quickly became available across the country.

Trace, test, treat

The tests are mainly free for those whom medical professionals suspect need to be tested, e.g., if they recently returned from China. The tests are also free of charge for “secondary contacts” of a person known to be infected or to belong to an at-risk group.

Others who do not belong to these categories, but wish to be tested, are charged 160,000 Korean won (about US$130), but the amount is reimbursed if the result is positive, with any treatment needed paid for by the government.

Mass testing detects infections early, so that individuals can self-isolate and get treatment instead of infecting others

Another legacy of the MERS outbreak is that the government has the legal authority to collect mobile phone, credit card and other data from those who test positive for contact tracing efforts. China, too, has made use of artificial intelligence and big data to improve contact tracing and manage priority populations.

Although this has sparked debates over privacy concerns, South Korea’s proactive testing and contact tracing methods have also been praised by the World Health Organization (WHO), which is encouraging other countries to apply lessons learned in South Korea, China and elsewhere in East Asia.

Path not taken

Although South Koreans are banned from entry into more than 80 countries around the world, its authorities have only restricted incoming travellers from China’s Hubei province, whose capital city is Wuhan, and Japan, due to bilateral political tensions.

Special procedures require visitors from China and Iran to use smartphone applications to monitor for symptoms such as fever. As Europe has become the new epicentre of the pandemic, all visitors from Europe are now being tested for Covid-19, with those staying long-term quarantined first.

The Korean Centers for Disease Control and Prevention (KCDC) continue to urge people to practice social distancing and personal hygiene. Mass gatherings are discouraged, and employers encouraged to allow employees to work remotely. But no lockdown has been imposed, and South Korea has not imposed nationwide restrictions on movements of people within its borders.

Learning the right lessons

Besides South Korea, the WHO has also praised China for its Covid-19 response, which has rapidly reduced new cases, besides helping other countries with their efforts. More and more countries are restricting freedom of movement through lockdowns, citing China’s response in Wuhan.

However, Bruce Aylward, who led the WHO fact-finding mission to China, notes,

“The majority of the response in China, in 30 provinces, was about case finding, contact tracing, and suspension of public gatherings—all common measures used anywhere in the world to manage [infectious] diseases. The lockdowns people are referring to… [were] concentrated in Wuhan and two or three other cities . . . that got out of control in the beginning . . . [T]he key learning from China is . . . all about the speed. The faster you can find the cases, isolate the cases, and track their close contacts, the more successful you’re going to be”.

China and South Korea are now primed to detect and respond rapidly, which may make all the difference in preventing a new wave of infections. This is not to say that lockdowns are ineffective; we will soon know whether such measures in countries like Italy will succeed.

The faster you can find the cases, isolate the cases, and track their close contacts, the more successful you’re going to be

The South Korean and Chinese experiences suggest that resources should be concentrated on rapid and early detection, isolation and contact tracing, protecting the most vulnerable, and treating the infected, regardless of means, instead of mainly relying on strict lockdown measures.

This article was first published by inter press service news agency. The authors are both associated with Khazanah Research Institute but do not implicate KRI with the views expressed here.

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Lockdown: Flying Blind in the Season of Coronavirus

The government’s contingency plan for tackling the coronavirus is not clear and so far appears to focus on surveillance and containing the spread of the coronavirus pandemic. It needs to invest in the clinical set-up beyond capacity but the supply of oxygen ventilators and other materials is likely to be complicated by the greatly increased demand in the global market.

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Lockdown: Flying Blind in the Season of Coronavirus
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A dozen military trucks roll out of the memorial cemetery in Bergamo, northern Italy, on the evening of March 19, 2020. Three more follow them. Each is carrying bodies that have been piling up for days inside the cemetery church because the city crematorium cannot cope with the deaths from the coronavirus pandemic.

One of the coffins being loaded onto the trucks by forklift holds the body of 74-year-old Italian software engineer Duilio Scaricamazza, recently returned from an East African business trip that took him to Uganda, Kenya and Djibouti in early February.

The closest the world has come to this scale of tragedy from a contagion in recent times are the Ebola outbreaks in West Africa, which the World Health Organisation classified as a public health emergency of international concern in July last year.

