RE: Is The Chinese Business Relationship With African Countries Truly Symbiotic?
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This was interesting. I follow this subject closely. Especially when y'all talked about Debt Trap Diplomacy…
“Debt-trap diplomacy is an international financial relationship where a creditor country or institution extends debt to a borrowing nation partially, or solely, to increase the lender's political leverage. The creditor country is said to extend excessive credit to a debtor country with the intention of extracting economic or political concessions when the debtor country becomes unable to meet its repayment obligations. The conditions of the loans are often not publicized. The borrowed money commonly pays for contractors and materials sourced from the creditor country.”
Some of China's Belt and Road Initiative projects have shown signs of this policy. And this isn't new in human history. The Dutch, British, Germans, Americans…have all done this to varying degrees in the past 500 years. But even further back than that, the Chinese dynasties (Ming), Persians, the Romans, etc...have all done this. The Chinese call it “Paying Tribute.” Many growing empires have done this.
The problem with this though, it's usually not public. Because Debt Trap Diplomacy is very distasteful to most, it's done with little transparency, so it is hard to prove and easy to deny…right up to the point where the creditor country starts building military installations in debtor countries…then it's too late.
Debt is a terrible vulnerability. So it's important that nations choose carefully who their friends are, who they take money from and who they do business with.
Great discussion @jj-finance and @josediccus.
You see, the Chinese seems to be the closest to most African countries and this closeness is how they establish a business relationship. However, most African government knows that debt is a terrible vulnerability yet they go on to borrow continuously because they'll not be in office to pay these money back and they don't care if the Chinese government is actually going to take over the economy of their state.
The Chinese on the other hands knows that most of African government agencies are inept and willing to do anything to borrow money, so what they do is to ensnare them into borrowing money.
There are no nations in the world willing to be close to most African countries the way the Chinese are doing, so I guess this is mainly the reason.
Thank you for watching, it was exciting to talk about this. @joetunex is in south Africa, while I'm in Nigeria.
This is the case, they don't care as long as the deals they are making benefits them and enrich their pockets, after all, theses embezzled funds are used to buy houses and investments in other nations.
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The United States needs to take a more active role in Africa…not just military collaboration through AFRICOM (US Africa Command). Establishing better economic collaboration will be helpful, building infrastructure where both parties benefit, plus higher level trading relationships to encourage African domestic industry.
The Federal Reserve can help as well by establishing closer ties with African central banks, encouraging more favorable debt swaps and credit facilities that are benchmark to individual nation’s GDP and/or project revenue, so if debt is established, the debt service payments can be met with sufficient revenue, even in times of crisis…so it doesn't bury debtor nations in unsustainable debt, and decreases the probability of default.
It's pretty standard practice in the US, where banks benchmark the debt that is lent out to the revenue of the project. This keeps the debt to income ratio at a sustainable level.
Anyway, as you probably noticed, I'm in the US. I do enjoy this topic of conversation :)