The West Should Join China, Not Oppose It!
By: Hussein Askary
The Belt and Road Institute in Sweden
“All that glisters is not gold—
Often have you heard that told.
Many a man his life hath sold
But my outside to behold.
Gilded tombs do worms enfold.
Had you been as wise as bold,
Young in limbs, in judgment old,
Your answer had not been inscrolled
Fare you well. Your suit is cold—”
— William Shakespeare, Merchant of Venice, Act II Scene 7
Not all that glitters is gold, and not all shiny infrastructure initiatives have substance. Developing nations, especially in Africa are advised to be careful about initiatives that have dollar signs on them. They should not exchange their right to development through large-scale infrastructure construction for some promises of small cash injections or for temptation of a flood of money resulting from investments focused solely on the extraction of more raw materials from Africa without improving the basic infrastructural situation in their countries. The case of Mozambique is a stark reminder of this kind of deceptive fool’s gold.
In the recent Group of 7 (G-7) summit in Cornwall, England, the leaders of the group launched what they termed as “Build Back Better World (B3W) Partnership”, an “initiative” that is supposed to deal with the massive deficit in infrastructure in the developing sector. According to the fact sheet of the B3W released by the White House the initiative is aiming at “a values-driven, high-standard, and transparent infrastructure partnership led by major democracies to help narrow the $40+ trillion infrastructure need in the developing world, which has been exacerbated by the COVID-19 pandemic”. So, this initiative, unlike the Belt and Road Initiative (BRI) launched by China in 2013, is an exclusive club of nations and their “like-minded partners”.
On the other hand, while it admits that the deficit is US$ 40 trillion, it adds that “B3W will collectively catalyze hundreds of billions of dollars of infrastructure investment for low- and middle-income countries in the coming years”. This represents a bit of discrepancy in the calculation. A better breakdown of this hypothetical and misleading number is done by Shakeel Ahmed Ramay from the Islamabad Sustainable Development Policy Institute. Otherwise, the reference to “mobilizing the private sector” for funding infrastructure is a pie in the sky because the profit-driven private sector cannot make profit from infrastructure projects such as railways or power generation unless they rip off the users of that infrastructure and demand massive subsidies and tax breaks to build it. The purpose of public infrastructure is not monetary profit, but making a social and physical economic profit for society as whole as it enhances the productivity of that society and its agro-industrial production capacity. It is the latter which is the source of monetary profit generated by providing the necessary physical goods and services to society within a nation’s market or to international markets.
A financial black hole
The B3W is vague in terms of concrete plans of infrastructure sectors to be built and scope of financing. The reason is that the G-7 nations themselves are in deep financial and economic crises and are unable even to mobilize resources for desperately needed infrastructure investments in their own countries. As a post-G-7 satirical cartoon in China’s Global Times correctly pointed out, money printing has become the activity of these nations. As the U.S. Federal Reserve’s own balance sheet report shows, liquidity pumping, through Quantitative Easing for example, since the 2008 financial crisis to date has reached US$ 8 trillion. If we add the liquidity pumping by the Bank of England, European Central Bank and Bank of Japan, the number is between 18-20 trillion dollars. It is important to note than almost none of the liquidity was used to build or improve infrastructure neither in the G-7 countries nor in the developing nations. The sole purpose of the QE was and still is to save the financial and banking system of the Transatlantic region and Japan. Another aspect if this crisis is the U.S. national debt which hit the 28 trillion level this year , and if nothing changes, it will reach 89 trillion by 2029.
The world has seen many similar pledges made by the G-7 to the least developed nations, the most famous of which is the promise they made in both the Copenhagen and Paris climate summits of US$ 100 billion per year by 2020 to help developing sector nations with “climate mitigation” financing. According to a polite but revealing study conducted by UN experts, these nations failed to reach that goal.
Competing with China
While the communique itself does not mention China nor the BRI, the White House June 12 press release betrays the intention as it states: “Today President Biden met with G7 leaders to discuss strategic competition with China and commit to concrete actions to help meet the tremendous infrastructure need in low- and middle-income countries.”
