US proposes development agency to counter Belt Road
The US is stepping up its criticism of the Belt Road initiative and is proposing the establishment of a new US development finance corporation as a counter strategy
AGAINST a background of growing tensions over trade and tariffs, the United States is stepping up its criticism of the Belt Road initiative and has proposed the creation of a new US development finance corporation in response to China's involvement in regions such as Africa.
The State Department is working with Congress to give the United States the ability to compete with countries that already utilize finance to achieve their goals in the developing world. As such, a bipartisan bill called the Better Utilization of Investment Leading to Development (BUILD) Act proposes to create a new US development finance corporation called the United States International Development Finance Corporation. If the legislation eventually passes, the new agency will have the ability to make loans, make equity investments, and have a grant-making facility for project development and technical assistance.
In addition, last week now former US Secretary of State Rex Tillerson made an official visit to Africa. Tillerson was fired by President Donald Trump on March 13 in a tweet that also announced that the director of the CIA, Mike Pompeo, is to take his place. Prior to Tillerson's departure to Africa he blasted China in a speech at George Mason University in Fairfax, Virginia.
“The United States pursues, develops sustainable growth that bolsters institutions, strengthens rule of law, and builds the capacity of African countries to stand on their own two feet – we partner with African countries by incentivizing good governance to meet long-term security and development goals,” said Tillerson.
“This stands in stark contrast to China’s approach, which encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth,” he added. “Chinese investment does have the potential to address Africa’s infrastructure gap, but its approach has led to mounting debt and few, if any, jobs in most countries. When coupled with the political and fiscal pressure, this endangers Africa’s natural resources and its long-term economic political stability.”
“We welcome other countries’ involvement in the development of Africa – in fact, it is needed,” Tillerson said. “That’s what the free market is all about, competition leading to more opportunities. But we want to see responsible development and transparent free market practices that foster greater political stability on the continent. We hope China will join us in this effort as well.”
He argued that importing American business practices and expertise provides the best combination for Africa’s future by contributing to economic prosperity, equipping African nations with new capabilities, and doing so in an open, transparent framework.
The Center for Global Development (CGD), a Washington-based think tank, recently published a report titled “Will China's Belt and Road Initiative Push Vulnerable Countries into a Debt Crisis?”
It warned that the Belt Road elevates debt risks in at least eight countries, including Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan. China’s share of Kyrgyzstan's and Djibouti’s debt, for instance, will rise to 71% and 91% respectively because of Belt Road infrastructure funding, according to the CGD.
Nonetheless, though it found that the initiative will likely run into instances of debt problems among select participating countries – requiring better standards and improved debt practices from China – the CGD concluded that it is unlikely to cause a systemic debt problem.
Chinese officials have recently been pushing back against the growing wave of criticism of the Belt Road. When asked about the CGD report at a regular press briefing in Beijing, Chinese Foreign Ministry spokesperson Geng Shuang said that China “attaches importance to debt sustainability”.
And speaking at a press conference on the side-lines of the annual session of the National People’s Congress, Chinese foreign minister Wang Yi said that the Belt Road initiative will not include secret deals, but will follow global standards and market rules.
The Belt Road initiative is a transparent initiative that follows the "golden rule" of extensive consultation, joint contribution and shared benefits, Wang said. "Everything is in the open. There is no backroom deal, and every step is transparent."
The United States is concerned about China's growing political influence in countries such as Pakistan and across Africa. In his speech at George Mason University, Tillerson outlined a major demographic shift. By the year 2030, Africa will represent about one quarter of the world’s workforce. And by the year 2050, the population of the continent is expected to double to more than 2.5 billion people – with 70% of them under the age of 30.
Africa is currently experiencing solid economic growth. The World Bank estimates that six of the ten fastest growing economies in the world this year will be African.
However, today only about 12% of total African exports are delivered to their neighbouring countries on the continent. In comparison, the figure is 25% among Asean countries and more than 60% in Europe.
Tillerson said that the potential for more economic prosperity through trade on the continent itself is quite evident. As African nations achieve greater regional integration through lowering tariff barriers and improving transport, energy, and infrastructure links, that will create more opportunities for US businesses, investment, and transatlantic trade.
14 Mar 2018