Is neo-colonialism beneficial to developing countries?

Development engine, neocolonialism - or both?

“Thanks to the new Silk Roads, East Africa has its first motorway, the Maldives are connecting their islands with a bridge for the first time, Belarus has its own automotive industry, Kazakhstan has access to the sea for the first time and goods can be transported on the Eurasian continent by rail. As for the train between Mombasa and Nairobi, it has created 50,000 local jobs ”, Geng Wenbing, China's ambassador to Switzerland, announced at the conference The New Silk Roads as a Driver of Sustainable Development Goalsorganized by the Swiss delegation to the OSCE Parliamentary Assembly in Andermatt at the beginning of September.

The infrastructure development program known as the New Silk Road - it includes roads, ports, railways, factories - was launched in 2013 by Chinese President Xi Jinping to connect China with the rest of the world and to facilitate the import of those raw materials that Middle Kingdom needs for its spectacular growth. It is a project in pharaonic dimensions that 126 countries and numerous international organizations have joined since then. Its key figures are staggering: 40% of world trade should be processed through it and 60% of the world population should be reached with it. The exact level of investment is unknown, with estimates ranging from $ 1,000 billion to $ 8,000 billion. China alone plans to invest 600 to 800 billion US dollars by 2021.

«The Belt and Road Initiative (BRI) is neither a Chinese one One man show another China Club, ”said the Chinese ambassador. Club or not, Switzerland was one of the first countries in Western Europe to join the BRI last April with a declaration of intent. The declaration between Switzerland and China does not provide for an increase in Chinese investments in Switzerland, but rather addresses cooperation between companies, banks and insurance companies in third countries with the support of the respective governments. And that raises a number of questions.

Opposition to China in Ethiopia

After all, not all projects work as well as the Chinese ambassador would have us believe. Was it a coincidence that he didn't mention the 750-kilometer-long railway line between the Ethiopian capital Addis Ababa and Djibouti, the first fully electrified cross-border rail link in Africa? The route was inaugurated in January 2018 and cost 2.8 billion euros, which Ethiopia will have to repay to China over fifteen years. Outside Addis Ababa, a brand new, but less frequented train station was built.

It is supposed to be the replacement for the old railroad, which was built by the French in 1901 and closed at the beginning of the 21st century. I had taken this old train in 1993, it was full of charm for a foreign traveler, but it took a whole day to get from Addis Ababa to Harar near the Somali border in two rickety wagons. Today the train takes less than 7 hours for this route, so the enthusiasm of the authorities for the new train with its modern technology is easy to understand. According to media reports, however, ordinary locals judge the new railway extremely critically as a gigantic project of the elites of Addis Ababa. Most train stations are far from where they are needed and do not contribute to the local economy; this is in complete contrast to the old train and its stations, which included a vibrant chaos of hawkers, restaurants and hotels. While the Chinese operating company claims the new railroad created 20,000 local jobs in Ethiopia and 5,000 in Djibouti, former, now unemployed employees complain about the low wages and poor working conditions the new railroad offers. But the main problem is the country, complain representatives of the Oromo ethnic group, who are particularly affected. It belongs to the state and the dispossessed communities have not received adequate compensation.

Lack of transparency and over-indebtedness, ...

The Ethiopian Railway is a good example of the potential of Chinese projects, but also of the risks involved. The main difficulty can be identified as the lack of transparency. There are no official studies, surveys and data on the BRI projects that provide information about their cost-benefit ratio and their impact on the local population; Beijing does not disclose the terms of the loan. This leads to indebtedness or serious over-indebtedness of the countries towards China, which entails not only economic but also political dependence. Djibouti, which owes 80% of its gross domestic product (GDP) to China, is now home to the first ever Chinese military base abroad. The Chinese ambassador in Andermatt does not want to hear of such objections; instead he underlines that "the industrial corridor between Pakistan and China has increased Pakistan's GDP by 2.5%". He leaves the downside unmentioned: Pakistan's debts to China, valued at US $ 19 billion, have exploded with the BRI. In the case of the Maldives, China's debt, estimated at 1.5 billion, accounts for 30% of GDP.

At the Andermatt conference it was pointed out that multilateral investment banks have developed guidelines that are intended to ensure social, financial and environmental sustainability. Although these guidelines are often and rightly criticized by NGOs as insufficiently extensive, they at least have the advantage that the topic of sustainability is discussed and they create a frame of reference. But not a few countries consider these award criteria to be too restrictive. One senior Swiss official said that “there is not a lack of money in multilateral forums, but of viable projects”. The way out is Chinese loans, which are easier to get. But there is no doubt: those who accept multimillion-dollar loans are becoming dependent. The former European colonial powers and the USA, which took on their role in many ways in the 20th century, sense a kind of neo-colonialism in view of the Chinese development and expansion strategy. It remains to be seen whether this will be just as disastrous for developing countries as historical colonialism.
The only thing that is undisputed is the enormous financial requirement on the way to one sustainable Development: The OECD estimates that to achieve the UN Sustainable Development Goals (SDGs) by 2030, investments amounting to 6,900 billion US dollars will be necessary.

... effects on the environment and human rights, corruption

The impact of Chinese projects on human rights, for example in relation to labor standards and public consultations, is of great importance. In every infrastructure project, the environmental impacts on water, soil, air, biodiversity and climate change are considerable - especially when the focus is on the exploitation of oil and gas reserves, sectors that are hardly compatible with the ecological change called for in the 2030 Agenda.

Another problem exacerbated by the lack of transparency in loans is corruption. “Globalization has helped export corruption through investment,” said Gretta Fenner from the Basel Institute of Governance, “and it's a problem that doesn't just affect developing countries. In the area of ​​governance (governance) the BRI harbors massive risks of corruption. Large infrastructure projects involve enormous sums of money and always against the background of an obvious power imbalance. Whether it is from China or another lender is of secondary importance. "

It should not be concealed that progress is being made in the discussion about the new Silk Road, starting with the Green Investment Principles for the Belt and Road and one recently adopted by China Debt Sustainability Framework, which underscore Beijing's commitment to more sustainable investments.

What is Switzerland doing?

And what role does Switzerland play in the BRI? The agreement with China creates a platform that will enable Chinese and Swiss companies to work together on BRI projects, with particular attention being paid to financial and debt-related sustainability aspects. A working group is to establish the platform. If Swiss companies are involved - everyone seems to agree on this - at least certain human rights and environmental standards must be complied with.

The Andermatt Declaration accepted by the conference participants recognizes these beautiful principles and Switzerland can certainly help ensure that they are adhered to. However, the declaration also aims to create a favorable environment for private investment in infrastructure and public-private partnerships (PPPs) to accomplish. This intention is also clearly expressed in the letter of intent signed by Switzerland and China. The question of whether public funds are actually used to support Swiss companies, banks and insurance companies abroad remains unanswered. And if so, under what conditions this happens.