The expression “Build Back Better” itself is derived from the 2020 Biden presidential campaign, pointing to the fact that the U.S. infrastructure is in dire need for reconstruction after decades of neglect. While the same goes for almost every industrial nation that have grossly neglected investment in their own infrastructure, this does not really apply to developing nations, many of whom have not experienced any substantial construction of infrastructure after WWII while the industrial nations did invest heavily in infrastructure in the 1950s, 60 and 70s.
The standards set by the B3W for financing infrastructure in developing nations make it impossible to launch any significant projects. One such standard that China and the BRI are being accused of violating is “fiscal responsibility”, which basically means that if a nation is poor and in debt, it should not build large-scale infrastructure nor borrow money to do so. Western institutions, like the World Bank (WB), stopped financing for major infrastructure projects in Africa relying on similar standards. For example, based on allegations of lack and transparency, environmental consideration and social inequality, the WB stopped a US$ 500 million loan to Ethiopia to build the Gibe III dam on the Omo river. The same treatment was given to the Grand Ethiopian Renaissance Dam (GERD) on the Blue Nile, which can provide massive clean and reliable electricity to Ethiopia and its neighbors. The WB, the U.S. and the EU refused to finance it. Fortunately, Ethiopia managed to finance these large-scale hydropower projects by mobilizing its citizens and institutions to buy dedicated bonds. Chinese banks extended a helping hand too.
My pessimistic assessment of this B3W initiative is based on examining many similar initiatives in recent years attempting to challenge China as their main goal rather than improving the living conditions and infrastructure of peoples in the developing sector. Impeding the BRI and discouraging nations from working with China is written all over the terminology and language of this initiative. ‘Transparent”, “value-based”, “fiscally sustainable”, “socially-sustainable”, and “environmentally-sustainable” are all “standards” that the Western political institutions and mass-media have determined are lacking in China’s BRI infrastructure projects. As the BRIX have shown in various previous articles and interviews, there is no factual basis for these accusations.
Western Initiatives: Exercise in futility
On April 22, the U.S. Senate Foreign Relations Committee passed a bi-partisan resolution, called ‘‘Strategic Competition Act of 2021’’, that’s competing with China’s Belt and Road Initiative. It proposes to allocate 300 million dollars annually, to do what? Build railways? power plants? hospitals and schools in Africa and Asia? No. Much of it will be spent to finance “independent media” and “third party” civil organizations, in countries around the world to discredit the BRI. The legislation also calls on the Assistant Secretary of State for Democracy, Human Rights and Labor to work with the U.S. Agency for International Development (USAID) to “support and train journalists on investigative techniques necessary to ensure public accountability related to the Belt and Road Initiative.” So, the intention is to pay and train professionals in other countries to create fake news and proliferate negative narratives about the BRI such as the discredited “debt-trap” narrative.
If the G-7 wants to beat China and the BRI, shouldn’t it be building better and cheaper railways in Africa? Would it be better to prove its superiority by building more efficient power plants and water management systems, and better schools and hospitals than the Chinese ones? Obviously, this not the purpose of such initiatives. The U.S. and EU have made many initiatives to “beat the BRI”, but none of them materialized, and some of them have even become comic in nature.
We had the EU-Asia Connectivity Initiative in 2018, a 14-page document and a two-page slide show, which for some strange reason neglects the fact that China exists! No railways, roads, ports or airports are to be built in accordance with this strategy.
There was also the Japan-India-backed “Asia-Africa Growth Corridor” launched in 2017. It turns out that it is a series of seminars and conferences and a mere website that has not been updated since January 2018.
What is wrong with all these initiatives? And why do they fail? First, they are far from the reality and what people around the developing world really need and aspire to achieve. Second, they are merely designed as political and media operations to encounter, defame and undermine the BRI without backing them with any substantial investments or serious alternatives.
The irony is that the more the opposition to the BRI and China grows among politicians, thinktanks and media in the West who try to tarnish China and the BRI, the more nations are attracted to joining it. Up to now, 140 nations have joined the BRI. Many of them after 2017. That’s quite a great testimony of success.
