The Chinese-financed Standard Gauge Railway (SGR) in Kenya is one of the flagship projects of the Belt and Road Initiative. But the SGR like other Chinese-sponsored railway projects elsewhere in the Global South also serves as a prime example of the risks to developing countries in taking on so much debt.
Keren Zhu, a global China post-doctoral researcher at Boston University’s Global Development Policy Center, together with two other scholars recently completed a first-of-its-kind study that explores the winners and losers in the Kenyan SGR project.
She joins Eric & Cobus to share the findings of their research and what it says about the future of the BRI.
Show Notes:
- The Journal of International Development: Socio-economic impact of China’s infrastructure-led growth model in Africa: A case study of the Kenyan Standard Gauge Railway by Keren Zhu, Ben Mwangi and Lynn Hu
- African Studies Quarterly: Kenya’s New Lunatic Express: The Standard Gauge Railway by Ian Taylor
- The Conversation: Mombasa Port: how Kenya’s auditor-general misread China’s Standard Gauge Railway contracts by Deborah Brautigam
About Keren Zhu:
Keren Zhu is a Global China Post-doctoral Research Fellow at the Boston University Global Development Policy Center. She holds a Ph.D. in Policy Analysis from the Pardee RAND Graduate School. Her research focuses on the Belt and Road Initiative (BRI), global infrastructure, international development and program evaluation. She holds an M.Sc. in Social Anthropology from the University of Oxford and a B.A. in English from the Chinese University of Hong Kong.
Before working as a researcher at the RAND Corporation in the United States, she served as the international affairs manager at Research and Development International, Chinese Academy of Social Sciences from 2015-2017 and as a consultant at the International Labor Organization from 2014-2015.
Transcript:
Eric: Hello, and welcome to another edition of The China-Global South Podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander, and as always, I’m joined by China Global South’s Managing Editor, Cobus van Staden, in Johannesburg, South Africa. A very good afternoon to you, Cobus.
Cobus: Good afternoon.
Eric: Cobus, rarely Twitter these days provide good news. It just seems to be a flood of just terrible news, but it was exciting for us to see a little bit of unadulterated, pure joy, and just great news on Twitter this weekend when we saw that the Carnegie Endowment for International Peace, a very prestigious think tank in Washington, DC was kind enough to include our China in Africa podcast on their list of top foreign policy podcast for the year. Wow, that is just an honor for us that folks in DC, at an institution like Carnegie acknowledged us like that. So, very proud. Want to give a big shout out to Zainab Usman at Carnegie for including us on the list and nominating our podcast, and just tell her how appreciative we are of that and that recognition.
Cobus: Absolutely, it’s such a thrill. Carnegie does such amazing work. It’s really fantastic for us.
Eric: Yeah. So, we’re looking forward to having some more folks from Carnegie on the show. Again, as Cobus pointed out, they do some amazing work, particularly about China, and Asia, and the global south. So, this is one of the reasons why we’re so excited about this show is the ability to branch out into all the different parts of the world and to look at what’s happening in one part of the world and then connect some dots to some other parts of the world. And today, we’re going to do that on the question of railways. Now, all weekend, we were seeing a whole bunch of coverage that was coming out, particularly from the likes of Bloomberg, talking about how the Chinese are really pulling back on debt financing. And this is something that we’ve been seeing four years, but it’s accelerating. I think it’s becoming even more acute now as countries in African and many parts of the global south are struggling to find new sources of capital in order to meet their infrastructure development needs.
And so, this weekend, Bloomberg ran a number of editorials and columns that really pointed out, not only is this a problem for global south countries, but it’s also a problem for China because a lot of the outstanding debts that they do have are now causing all sorts of problems in places like Laos, Sri Lanka, Kenya, Nigeria, it’s a problem. Ghana, we’ve been talking about more recently on the Africa Podcast as well, about their ability to sustain the debts. Now, let’s talk a little bit about railways in particular, because this is a critical piece of infrastructure that we’re seeing that the Chinese used to finance in many parts of the world, especially in Africa, where they were doing, in Nigeria, they had railways in Ethiopia, Djibouti, and then also in Kenya. While financing in Africa has largely come to a halt, that is not the case here in Southeast Asia.
