The Chinese-built Maputo Bridge in Maputo, Mozambique, May 10, 2018. /Xinhua Photo
As a result, it's not the AMOUNT of debt that matters, it's the TYPE of debt that matters…In particular, is the debt going into projects that will be productive in the future?
That's why the Kenyan president, in a recent interview with CNN said "What would worry me is if the debt was going into… paying salaries, or electricity bills, and so on. But what we have used our debt for is to close the infrastructure gap".
The good news is there is no shortage of productive infrastructure projects for China or others to invest in. In African countries, where over 600 million people don't have access to energy, renewable energy projects will enable young people to read and do their homework with light, enable factories to run better, without creating air pollution and climate change effects.
In Asia, green inner and inter-city transport are great investments – enabling more people to move around to seek jobs. In Latin America and the Caribbean, investment in tourism and transport will also deliver decent returns.
Are these productive investments being prioritized by China and others? Not necessarily, for three reasons.
A lack of transparency can be the first reason. Governments should be conducting more due diligence of companies and companies themselves be more open. For instance, some companies – including from China – are still used for projects despite being on World Bank blacklists for corrupt practices. These blacklists may have shortcomings, but there are also opportunities for better performing companies to be chosen.
The second reason is "tying". This is a policy used by many countries – including America, Japan and China - of requiring that loans or aid they give to other countries should go to a project that is built by their own companies. This type of securing "win-win" can be helpful to ensuring projects get done quickly and even avoid corruption. But tying can also create massive conflicts of interest, shifting the focus away from the poor people that the finance is meant to help. However, many countries – including the U.S. and Japan – are reluctant to stop tying.