The opposition to China and the BRI is generally based on the notion of British Empire geopolitics, a zero-sum game, where the winner takes it all and the looser is destroyed. Win-win cooperation is considered naïve, misleading and against human nature by the geopoliticians.
Trump’s Prosper Africa
Then came Donald Trump Administration’s own challenge to China and BRI in Africa called “Prosper Africa”, which was launched in 2018 by then-National Security Advisor John Bolton. The initiative, he said, would foster U.S. investment, expand Africa’s middle class, and enhance business climates across the region. He also said it would help to counter “predatory” financial and political efforts by Russia and China in Africa.
While it is the most potent of the initiatives so far, Prosper Africa had all the hallmarks of the colonial policy of regarding Africa as a source of raw material for the West and its allies. The Trump Administration biggest single investment, amounting to US$ 4.7 billion from the U.S. EXIM Bank, ended up in a black hole called Liquified Natural Gas of Mozambique.
Where does wealth come from?
But before we review this disastrous endeavor in Mozambique, let’s deal with the serious axiomatic matter: Where does wealth come from?
The reader has certainly witnessed (as I have done over the years) many African leaders, citizens, or scholars who claim that “Africa is a rich continent”, and some of them even argue that Africans don’t need the outside world, because it has all the resources it needs. This is a dangerously false and misleading axiom. Yes, from the standpoint of the colonial powers and their modern predecessors, there is a great deal of natural resources “sitting idle” in Africa that is needed in the industrialized world. It seems that those afore-mentioned Africans have adopted the same idea of the colonialists.
While natural resources are useful, they do not represent real wealth. Throughout the history of humankind, it is the development of the creative, productive powers of society (labor) through scientific discoveries and technological progress, as emphatically argued by the American economist Lyndon LaRouche which creates wealth. His views are shared by one of the most important American statesmen, Alexander Hamilton, a Founding Father of the American Republic and the first Treasury Secretary of the U.S. In his “Report on the Subject of Manufactures” to Congress, he argued that the purpose of issuing national credit is to promote manufactures in the new republic by stimulating the creative powers of its citizens. Hamilton wrote: “To cherish and stimulate the activity of the human mind, by multiplying the objects of enterprise, is not among the least considerable of the expedients, by which the wealth of a nation may be promoted.”
This is the secret of the U.S. economic advancement at its best. The Chinese President Xi Jinping is acutely aware of the accuracy of this principle. In various speeches, he has pointed to the fact that innovation and the development of human resources is the ultimate source of all wealth.
Elaborating on the impact of scientific progress since the European Renaissance on the industrial development of Europe and later the United States, Xi said in a speech on January 18, 2016 (*): “In the 16th century, human society entered an unprecedented period of active innovation. Achievements in scientific innovation over the past five centuries have exceeded the sum total of several previous millennia… Each and every scientific and industrial revolution has profoundly changed the outlook and pattern of world development… Since the second Industrial Revolution, the U.S. has maintained global hegemony because it has always been the leader and the largest beneficiary of scientific and industrial progress.”
In a discussion of the role of science as a driver for the development of any nation, President Xi argued in a speech in 2015 (**) that China’s inability to innovate would become the “Achilles heel” of its economy. Concerning the primacy of human creativity to so-called natural resources, Xi stressed in the same speech: “So we must consider innovation as the primary driving force of growth and the core in this whole undertaking, and human resources as the primary source to support development. We should promote innovation in theory, systems, science and technology, and culture.”
Addressing African leaders gathered at the Forum on China-Africa Cooperation (FOCAC) in Johannesburg, South Africa in December 2015, Xi said that “industrialization is an inevitable path to a country’s economic success” reviewing China’s own success and that it is entirely possible for African nations to achieve the same goal of eliminating poverty and achieving prosperity. However, in that same speech, he identified the “three bottlenecks of development” in Africa which are the lack of capital, lack of infrastructure and lack of skilled labor. He promised to help African nations fill these gaps.
