September 26, 2018 / 3:44 PM / in 24 days

Breakingviews - Trump lands too late to spoil China’s Africa party

LONDON (Reuters Breakingviews) - Donald Trump has discovered Africa. After years of paying scant attention to the continent’s economic development, Washington is trying to counter China’s pervasive influence. Yet doubling financing to poor countries to $60 billion – the same amount Beijing pledged to Africa this month – sounds worryingly Cold War. If a desire to trump his Chinese counterpart, rather than solid financials, is the U.S. president’s main objective, American taxpayers will pay the price.

Tanzanian women wait to welcome China's President Xi Jinping (not pictured) during his arrival at Julius Nyerere International Airport in Dar es Salaam, March 24, 2013. REUTERS/Thomas Mukoya

Western governments have grown increasingly worried about so-called Chinese ‘debt diplomacy’ – offering African and other poor-country governments cheap loans for things they might not need or be able to afford, like shiny new railroads. Some of the loans, whose terms are often closely guarded secrets, are secured against minerals such as cobalt or iron ore.

Beijing denies ill-intent, saying it is simply helping Africa develop and filling a gap in the sovereign lending market. Borrowers say Chinese loans come with better terms than, say, those offered by the World Bank or commercial lenders. Washington’s misgivings are now shifting to action. A bill wending its way through Congress would double the firepower of the Overseas Private Investment Corporation (OPIC), and allow it to buy shares in projects, rather than just lend them money.

The agency run by Ray Washburne - a Trump backer who founded a restaurant group including the Mi Cocina and Taco Diner outlets - prides itself on turning a profit. In the last decade OPIC has paid back $3.7 billion to government coffers. This suggests its terms may be less generous than the concessionary rates granted by Beijing. Forgive African governments for not rushing to sign up.

Offering more favourable terms on its loans will elicit cries of hypocrisy: that Washington risks adding to the burdens of a continent already drowning in debt from poorly conceived initiatives dreamt up by equally poor leaders. Yet by taking stakes, OPIC assumes more risk. Equity ranks below debt in the capital structure. If a project goes belly-up – not unthinkable given the many African governments now trying to reschedule Chinese loans – shareholders may be wiped out.

In the end, then, OPIC’s change of tack could end in handouts, rather than development. That’s just the sort of critique an America First political candidate might make of Trump’s new Africa deal.

Breakingviews

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