Videos of the military trucks are the only ritual of Duilio’s final journey through which his family and friends will reach closure. He had passed all the screening tests at the departure and arrival lounges in Kampala and Nairobi. Airport thermometers and thermal scanners, notorious for failing to detect Ebola, serious acute respiratory syndrome (SARS) and H1N1 influenza, are no match for the fever, cough and shortness of breath that are the symptoms of the coronavirus disease.

Those who contract the coronavirus can sometimes fail to show any of these symptoms and it is not clear if Duilio was infected before his return home to Italy but, in less than a month, he was dead from COVID-19, the disease caused by the coronavirus.

On December 31, 2019, Chinese authorities reported to the WHO country office that they had detected a pneumonia of unknown cause in Wuhan. WHO subsequently classified the outbreak as a Public Health Emergency of International Concern on January 30, 2020, giving it its name, COVID-19, on February 11, 2020, and declaring it a pandemic a month later.

“Once you have a system that warns you of an oncoming pandemic like this one, you will have the time to map out your immediate areas of focus. For example, had Kenya had an early warning system that could show us where the first case would potentially come from, we would have cancelled flights to and from those places as a national security priority”, says anthropologist and media columnist Gabriel Oguda.

After news of the epidemic first broke in Wuhan, where 91 Kenyan students live and nine artistes were visiting, Ambassador Sarah Serem decreed that these 100 people would not be repatriated for fear of infecting one another, and bringing the disease home.

Less than a month after Serem’s statement, on February 27, 2020, Kenya Airways suspended airport security guard Ali Gure from his job for posting on his social media page a photograph of a Chinese airline landing at the Jomo Kenyatta International Airport with 239 passengers on board.

The Law Society of Kenya, two doctors and a lawyer obtained a High Court order the following day temporarily stopping flights from China and other coronavirus hotspots. Jolted by Justice James Makau’s order, which also required the government to take robust measures to prepare for the virus, President Uhuru Kenyatta established a coronavirus task force and ordered the completion of an isolation facility in seven days.

By then the horse had bolted and the country had begun a hopeless search for Patient Zero. No one seemed to know where to find him or her.

A fortnight after the court decision, Kenya announced it had found its first COVID-19 case—a 27-year-old arriving from the United States through London. Just two days later, on March 16, 2020, Kenyatta ordered a shutdown of schools, workplaces and a ban on large gatherings—and called a national day of prayer.

Erroneously described as a flu-like disease, COVID-19 is actually the collapse of the breathing system when the lungs swell and fill with fluid.

By then the horse had bolted and the country had begun a hopeless search for Patient Zero

Dr Warurua Mugo, a Nairobi-based chest specialist, explains that the virus enters the body through the nose or mouth and makes a home in the air sacs where it infects the protective epithelial cells, hooks itself onto membranes, and begins to multiply thus closing off the supply of oxygen and causing swelling in the lungs as they fill with fluid. The patient is overwhelmed by a sensation of drowning, and only a respirator and supplemental oxygen can hold death at bay because there is often the risk of multiple organ failure or septic shock.

“[When] WHO declared the first case of [COVID-19], that’s the day the president should have summoned the Health minister and asked him to constitute that corona team. We needed not to wait for the virus to start causing havoc before starting to run all over the place”, says Oguda.

What started as a droplet has turned into a steady trickle, with cases popping up in rural spots where people arriving from Europe and the United States have visited.

By March 15, 2020, Kenyatta felt compelled to order suspension of travel into the country except for national and permanent residents, self-quarantine for those who had arrived 14 days earlier, a shutdown of schools, and heightened hand hygiene and physical distancing.

With the count of COVID-19 cases reaching 25 in the country, some 96 people traced, tested and released, and the search on to trace 700 others believed to have come into contact with the infected, tighter restrictions are coming into force. Kenyatta’s new salesman, the former spin-master and one-time information communication technology minister Mutahi Kagwe, has been gently turning the screws since taking charge as Health Cabinet Secretary, with the country headed into a likely lockdown. Bars and restaurants have been closed, worship congregations banned, funeral attendance has been limited to only 15 family members and the number of passengers allowed in a public transport vehicle cut by half as exhortations to increase physical distance and wash hands regularly have doubled.