The reason I am citing at length these speeches is to identify a method of thinking embedded in the BRI that is lacking in the Western initiatives towards Africa and other developing nations. Ironically, the same is a lacking among certain African experts. They might argue that the West developed by looting Africa’s natural resources, but that is not the full truth. That same argument is a source of danger for African nations whose leaders might think natural resources is the primary source of wealth.
The nearly total dependency of several African nations on the export of raw materials to import almost all necessities of life, especially food, put them at the mercy of the fluctuation of commodity prices in the international markets and the fluctuation of the value of the U.S. dollar that most commodities are priced in. Following every such shock, these “rentier states” are forced to resort to borrowing from international financial institutions to fill the gaps in their trade deficit and fiscal gaps. This process has forced many nations into a real debt-trap and massive inequality in income distribution. For example, Nigeria, the most populous African nation which has been exporting oil for decades, has recently surpassed India in the number of people in extreme poverty, according to World Economic Forum report citing World Poverty Clock. In a certain sense, through this dependency, natural resources become a curse rather than a gift.
Mozambique’s Natural Gas Trap
After the end of the long and devastating civil war in Mozambique (1977-1992), the economy gradually started to recover. But as many other nations in Africa, the lack of adequate infrastructure such as water management, power, and transportation left this country, which is almost totally dependent on traditional subsistence agriculture, at the mercy of the forces of nature. A major cyclone wrought large scale destruction to the crops and whatever outdated infrastructure that existed in the country. Another equally destructive cyclone hit Mozambique in March 2019. In other years drought has been a recurrent phenomenon and equally destructive for agriculture. While the WB and International Monetary Fund (IMF) statistics speak of a growth-rate of 6-7 per year from 2002 to 2016, little is noticed in the living conditions of the general people. By 2016, 48% of the population was living in poverty. Growth was not equally distributed to all parts of the country, and inequality between the urban centers where most growth was service, real-estate and tourism based, and the rural areas increased in these years.
In 2010 the Texas-based energy company Anadarko announced the discovery of large quantities of natural gas off the coast of the northern province Capo Delgado. Italian ENI made similar discoveries in 2012 in the adjacent area further in the Indian Ocean. In total, it is estimated that the gas reserves could amount to 175 trillion cubic feet, which puts Mozambique in the 9th or 10th place among the countries with the largest reserves. Exports from the three major gas fields (Mozambique LNG, Rovuma LNG, and Coral South Floating LNG) was estimated to reach 35-40 million tons of LNG per year when fully operational by 2023. Qatar and Australia, the two largest LNG exporters in the world, export around 80 million tons per year each. So, the windfall of cash from these projects is estimated to be large, as large as 60-70 billion US$ over a period of 25 years. However, to reach that level of production, massive infrastructure has to be built with a total cost estimated to reach US$ 25 billion.
In spite of all the promise of riches from this LNG discovery, no investments in the production infrastructure were made by the global giants Total, ENI and Exxon Mobil, who received the concessions. The obvious reason was that due to the 2008 financial crisis and the prolonged recession that followed globally, the price of natural gas collapsed from the 2008 height of US$ 13 per million Btu to the incredibly low 1.9 in 2012 and 1.7 dollar in 2016. Therefore, the appetite of global energy giants for exploration of new gas fields subsided, especially as the U.S. went into a fracking frenzy simultaneously. This curse of price fluctuation brought most energy export-dependent nations to their knees economically.
For Mozambique, this was a double nightmare, since the elites of the country had gambled on the prospect of the cash from gas revenues is coming soon. Both the government and private sector resorted to borrowing both from domestic and international banks with the hope of paying back the debt from the future LNG revenues. A real-estate bubble started to emerge in the capital and large cities. At the same time, between 2013-2016 some government officials were secretly arranging a US$ 2 billion loan backed by sovereign guarantees via the Swiss bank Credit Suisse. This was done behind the back of the parliament, which is a violation of the constitution since sovereign guarantees must be ratified by parliament. The alleged purpose of the loans was to develop the fishing industry of Mozambique through purchase of a fleet of modern fishing boats, hence the name “Tuna Bonds Scandal”. The scandal erupted after a public audit revealed that US$ 500 million were not accounted for, and that 200 million were spent on bank fees. In addition, the ship-building company Privinvest had overinflated the prices of its ships, and bribes and kickbacks were funneled back to government officials. Credit Suisse staff, Privinvest managers and the former Finance Minister of Mozambique and other officials came under investigation both U.S. Department of Justice and Mozambique authorities.