And Cobus, I sent you a graphic today, which I thought was absolutely fascinating, showing China’s ambitions to build a truly pan southeast Asian railway network that extends from Kunming in southern China, and also the City of Dali, that really extends all the way down through Myanmar, and then another line right through Laos to Thailand, all the way to here, in Vietnam. And then another line that goes from Kunming, basically straight down to Singapore. Tens of billions of dollars are on the line to build this. Already, they’ve built large swaths of it in terms of the China-Laos high speed rail network. They’re in the process now of building the Thailand-China high speed network. And in many ways, Cobus, it’s sobering to see how much they’re spending here compared to what they’re not now spending in Africa and other parts of the world.
Cobus: Yes. I’m sure economists, and particularly Southeast Asian focused economists, would’ve a lot to add there, but my feeling is that this seems to be a continuation of the Chinese dual circulation policy. Because building all of these Southeast Asian rail networks simultaneously boost China’s external trade, and among others, by cutting around these shipping choke points like the Straits of Malacca, while at the same time actually focusing on Chinese domestic consumption. Building those regional rail networks make direct sense in the context of Chinese domestic consumption. Whereas, in Africa, it doesn’t 100%. It seems like, as they’re pulling back their focus, they’re also, they’re not pulling back their focus all the way back into China.
They’re pulling it toward the China’s immediate neighborhood and then substituting all of this infrastructure connectivity that used to represent the BRI internationally towards all of these issues that we now see in the global development initiative. In Africa, certainly, it becomes a lot about internet, about green energy, about agriculture, and then general standard setting and development paradigms. Whereas, in Southeast Asia, it seems like it’s still like old school BRI train building.
Eric: It is, and it isn’t, because I think that these railways have multiple purposes, as you’ve hinted towards. So, there’s obviously an economic agenda, both domestic Chinese to give contracts to Chinese railway companies and construction companies, but also because I think that they want to really tie in Southeast Asia even more as the key economic partner for China. It’s the number one trading partner regionally in the world for the Chinese. And so, I can see them seeing that this is a way of binding these countries even further into the Chinese economic orbit. I think there’s a geopolitical aspect to all of this. When you invest all the money that the Chinese are doing here in Southeast Asia to build these railways that builds favors, and especially when the Americans are coming along with very, very anemic economic engagement. Again, we’ve talked about this in the past, on previous shows, about 150 million for ASEAN countries, 10 countries spread over five years. Not really very big bucks compared to the billions for these railway networks.
There’s a security component to it, as you pointed out. Avoiding the Straits of Malacca dilemma, that you can move things overland, particularly oil, and parts, and strategic resources that then head into southern China, into the industrial belts. There’s that. We also can talk about, at a later time, all of the railway development that’s happening into central Asia as well. So, on Xi Jinping’s visit to Kazakhstan, these railways that go from China all the way through Central Asia and into Europe is another key part of this.
Cobus: I think it’s also important to remember that for the first time in decades, China isn’t the fastest growing economy in Asia. I mean, that may well reverse itself after COVID lockdowns and after the Party Congress, but for the moment, China’s growth is actually lagging behind that of Southeast Asia. It’s, in a way, like these rail networks, while in the larger scheme, kind of fulfilling this role of China as the sun in the constellation of planets, at the same time, we now are seeing a situation where Chinese growth is lagging and these rail networks, in some way, become a kind of a hook onto the faster growth of Southeast Asia.
Eric: It’s very interesting. I hadn’t thought of that, but you’re right. So, here in Vietnam, we’re growing much faster than China is now, that again, we have to take into account the scale and size of the economies. That makes a big difference on this. But let’s talk about where the BRI is going because a lot of these projects are related to the BRI. For that, maybe we got to go all the way back over to Africa again, cross the Indian Ocean from Southeast Asia, because there are some clues on that in Kenya, and the standard gauge railway there. A trio of researchers recently published a very fascinating, fascinating paper that came out in the Journal of International Development called China’s infrastructure‐led growth model in Africa: A case study of the Kenyan Standard Gauge Railway. It’s a little bit on the wonky academicy side, but still very, very interesting. Again, it was written by a trio of scholars. We had the privilege of being able to speak with one of them, both about the Kenyan SGR and also what that project says about the future of the Belt and Road. Here’s our conversation with Keren Zhu, a global China post-doctoral research fellow at the Boston University Global Development Policy Center.
Keren Zhu, welcome to the show. It’s really wonderful to finally have you on the program. You and I have been speaking together for more than a year on this project, and so happy to finally have you join us to talk about the findings from your research.
Keren: Thank you very much for having me. It’s a great pleasure.