The patient is overwhelmed by a sensation of drowning, and only a respirator and supplemental oxygen can hold death at bay

Although Kenya was the first country on the continent to go into a 30-day slowdown, it has been swiftly followed by South Africa, which announced a 21-day lockdown and suspended all flights. Nigeria and Egypt, which identified COVID-19 patients ahead of Kenya, have similarly ordered lockdowns, as have Uganda and Rwanda, Angola, Burkina Faso and Namibia which were initially measured in their response. Tanzania and Sierra Leone, both of which were hesitant to take strong action, are following suit.

“It is overwhelming”, says Dr Ouma Oluga, the secretary-general of the Kenya Medical Practitioners and Dentists Union. “Doctors and health workers are a worried lot. Political directives that might be [well-intentioned] are being issued without adequate preparation on the ground, and therefore not congruent with reality”.

Countries have been cautioned against fighting the pandemic blindfolded, and as the WHO Director-General, Tedros Ghebreyesus, said on March 16, 2020, the way to fight back is through “testing, testing and testing”.

“Our numbers are likely to be underestimated because of low testing capacity”, Oluga adds. “Stringent criteria on who to test, because not everybody needed to be tested, meant waiting for people to be ill before testing”.

Danni Askini, an American healthcare professional, was billed $34,927 (Sh3.7 million) for the treatment she received after contracting Covid-19. Testing alone cost her $907 (Sh96,142). India’s government announced a 4,500 Rupees (Sh6,255) cap on what private laboratories can charge for two polymerase chain reaction tests for coronavirus.

The coronavirus epidemic is also showing up Kenya’s low investment in research. The National Influenza Laboratory in Nairobi, the Kenya Medical Research Institute (Kemri) in Nairobi, Kisumu and Kilifi as well as the University of Nairobi have the capacity to test for the coronavirus, and could be supported by private laboratories at Aga Khan University Teaching Hospital and Lancet Kenya. The shortage of testing kits has meant that results, which would typically come in after six to eight hours, are instead available in 24 hours. Chinese billionaire Jack Ma and his Alibaba Foundation donated 1.1 million test kits to Africa this week, with Kenya slated to receive 20,000 test kits, 100,000 masks and 1,000 medical suits and face shields.

What started as a droplet has turned into a steady trickle, with cases popping up in rural spots where people arriving from Europe and the United States had visited

There are two ways to become immune: one is to experience the infection to create antibodies, or receive a vaccine to stimulate antibodies without experiencing the disease. Britain had initially opted to tough it out and wait for those who would die of COVID-19 to do so before the pandemic stabilised, thereby creating what scientists refer to as herd immunity. It changed tack after WHO admonished the strategy: “Not testing alone. Not contact tracing alone. Not quarantine alone. Not social distancing alone. Do it all”, said Ghebreyesus.

“Herd immunity eventually develops but over a long period time of continuous exposure. I disagree with epidemiologists who expose everyone who expect immediate herd immunity because it can develop after 50 to 60 years . . . you lose it with time . . . the casualties would be too high, and vulnerable people will die”, Oluga says.

Shutdowns are an attempt to break transmission in order to enable health services to regroup and deal with the cases that show up. But the messaging has not been without its light moments. Justifying the ban on bars, Uganda’s Yoweri Museveni said, “Drunkards sit close to one another. They speak with saliva coming out of their mouth. They are a danger to themselves. All these [merrymaking activities] are suspended for a month”.

The irony of asking Kenya to go into lockdown when much of its population is already cooped up in congested and unsanitary residential areas, has been completely lost on the government. According to the Economic Survey 2019, there were 14,865,900 people working jobs in the informal sector. “The informal sector is characterized by small scale activities, easy entry and exit, skills majorly gained from vocational schools, less capital investment, no or limited job security and self-employment”.

“This sector excludes illegal activities,” the Survey adds. These statistics belie the precarious nature of the jobs in the informal sector: they are day-wage occupations that finance hand-to-mouth survival. Only 2,765,100 people are in formal wage employment and just 152,200 are in self-employment.

The Kenyan Section of the International Commission of Jurists (ICJ-Kenya) has appealed to the government to issue directives on food prices and other basic commodities as well as medicines and items that will be important in preventing and treating COVID-19.

The coronavirus epidemic is also showing up Kenya’s low investment in research

Additionally, ICJ-Kenya has urged the government to develop and implement socio-economic responses for Kenyans in informal employment who are not able to “work from home” and who would need assistance in meeting their basic needs.