Adding insult to injury, the IMF, the WB and 14 partner countries decided to cut loans to Mozambique as a result of the finding of an undisclosed US$ 1 billion loan in 2016. Mozambique’s credit rating was lowered, and the country defaulted on its debt in 2017. Consequently, the country was plunged into a new economic and social crisis.
Trump Administration intervenes
For reasons that can only be considered as geopolitical, Mozambique was revisited by the U.S. and its allies to resuscitate the LNG project in Mozambique. The undeclared goal was to reverse what the Trump Administration considered a dangerous dependence of U.S. allies on imports of natural gas from Russia. Another indicator that this is a political project is that both the WB and IMF, who just recently had boycotted and punished Mozambique on grounds of corruption, both lent open support to the LNG project, with one IMF official calling it “a game-changer” despite major risks, including security risks in this project. The IMF official did not include developing the nation’s infrastructure in his recommendations to utilize this coming “LNG wealth” and advised Mozambique’s government to be “fiscally responsible”. Through their support, what these largely Western-controlled institutions did in addition is violating their previous pledges not to finance or support projects involving fossil fuels. Obviously, the political pressure on the two was unsurmountable. The hypocrisy of the attack on China being a polluter spreading carbon dioxide through power plants in the BRI nations is obvious here where the self-appointed champions of climate among the G-7 states are themselves pouring tens of billions of dollars into a gas project.
An unprecedented mobilization was launched by the U.S., Britain, Japan, India, Italy, Netherlands, and 21 international banks to raise nearly USUS 25 billion in credits, the largest in the history of investments in Africa for a single project. This was managed in a very short period starting in 2019 following the launching of Prosper Africa, which is directed against China and the BRI. By the end of 2018 natural gas prices had recovered but were still hovering around US$ 4.9 / million Btu.
According to China Investment Research, in July 2020, Total announced that it had secured financing commitments of $14.9 billion, led by loans from USA EXIM ($4.7 billion), JBIC (Japan – $3 billion), Thai Eximbank ($150 million) and ADB ($400 million) as well as loan guarantees from NEXI (Italy – $2 billion), UKEF (UK – $1 billion), SACE (Italy – $950 million) ECIC (India – $850 million) and Altradius (Netherlands – $604 million). Twenty-one banks were also involved in the facility. Furthermore, most of the future LNG developed from this operation was contracted to be purchased by Japan, India and Thailand – which represented nearly 50% of the consortium shareholders. However, Henry Tillman, Founder and Chairman of China Investment Research warned in September 2020 that there were many large risks involved in this project, the most prominent of them is the security risk posed by militant groups like ISIS launching an insurgency in Capo Delgado where the gas field operations are located.
Ecstatic about this major feat, the Trump Administration (engaged in a heated election campaign) touted this as a great victory, not for Mozambique, but for the U.S. as it will create 16,700 jobs in the U.S. through 68 corporations in nine states who will supply the materials used in the production of the LNG. In its press release dated May 14, 2020, on the approving of the 4.7 billion $ loan, the EXIM Bank of the U.S., while celebrating the thousands of the jobs this project will create in the U.S., and how that is part of the anti-China “Program on China and Transformational Exports” issued by Congress, there was no mention of how this project will benefit the people of Mozambique.
Total throws in the towel
The warnings about the risks involved in this project came true in March and April of 2021 as the attacks by ISIS and Al-Shabab-linked terrorist groups intensified in Capo Delgado in the end of 2020 and beginning of 2021 and came closer and closer to the construction sites of the LNG project. Attempts to send more troops and support from very expensive international private military contractors “mercenary firms”, all failed in late March this year. Calls by the African Union to step up support to Mozambique to fight the insurgent groups did not materialize. The EU also pledged to assist Mozambique with technical support, training and humanitarian aid. So far, the only active support Mozambique has received is humanitarian aid through the World Food Program.