Eric: And just want to make sure, before we dive deeper into the research that Keren did, that she also did this with two colleagues, Ben Mwangi from the Institute for Climate Change and Adaptation at the University of Nairobi, and Lynn Hu at the Pardee RAND Graduate School in Santa Monica, California. Just want to make sure they get their proper props for all the great work that they did on this fascinating paper. Keren, let’s start with the premise that you laid out about the winners and the losers involved in the standard gauge railway. You interviewed 132 experts. You spoke with 91 different community residents across five cities and towns. What did you find? Who is the winner and who is the loser in this massive railway project?
Keren: Yeah. Let me just step back a bit to talk more about the broader background about this research project. Based on our literature review, we realized that a lot of debates about China finance infrastructure projects and the Belt and Road initiative is at a rather macro level. So, that’s why we are very interested in delving into the actual impact on the ground and to see who are the winners and losers in this project development process. We did a sectoral analysis and we found that the Kenyan Standard Gauge Railway significantly helped the tourism sector and also moderately enhanced employment. And the winners and losers are mainly divided by sector. And the biggest loser’s actually the road transportation sector that are very much negatively impacted and reduced in revenue with the introduction of the standard gauge railway.
We were also able to interview community residents across five cities and towns, and those include the three terminals of the two phases of the railway, as well as Voi and Mtito Andei that’s located in the middle of the railway. They were initially of the same size, and then Voi, because of the boom in tourism, experienced significant boom. Whereas, Mtito Andei, which used to be a stopover station for passengers using road transportation experienced significant reduction in revenue. And so, as you can see, the city and town boom and bust dynamic is also closely related to the sectoral trends.
Cobus: You mentioned these kind of sectoral trends, like what kind of trends did you see, particularly in relation to the different towns? It was fascinating to read how the impact of the SGR was really different for different towns.
Keren: Yeah, I think this is a great question, Cobus, and it actually touches on a longstanding debate. As our team was interviewing the local residents about the contracts between ecology and growth, so people have different stance towards the extent to which the country should develop and promote economic growth versus preserving the environment. And regarding the effect of tourism related to the introduction of the SGR, the SGR was able to promote domestic tourism. So, more people would be more willing to travel domestically. I don’t think the domestic, introduction of the domestic tourist is going to make that much of a change to the entire ecosystem. If it brings more revenue to the Kenyan government on tourists for these natural reserves, I believe that it may actually have a potential in allowing the government to leverage the additional revenue to do some more environmental conservation related activities.
Eric: When we look at this issue from afar, looking at it through the news and following all the discussions online, and even a lot of the academic papers, it’s really hard to get a sense of what the people feel about this thing. I mean, this was a massive investment on the part of Kenyan society. It’s very controversial in terms of the… There’s been so much controversy in terms of labor issues, the financing of it, the lack of transparency in it. But as you were talking to dozens of people throughout the country about it, what was your sense on balance? Did they think that this was a good project, a good use of money, or did they think that this is the famous railway to nowhere, what a waste of money, a white elephant, poorly managed, poorly conceived? What was the, on balance, the sentiment that people had?
Keren: Yeah. Eric, I think you’ve summed it very well. In fact, on the ground, there is a polarization of perspectives regarding the Kenyan Standard Gauge Railway. The polarization mainly lies in the divide between users and non-users. For those who’ve actually tried the railway, they speak really highly about it. Whereas for those who haven’t used the railway, and yet whose livelihoods have been negatively affected, some of them, I have to say, speak very bitterly about the railway. We are actually seeing that this polarization of the narratives about the SGR from the users and non-users is actually creating a divided narrative about, not just the SGR, but mega projects or large-scale infrastructure projects in Kenya at large. It determines the popular support for future infrastructure investments.
Cobus: You mentioned that the road trucking and logistics sector was hit particularly badly by the SGR. We’ve seen, over the last while, after the victory of William Ruto as president, that he reversed an earlier decision to locate a lot of port logistics away from Mombasa towards Naivasha, the inland logistics hub that’s connected to the SGR. Partly, in order to force freight use of the SGR, which is a big part of its profitability. With the background of the research, what did you make of this decision to move those logistics back to Mombasa? And what was some of the complaints that interviewees raised? How do you look at them now, now that they’ve reversed that decision?
Keren: This is an issue that I have yet to look into, because at the time when I was visiting the SGR, the decision hasn’t been reversed. So, I don’t have the most up to date information. What I can say is that this decision is supported by lots of truck drivers, and I think it does give them more agency to choose and to determine the mode of operation for, for themselves. I also think that domestic political interests are definitely at play here. At the time when I was doing some preliminary fieldwork in Kenya in 2019, the decision to allow the custom clearing to happen in Nairobi actually shifted part of the revenue from Mombasa to Nairobi, allowing basically the political interest that’s concentrated around Nairobi to grow further. I think, right now with the reversal of the decision, we have yet to see what is going to be the political dynamic that’s going to play out.