Big economic players like tourism and travel, as well as horticulture, are in shutdown in an economy that had been projected to grow at 6.2 per cent. Central Bank of Kenya governor Patrick Njoroge announced that Kenya would be seeking $350 million emergency assistance from the World Bank.

Relief offered so far by the government in the form of free hand sanitisers, Loon balloons from which 4G internet will increase mobile phone coverage, and waiver of mobile money transaction fees charged by banks, does little to address the lived realities of people. Digital contact tracking is emerging as one of the tools—albeit controversial—for tackling the pandemic. Correspondence to Safaricom seeking confirmation that the firm would be assisting in tracking passengers who arrived in the country early this year—especially given that two Chinese telecommunication companies were able to track the movement of people out of Wuhan in the early days of the epidemic—did not receive a response.

Salome Bukachi, professor of medical anthropology at the University of Nairobi, says dialogue with the community can contribute to creating protocols for quarantine, lockdown and isolation in a manner that balances respect for social backgrounds and public health needs.

Alessandro Scarci, an Italian lawyer based in Kenya for the past 20 years who has been following developments in his home country, says no health system can withstand the pressure from the pandemic. Milan, which is one of the wealthiest parts of Europe, has seen one of the best health systems collapse. “Even if you think you can improve the health system, without 1,000 per cent containment, you cannot manage this pandemic if you do not contain people”, says Scarci. “Unless there are plans to distribute food and water for free in poor residential areas, and the armed services patrol the streets, there is going to be a riot,” he adds ominously.

Oluga agrees that a lockdown is probably the best option, but for developing countries with insufficient cash reserves and chronic underfunding of social protection, this path is fraught with difficulty. Some 2.5 million people live in slums in Kenya, where houses can be as small as 12 feet by 12 feet, without reliable water or sanitation services.

Acts of austerity belie the crisis waiting to explode in Kenya and on the continent. Treatment requires isolation beds, respirators and oxygen. And it requires people. So far, Kenya has announced that it has trained 1,100 health workers. Those numbers will prove woefully inadequate if more infections show up.

Milan, which is one of the wealthiest parts of Europe, has seen one of the best health systems collapse

Shortages of testing materials and capacity, as well as the low numbers of healthcare workers has meant that where one patient is diagnosed with the disease, seven doctors are in isolation, he adds. The effect on an already strained health workforce is likely to be devastating.

In Nairobi, nurses at Mbagathi Hospital—the institution designated as the isolation centre for COVID-19—went on strike to protest against uneven training and unavailability protective gear. Moreover, there is a limit to the number of patients healthcare workers can handle.

Already, the number of people currently being traced is quickly outstripping the 120-bed capacity at Mbagathi, the additional 60 beds at the Kenyatta National Hospital and the 300 reserve places at the Kenyatta University Teaching and Referral Hospital. Around the country, Moi Teaching and Referral Hospital (25), Kakamega Hospital (25), Meru County’s Level 5 Hospital (20), Coast General Hospital (19) and King Fahd Hospital in Lamu (8) bring the national total to just under 600 beds.

Still, questions linger about what will happen on April 16 when the 30-day measures announced by the government are supposed to be reviewed. What is the end-game in managing the COVID-19 epidemic in Kenya? After the lapse of the first 30-day measures, what would be the next steps? What are the best and worst-case scenarios for managing COVID-19 in Kenya after April 16? These questions were sent to CS Kagwe and to the Principal Secretary at the Ministry of Health, Susan Mochache, with no responses forthcoming.

On Tuesday, March 24, 2020, Law Society of Kenya lawyer Ochiel Dudley said the government had not filed its contingency plan for tackling the coronavirus as required by the High Court—but the judge was hesitant to ‘recall a general from the battlefront’.

So far, official scenario mapping has appeared to focus on surveillance and containing the spread of the pandemic. “We need to invest in the clinical set-up beyond capacity and think about what are we doing when people come to hospital”, says Oluga. “If treating, what we are doing needs to be endorsed and published in the form of second, practical guidelines”. Besides the headaches of infrastructure in terms of availability of beds in intensive care, the supply of oxygen ventilators and other materials will likely be complicated by the greatly increased demand in the global market.

