Belt and Road Initiative strikes again… Djibouti risks Chinese takeover with massive loans – US warns

Sep 02, 2018 News

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Beware of the subtle Chinese invasion—is the warning of the United States to Djibouti, a small East African nation, that has accepted massive loans under China‘s Belt and Road Initiative.

The Republic of Djibouti (pronounced Jabbuti) is a tiny, poor country located at the horn of the African continent. The nation is basically a desert wasteland with little or nothing to offer in terms of human capital or natural resources.

While on the surface investing in Djibouti makes no sense, the nation’s strategic location near some of the world’s busiest shipping lanes makes it a valuable economic trade link.

Djibouti serves as a strategic location for various foreign military bases, including the United States’ only permanent naval base in Africa, Camp Lemonier.

Given its military operations at Camp Lemonier Djibouti, the United States has growing concerns over China‘s operations there.

Djibouti is a constant recipient of concessionary Chinese loans under the Belt and Road Initiative.  As a result, international stakeholders like the United States fear Djibouti has fallen prey to China‘s subtle debt trap.

According to reports in the Asia Times, under the loan-thirsty leadership veteran dictator, Ismail Omar Guelleh, Djibouti’s government has in the past two years accepted some US$1.4bn, more than 75% of its GDP, from China. This debt is already more than Djibouti can support.

The loan mainly represents funds for China‘s Belt and Road projects like the US$590 million Doraleh Multi-purpose Port project, and the US$599 million for the Hassan Gouled Aptidon international airport.

“Cumulatively, the two projects are worth a cool billion in US dollars or well more than half of Djibouti’s gross domestic product in 2015,” the Asia Times reported.

In addition, last July Djibouti opened the first phase of the Djibouti International Free Trade Zone (DIFTZ), a US$3.5 billion project under the “Belt and Road” initiative.

“Despite having less than a million citizens–one of the continent’s smallest populations–the country was Africa’s fifth biggest recipient of Chinese credit.

With a public debt to GDP fast approaching 100% and many more projects in the pipeline, Djibouti will soon owe far more than it’s worth,” the Asia Times said.

According to the news outlet, for Beijing, that means free rein in one of the most strategically important countries on Earth.

The Asia Times reported, however, that China’s continuous involvement in Djibouti is increasing concerns internationally.

According to the news outlet, the United States has warned Djibouti of China’s subtle invasion.

The warning is not without basis. In fact, it was pointed out that China’s use of the Belt and Road Initiative has been a debt trap for nations like Pakistan, Malaysia, Sri Lanka, Kyrgyzstan, Lao, Maldives, Mongolia, Montenegro, and Tajikistan. These countries are all overburdened with debt as a result of participation in China’s Belt and Road Initiative.

One glaring example of the China debt trap was portrayed in Sri Lanka when the nation was forced to hand over the grossly inflated Hambantota deep water port to China after struggling to pay a burdensome $8 billion debt to the Chinese Government.

There was also the Mattala International Airport described as the emptiest airport in the world.

Earlier this year, Sri Lanka approached India with a proposal for the airport so that it could get US$300M to pay China.

With the mounting debts, international financial experts have warned that “much like Sri Lanka had to hand over a strategic port after struggling to pay its debts to Chinese firms, Djibouti is also among several nations who have been lured into China’s “debt trap”, threatening the nation’s long-term sovereignty.

However, despite the warnings, Djibouti’s leader says his international counterparts have nothing to fear.

Even in the face of concerns that recently nationalized Doraleh Container Terminal may very well end up in Beijing’s hands, Djibouti’s leader, Ismail Omar Guelleh, is forging ahead with the projects, hoping that China will enable his mission to turn Djibouti into the “gateway to Africa.”

The Chinese had made a similar prediction for Guyana when it loaned US$150M to extend the Cheddi Jagan International Airport. The prediction was that Guyana would be the hub for flights from Africa. That never materialized.

To execute their plans in Djibouti, the Chinese convinced nationals that an international trade zone will not only boost its position as a trade and logistics hub but will also create employment for its youth.

China made also similar claims to Guyana’s former President Bharrat Jagdeo when it offered to loan money to construct the Marriott Hotel.

Yet, Guyana‘s Government has signed a Memorandum of Understanding (MOU) with China to execute Infrastructural projects under the Belt and Road Initiative. However, President David Granger said that he will enter into any arrangement with China with his eyes wide open.

DEBT TRAP DIPLOMACY

A recent study by Harvard University explained how some countries have become vulnerable to China‘s “debt-trap diplomacy.”

According to the study released by Harvard University, countries are seduced by the appeal of large infrastructure projects and funding by China.

The costs of the projects are usually inflated but Government officials regularly boast about the initiatives and its economic prospects—with hidden intentions of massive kickbacks.

In many instances, the projects result in financial destabilization of the country taking the Chinese loan.

China can use that debt burden to obtain strategic assets, such as ports or political influence.

Debtor countries are often trapped into compliance, according to a recent report from Harvard University scholars.

The report’s authors wrote that, “over the past decade, China has extended hundreds of billions of dollars in loans to countries that often can’t afford to repay them.”

According to the Center for Global Development’s report, eight of the 68 countries involved in the Belt and Road Initiative currently face unsustainable debt levels.

GROWING THREATS

Meanwhile, China’s growing presence in Djibouti affects not only the US but also its allies and the international territories it has overseen since the end of World War II.

Global experts have warned that while Djibouti is seeking to capitalize on its strategic position as one of the world’s busiest trade routes, should the projects fail to yield the expected economic activity and growth, the country might find itself handing full control of key assets over to China.

The Asia Times reported by handing such prized asset off to China, Djibouti may well deal a blow not only to the United States’ strategic interests but also to the international order.

For more than a decade, Djibouti has been perfect naval-base material for United States, France and Japan.

“China joined the fleet, last year when Beijing opened its first permanent overseas naval base only a few kilometres from the United States Camp Lemonier.”

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