Eric: There’s another dynamic that we also should address is the fact that there’s a brand-new highway that is going to be built connecting the capital, Nairobi, to Mombasa. That too, is also going to be new competition for the SGR. The big concern that a lot of people have now is that if the truckers now can take cargo and it can be processed at Mombasa. It doesn’t have to be put on the SGR as it was under the Kenyatta administration, and there’s this new highway, it’s a lot of competition for the SGR. And it means that the revenue for the SGR may be impacted, which ultimately will then mean that the Kenyan taxpayer has to pick up the bill to repay the China Exim Bank. Just to remember that this was a 3.8 billion project, 15% was paid for by the Kenyan government, 85% was underwritten by the China Exim Bank.
Let’s be very clear here, the China Exim Bank has been very inflexible in debt restructuring or debt rescheduling. They want their money back. There’s a big risk in all of this, in these dynamics of moving the traffic away from the SGR. Let’s see if it will play out and be productive by that. You had a chance to talk to a lot of Kenyan stakeholders. Did you have any chance to talk to various Chinese stakeholders? Do you have any chance to meet with people from the China Road and Bridge Corporation who built it from the Chinese Embassy? Anybody involved on the Chinese side of the project? I guess I’m curious to hear what their perspective was on it.
Keren: Yeah, thank you, Eric, for this question. So, I was actually able to speak to both the managers and staff who work on the China Road and Bridge Corporation at the SGR project, as well as some selected government officials who work locally. What I see is that they actually have some convergence in their interest with the local stakeholders, but in the meantime, they also have some very specific interests that’s derived from their stance. For example, so let me start with the convergence. Compared with other stakeholders, the Chinese government officials, as well as the project managers, all view the economic impacts of the standard gauge railway as central. So, it’s really regardless of where they stand. This is also supported by the survey results that I had, I’ve presented in the paper.
What’s different is that different stakeholders put different emphasis. And for the Chinese government officials that were interviewed, they put a much higher emphasis on the international relations importance of this project, highlighting it as a symbol of China-Kenya and China-Africa friendship. And basically, the speaks person at the Chinese Ministry of Foreign Affairs actually called us a new name card of China Africa Corporation. That shows you its diplomatic significance. The China Road and Bridge Corporation managers that I was able to interview agree with the international relations perspective. In fact, to make sure that this is a successful project, they basically deployed higher level staff compared with what they would typically do for a project of similar scale. Meaning, by upgrading the staff composition, it is actually a commitment to make the project successful.
Other than the diplomatic relations importance, the SGR managers view the railway security as particularly important. They are mostly concerned about the everyday smooth and safe operation of the railway to make sure that there is no railway theft, no vandalism, just making sure about the health protocols being faithfully followed to ensure the everyday smooth running. I guess that’s also a way to ensure a steady flow of revenue. Another point that the managers are particularly concerned of is the technological transfer aspect. And several of them actually highlights that this project is also sort of a name card for China’s technological transfer. The Kenyan Standard Gauge Railway signaled the Chinese company’s transition from a build and transfer model to a build, operate, and transfer model. In the latter model, the Chinese company is no longer just involved in the building or construction process of the project. They are actually more involved in the actual operation and smooth handover of the project to local hands process.
That’s why actually, the skills development for the locals on the job training and cultivating management talent from the local people becomes something that’s very important in this project, and that the SGR managers are very much concerned of.
Cobus: You mentioned at the beginning that a lot of studies about the BRI tends to look at it from a very high-level perspective. Now that you’ve looked at this project from the ground, or the ground level, how is it changing? Or what kind of insights are you getting about the wider BRI? How we should actually think about what the BRI is and how it works?
Keren: In terms of the wider implications, I think one of the biggest finding that derives from this winner-loser dynamic is that the interest and benefits of the losers from the SGR development should also be addressed. So, in terms of overall BRI development, more studies or more evaluation should be done to understand the actual impact on the ground, to track the longitudinal impacts of these projects so that their interests can start to be paid attention of. There’s also another observation that derives from this study that has some wider implications. That is, right now there’s still, to a certain extent, a disconnect between the physical infrastructure that’s introduced and the surrounding environment. There hasn’t been sufficient soft infrastructure in support of the physical infrastructure development. By soft infrastructure, I mean, both the supporting facilities around it as well as the services surrounding it.