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Thoughts on a Pandemic, Geoeconomics and Africa’s Urban Sociology

The global economic shock triggered by the coronavirus pandemic is unprecedented in scale and severity. How will African governments survive this financial crisis, given that many are heavily indebted and poorly equipped to deal with a pandemic of this nature? What kind of economic stimulus measures are required to ensure that people don’t sink further into poverty?

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Thoughts on a Pandemic, Geoeconomics and Africa’s Urban Sociology
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So far, Africa is well behind the curve in terms of the coronavirus infection. At the time of writing, there were 1,388 confirmed cases on the continent out of just over 320,000 confirmed cases globally. Four North African countries – Egypt, Algeria, Tunisia and Morocco – had 679 cases, which represented about half of the total cases in Africa. South Africa alone had 240 cases, and there were 479 reported cases across 39 African countries.

It is as yet unclear why the numbers in Africa are so low, although several South Asian countries close to China have similar low numbers. Candidates include high temperatures, low international travel (Africa accounts for only 2 per cent of global air travel), limited testing, and the youthful population, which could be infected but not exhibit symptoms.

The so-far-so-good numbers notwithstanding, African countries are not taking chances, and are adopting the same measures as elsewhere – outlawing large gatherings, closing schools, restricting air travel, and so on. These actions are welcome because they have raised awareness in a way that messaging alone would not have, proof positive that actions speak louder than words.

We need to get a better sense of the actual infection rate. Are the low numbers real or a result of under-testing? Establishing definitively whether the virus is spreading locally or not is imperative.

Living arrangements in many urban settings will make it difficult for infected people to isolate themselves. If there is already community transmission, then the best strategy is containment. If or where there is none, then decongesting the urban areas by encouraging people to temporarily relocate to their villages should be considered. It seems to me that this can be established by purposive sampling of people and population clusters with the highest exposure to international travel, such as airlines, airports, international hotels, and tourism hot spots. This is critical.

Medical resources are a huge survival factor. Patients who are put on ventilators have a high survival rate, but these are in short supply. As I write, Germany has lost 94 people out of 25,000 (one per 265), while France, with 16,000 cases, has lost 674 (one per 24). Both countries have similar demographic profiles, but Germany has two and a half times more intensive care beds (29 per 100,000 people) than France (11.6 per 100,000 people). This implies that if 100 patients need intensive care beds at once, Germany could save all of them, but France could lose 60. Italy’s capacity is about same as France’s, at 12.5, but the U.K’s, at 6.6, is less than a quarter of Germany’s. This is a huge and somewhat startling difference between countries that we in the global South see as more or less equally developed.

Living arrangements in many urban settings will make it difficult for infected people to isolate themselves. If there is already community transmission, then the best strategy is containment. If or where there is none, then decongesting the urban areas by encouraging people to temporarily relocate to their villages should be considered.

Most sub-Saharan African countries have less than one bed per 1,000 people, and less than 2 intensive care beds per 100,000 people. Because of our youthful population, we may not need as much capacity as Europe’s older population. Still, if one per cent of the population gets infected and 5 per cent of the infected population needs hospitalisation, this translates to a requirement of one bed per 2,000 people, which is more than half the total bed capacity in many countries. If 10 per cent of those hospitalised need critical care, this translates to a requirement of 5 intensive care beds per 100,000 people. We simply don’t have them. And there isn’t much lead time to scale up bed capacity. Moreover, with global supply chains and international trade severely disrupted, and demand surging everywhere, we can expect procurement of medical equipment to be a challenge during the crisis.

Countries will have to plan how to respond with the resources available. They need to make contingency plans on how they will mobilise facilities quickly if required. For example, one or more hospitals in a catchment area could be designated as coronavirus response facilities and trigger points when non-coronavirus patients would be evacuated to other facilities. In countries with a diverse mix of public and private hospitals, it may be necessary to pool and centrally coordinate utilisation so as to ensure maximum availability and optimal resource allocation. A class-based health system, such as the one we have in Kenya, is a luxury we may no longer be able to afford.

Africa and the 2020 global financial crisis

The global economic shock triggered by the coronavirus pandemic is unprecedented in scale and severity. While the 2007-08 global financial crisis was very severe, and its aftershocks are still reverberating, Africa was not severely affected. The impact, as measured by GDP growth, was less than that felt in all other developing regions, except Asia (due to the China effect).

Chart 1.

Chart 1.