On April 26, Total, the largest contractor in the LNG project in Mozambique, declared force majeure, and withdrew all its foreign staff and closed all operations. While acknowledging this development, the U.S. Exim Bank and other lenders to the project have kept a vague stance towards this development. But one thing is clear: the LNG project is shelved indefinitely. While there are many hypotheses and theories on how these terrorist groups emerged and who is behind them, which is not the subject of this article, one thing is clear: It takes many years and lots of international efforts to eliminate or even weaken such groups, as the Al-Shabab in Somalia and Boko Haram in West Africa show clearly, since they are not a simple local phenomenon but an international one.
Now Mozambique is thrown between the jaws of real security threat on one side and an escalating social and economic crisis that sees no light at the end of the tunnel on the other. This can lead to more dismay in the population and further political destabilization. While the government of Mozambique should not in all fairness be accused of creating this crisis, it is the whole process and thinking methods both in Mozambique and the West that did not contribute to its prevention.
Conclusion and recommendations
The B3W is doomed to fail because it is conceptually flawed like the previous initiatives. China is building real infrastructure like railways, roads, ports, power plants with tangible effect on the productivity of the economies of its partners. It also provides the credit for launching these projects. However, the gap in the needs of real infrastructure is so huge, it cannot be bridged by China alone. What the West should do is to join China and use the successful BRI as a modus operandi to promote real economic development and growth in the underdeveloped countries.
Nations in Africa and Asia that are raw materials exporters should escape the trap of being rentier states depending completely or to a large extent on exporting raw materials to pay for their needs. The fact that a simple thing as growing food domestically for meeting at least the very basic needs of the population of any nation is not managed in the 21st century should be considered outrageous. In the book “Will Africa Feed China”, in which Dr. Deborah Brautigam debunks the myth of China being involved in land-grabbing in Africa to produce food for the Chinese people, she expresses her deep disappointment with countries in Africa who use their natural resources to buy food from the international market. She calls it “begging with a bowl made of gold”. However, no nation can build a reasonably modern agricultural sector without sufficient infrastructure (water, power, transport and skilled labor). This should be the purpose of any serious initiative.
Concerning the financing of infrastructure, a two-tiered system should be put in place. On the one hand, an international mechanism of jointly financing infrastructure, like the Asian Infrastructure Investment Bank (AIIB) with no political strings attached to loans extended to nations. On the other hand, developing nations should be enabled to create their own credit which they can direct towards internal improvements, without being accused of breaking IMF or free market rules. Germany, for example, was enabled to create credit after WWII through the Kreditanstalt Fuer Wiederaufbau (KfW) with American support.
The issue of debt-forgiveness of the underdeveloped nations, not merely debt service postponement have to become part of the global agenda.
Finally, there should be an end to the disinformation campaigns targeting China and the BRI using unfounded allegations and narrative that are counterproductive and misleading for most of the people in the West. Many of the above-mentioned initiatives launched to impede or encounter the BRI are based on such narratives as the “debt-trap”, which has been thoroughly proven to be false.
The Belt and Road Institute in Sweden is willing to extend the hand of cooperation with other research institutions and think tanks both in the East and the West to conduct objective studies of the BRI and its impact in different parts of the world. As the COVID-19 pandemic has shown, there is today more than any other time a need for a collective effort to put in place a modern health system globally and providing the physical means for its construction. Creating a “community of a shared future for mankind” and achieving the common goals of humanity is no longer an ideal or a rhetoric. It is a reality that is being built, but far too slower than needed.
* Xi Jinping, A Deeper Understanding of the New Development Concepts”, The Governance of China Volume II, page 222, Speech at the Fifth Plenary Session of the 18th CPC Central Committee.
** Xi Jinping, The Governance of China II, Page 217. Speech titled “Guide Development with New Concepts”.