Africa also recovered faster (see Chart. 1). There are two reasons for this. First, the shock was financial, and Africa was – and still is, for the most part – the least globally integrated region financially. Second, Africa’s public finances were in very good shape prior to the crisis, with low debt and low deficits, which made governments well-positioned to roll out aggressive stimulus packages. Third, China’s aggressive stimulus package kept the demand and prices of primary commodities buoyant.

Typically, economic shocks are either external or domestic, seldom both. This shock is both, and the two dimensions are mutually reinforcing. It has two global dimensions: trade and finance.

The trade shock is already affecting Africa through export earnings. Oil-dependent economies, such as Angola and Nigeria, are already looking at oil prices below $30 (down from $70 at the beginning of the year). If these prices persist, they will seriously impair government revenues and the servicing of external debt. Countries that are heavily dependent on tourism and fresh produce exports (notably, those in East Africa), are looking at heavy losses too.

We noted that Africa survived the global financial crisis bullet largely unscathed in part because of low global financial integration. This is no longer the case. After 2007, several African countries entered the sovereign bond market, known as Eurobonds. Before 2007, only two sub-Saharan African countries – South Africa and Seychelles – had floated international sovereign bond markets. Today there are more than 20 countries that have issued Eurobonds with an outstanding value of over $100 billion.

In addition, many countries have also borrowed heavily from foreign banks in the form of syndicated loans. Kenya is a good example. It has $10 billion of foreign commercial debt divided equally between Eurobonds and syndicated bank loans. A decade ago, Kenya had no foreign commercial debt. Commercial debt now accounts for a third of the country’s foreign debt.

These bond-issuing countries are now heavily dependent on global financial markets to finance their budgets, and more importantly, to refinance the bonds when they mature. How they will fare depends on how markets react to the crisis in the coming months.

Typically, economic shocks are either external or domestic, seldom both. This shock is both, and the two dimensions are mutually reinforcing. It has two global dimensions: trade and finance.

After the 2007-08 global financial crisis, the markets, awash with liquidity released by central banks, and facing recession and low interest rates in mature markets, turned to emerging and frontier markets for higher returns – “hunting for yield”, as they call it. If the markets do the same, then the financially exposed countries may weather the crisis unscathed. But given the systemic nature of the underlying economic crisis, money could well take “flight to safety”, in which case defaults will loom large.

Where things go from there will depend on how much external financial support from international finance institutions – bailouts if you like – will be available. The International Monetary Fund (IMF) has announced that it could make up to $50 billion available quickly to low-income and emerging market countries. This is not much – it’s less that the IMF’s 2018 bailout package to Argentina ($57 billion). Besides this, the IMF can lend its members normal loans of up to a total of a trillion dollars. (A trillion dollars is in the order of 1.2 per cent of global GDP) Although the IMF uses a complicated formula for each country’s quota, I will use pro rata to illustrate how the IMF might allocate bailouts. On a pro rata basis, Nigeria could borrow $4.5 billion, Kenya could borrow $0.8 billion and Ghana could borrow $0.5 billion. By way of comparision, Kenya’s lapsed precautionary facility was $1.5 billion, while the facility recently extended to Ethiopia is $2.7 billion. If every emerging market needs a bailout as a result of the financial crisis, there won’t be enough to go round.

There is, however, another source of financing that is yet to be talked about, namely, moratoria on bilateral and multilateral debt service. Historically, the multilateral agencies (i.e. World Bank, IMF and African Development Bank-AfDB) are treated as preferred creditors whose debt is non-negotiable. In reality, countries in distress do build up arrears. In terms of substance, a moratorium on repayment translates to the same thing as extending new budget support loans. China, which is now taking the lion’s share of debt service for many countries, could demonstrate that it is indeed a friend of Africa by giving African countries some breathing space on debt repayments.

Economic stimulus measures, and why they may not work

Africans who are following economic developments globally and seeing Western governments rolling out economic “stimulus” measures are wondering whether African governments will be able to do the same. It is worth reiterating the fact that this is an unprecedented economic shock. That Western countries are doing their thing does not mean they’ve got it right. In fact, one may recall that economic pundits predicted that Africa would be the worst hit by the 2007-08 global economic crisis. Early on in the current crisis, none other than Bill Gates said that special attention should be paid to Africa, warning that if the coronavirus spreads here, more than 10 million people could die. The United Nations Secretary-General, Antonio Guterres, has made a similar dire prediction.

I do not mean to downplay the threat, but Mr.Gates seems to have been blindsided by Afropessimism and was not prepared for the fact that his home state in the United States would become one of the epicentres of the pandemic well ahead of Africa. I am not disputing that Gates’s prognosis is wrong, as much as I hope he is wrong. I am pointing out that he, among other Americans, not least the Commander-in-Chief, underestimated the threat to the United States.

Kenya has $10 billion of foreign commercial debt divided equally between Eurobonds and syndicated bank loans. A decade ago, Kenya had no foreign commercial debt. Commercial debt now accounts for a third of the country’s foreign debt.

Until recently, the UK was out on its own pursuing a “herd immunity” strategy that delayed intervention. If the great transatlantic powers can get the public health response wrong should be reason enough to be circumspect about their economic responses as well. Everyone is flying by the seat of their pants.

Consider economic stimulus measures. Economic stimulus measures are of two types: fiscal and monetary. In fiscal measures, the government borrows and spends. In monetary measures, central banks inject money into the economy using open market operations while simultaneously lowering interest rates. Fiscal measures work directly – once the government has spent the money, its in circulation. Monetary measures work indirectly – central banks inject the money into the banking system and hope that businesses and consumers will borrow and spend. We call both of these demand management tools because they increase purchasing power in the economy.

Injecting money into the economy is predicated on supply response, and herein lies the problem with this crisis. First, people who are social distancing or in lockdown are not going to go out to spend. Second, social distancing and lockdown also disrupt supply. For example, commercial aviation is grinding to a halt. Moreover, we don’t know how long this will last. The instinctive reaction of people to economic uncertainty is to save rather than spend, hoard rather than consume, what John Maynard Keynes famously named the “paradox of thrift”.

Unsurprisingly then, Western governments are progressively moving away from generic demand management to social safety net-type interventions. The UK has announced a wage subsidy scheme where the government will pay 80 per cent of the salary of employees who are unable to work if companies keep them employed. That looks uncannily like a suggestion I floated weeks ago – an interest-free lifeline fund to protect jobs (see tweets). There is also a proposal by House Democrats to give cash transfers to middle and low income families, starting with $2,000, and subsequent transfers based on how the crisis unfolds.

Will African governments be able to do this? Obviously, having floated the idea, it follows that I am convinced it can be done – at least on a limited scale. Let’s see how the numbers stack up.

Under normal circumstances, fiscal stimulus usually entails deficit spending to the tune of between 1 and 2 per cent of GDP. Kenya’s current GDP is in the order of Sh10 trillion ($100 billion), so a stimulus would be between Sh100 and Sh200 billion (between $1 billion and $2 billion). The average monthly wage, as reported in the Government’s 2019 Economic Survey report in the formal wage sector was Sh60,000 ($600) in 2018, while the minimum urban monthly wages ranged from Sh7,200 (US$72) to Sh27,000 ($270), with an average of Sh16,800. (Data on wages in the informal sector, which accounts for 85 per cent of the 18.5 million non-farm workforce, are not collected, but if they were, they would look like the gazetted minimum wage figures rather than wages in the formal sector.) The weighted average of the two is Sh23,300, which we can adjust for inflation to Sh25,000 (US$250).

At an average of Sh25,000, a one per cent of GDP jobs lifeline can pay 4 million workers – a fifth of the workforce – for one month. Obviously, we are looking at more than a month, probably three to six months. It would cover 1.3 million for three months and 660,000 workers for six months. These numbers are very significant. And, of course, the lifeline would not have to be 100 per cent of the pay. A 50 per cent lifeline increases the potential coverage to 2.6 million and 1.3 million workers for three and six months, respectively.

Injecting money into the economy is predicated on supply response, and herein lies the problem with this crisis. First, people who are social distancing or in lockdown are not going to go out to spend. Second, social distancing and lockdown also disrupt supply.

Trouble is, Kenya’s budget deficit is already way past the red line. The red line is 5 per cent of GDP. At the onset of the 2007-08 financial crisis, the budget deficit was running at below 3 per cent, which meant that the government had a headroom (referred to as fiscal space) of 2 per cent of GDP before reaching the red line. We are currently operating in the 7 per cent to 8 per cent range.

The deficit in the last financial year was 7.9 per cent. The target for this year was 6.3 per cent, but it’s projected at 7.6 per cent. The difference between 3 per cent and 7 per cent of GDP may not look that big but consider the following: When the deficit was 3 per cent, revenue was 18 per cent of GDP, government was spending 17 per cent more than its income. With revenue now down to 15 per cent, a 7 per cent of GDP deficit means that the government is spending 46 per cent more than its income.

We have been at it for six years. We are already on borrowed time. Already, the government’s domestic borrowing target this financial year has been revised upwards by more than Sh200 billion (US$2 billion), from Sh300 billion ($3 billion) to Sh514 billion ($5.14 billion) to plug in the gap left by planned foreign commercial borrowing of 200 billion ($2 billion) that, for whatever reason, the government has not raised. We also have to take into account that the Kenyan government is taking a hit on the revenue side, so the deficit is widening as it is, unless it cuts spending drastically – and it’s not good at that. An extra one percent of GDP domestic borrowing could just be the straw that breaks the camel’s back.

At an average of Sh25,000, a one per cent of GDP jobs lifeline can pay 4 million workers – a fifth of the workforce – for one month…A 50 per cent lifeline increases the potential coverage to 2.6 million and 1.3 million workers for three and six months, respectively.

Where does that leave us? Well, the prudent thing to do is to finance the lifeline within the existing deficit by re-allocation. The alternative is to go the monetary route – look at how banks can finance it. The most direct route is to allow banks to temporarily trade government bonds for cash with the Central Bank of Kenya in transactions known as repurchase agreements (REPOs). The drawback is that the banks will be exchanging low risk assets for high risk ones, and the non-performing loans (NPLs) ratio is already in alarm bell territory.

We go back to fiscal. All it requires is the political resolve to mothball development projects – after all, budget absorption will also be affected by lockdowns and social distancing. And infrastructure is not that urgent. And we may not require as much as Sh100 billion. My intuition tells me that half that amount – if well-targeted – will make a huge difference.

Africa’s urban sociology

Four years ago, I wrote an op-ed on the urban sociology of Africa, which is enjoying a small revival in the wake of a mass exodus from the city of Nairobi to rural homes. In Kenya, “home” means rural origin; we call urban residences “houses”. The article opened with an anecdote about how the disappearance of the entire population of Brazzaville following the outbreak of political violence in 2007 puzzled the humanitarian relief sector in the UK (where I was at the time) as it was gearing up for an emergency that never was. The frantic search for a displaced population in distress in the environs of Brazzaville was fruitless. The people had simply gone “home”. I wrote:

After a brief hiatus in the fighting following a truce that did not last, the residents began to trickle back carrying the usual rural goodies – bananas, yams, live chicken and so on. The international humanitarian agencies’ initial puzzlement is understandable – the idea of the population of Brussels or Copenhagen doing a vanishing act is inconceivable. [But] in Nairobi, as in Brazzaville, we travel light, and with an exit plan.

The migration in Kenya has already begun. It was inevitable. Many of the small businesses that urban residents rely on – eateries, hair salons and barber shops, metal and furniture workshops, motorcycle taxis – have already cratered, and it is early days yet.

But there is fear that, as most of our old people live in rural areas, retreating there will expose them to the virus. This then underlines the importance of aggressive tracing and testing to establish whether indeed we are still ahead of the curve or it’s a case of under-testing. If the virus has not yet spread, then it is better for those who cannot support themselves in the city to leave sooner rather than later. If we accept that it is impossible to practise effective social distancing in congested urban neighbourhoods, and informal settlements in particular, then surely the best way people can protect themselves is to go home where they have more space. If a person needs to be isolated, most rural homesteads will have a room that can isolate an infected person, or if not, a hut can be constructed in a day.

A tricky thing about the pandemic is that its devastating economic effects come not from its virulence but from its contagiousness – its ability to spread without symptoms, more like HIV than Ebola. Emerging scientific evidence suggests that it has been spreading faster in cold weather, which means that it could oscillate between the Northern and Southern hemispheres for a couple of seasons until global “herd immunity” is achieved. National isolation and social distancing may become the new normal for a while.

How economic globalisation, the North-South development-underdevelopment paradigm, and Africa’s rural-urban socio-economic dynamics emerge from this, only time will tell.

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