In addition, there’s also the monitoring and evaluation that’s to be set up in support of these projects. I think for BRI overall, it would be really helpful to see more soft infrastructure components supporting the physical infrastructure development, and to complement physical infrastructure
Eric: Cobus, it’s interesting because that’s one of the key points that we’ve been raising over the years in terms of where the US, Europe, Japan, South Korea, Singapore, these are tech and services economies, can complement China’s hard infrastructure investment in places like Africa on projects like the SGR or the Entebbe Airport. I mean, there’s countless examples of this. And how African countries, in many ways, could do better at trying to drive projects to countries that have those expertise. So, the Chinese are not as good on the soft side, but they’re much better on the hard side, whereas the Americans are not as good on the hard side, but they’re better on the soft side. So, Cobus, it seems to me that there’s an opportunity for African countries to really pick up on what Keren’s talking about here and look into different countries for different parts of their infrastructure development. What do you think?
Cobus: Yeah. No, I think there’s definitely potential, but I think a lot of that potential would then maybe get snagged up in the current geopolitical polarization that we’re seeing in a lot of these projects. It would need some kind of innovative and I think proactive initiatives from African governments in order to pull all these different players in, and to make sure that they’re actually getting what they need. Keren, I was wondering what you saw on this issue from the African side. Was there awareness of this kind of need to proactively develop soft infrastructure? And what kinds of initiatives do you see them doing?
Keren: Based on my observation on the ground, so far, there hasn’t been interest expressed from the local stakeholders that I have interviewed that I engaged with on better complimenting the soft infrastructure with the physical infrastructure. While some local community members talked about the need for better services and better supporting infrastructure, I think their government has, for different reasons, have yet to, to respond to these popular demands.
Eric: As I want to step back to the BRI issues that you raised, and I look at the SGR in Kenya, we also now have a $6 billion brand new, beautiful railway connecting Laos in China. And then, also there’s the railways, the standard gauge railways that the Chinese have built in Nigeria. China’s been hot on building railways around the world. The problem with railways, though, is they’re very slow to repay the massive upfront costs that are needed to pay for these things. And the countries now, Kenya, Laos, Nigeria, are all facing various levels of debt distress. Laos, in fact, is looking into the abyss right now. A big part of it is because of the loans to build the railways. When you look forward to the next evolution of the Belt and Road, wherever that takes us, whatever it is today, do you think railways are going to be a part of the plan? Because it seems to me that it just doesn’t make economic sense for countries that are struggling financially to spend billions of dollars on Chinese railways when they clearly can’t repay them in any due time.
Keren: Yeah, I think this is a question that I have been thinking of for a long time, and I do struggle, even myself when it comes to the future of China financed railway projects. On the one hand, China really has a willingness to export its equipment, technology, and Chinese standards so that it can actually develop a greater market throughout the global south to provide more business opportunities for Chinese enterprises. On the other hand, as you’ve mentioned, these mega projects, because they are typically extreme large scale, and sometimes the largest project that a country has built in a century or in a few decades, they do put lots of burden on the host countries. I think right now some solutions have been explored, including trying out different financing models such as the one that you see at the Nairobi Expressway, which is a PPP project.
And they are also shrinking the project sizes so that mega projects are not the only options. I do think that the willingness need to come from both China and the host country governments to come up with a solution in terms of restructuring and how to fund these railway projects that are extremely important for the longer economic development and prosperity of these countries while attending to the issues that arise.
Cobus: I know it’s very difficult to predict anything. But I was wondering, seeing how the SGR is operating on the ground at the moment, what do you think its future looks like? Do you think it’ll, in the longer term, will it provide the kind of developmental outcomes that Kenya was hoping for?
Keren: Yeah, I think, right now, the railway connects the portal city, Mombasa to Nairobi, then to Naivasha. It has yet to be extended to the border of Kenya. And right now, I know that some interim solutions have been implemented to connect the meter gauge railway, which was over a hundred years ago to the standard gauge railway so that some goods can be transferred from landlocked countries. That’s definitely not going to be the long-term solution. I think it would be helpful to see what will happen once the railway is further connected to the Kenyan border and how much that would unleash the economic development potentials. If some interim solution is going to stand for decades, it would also be helpful to see some logistics issues being better managed to enhance the efficiency of connectivity.
Eric: Yeah, there’s been a lot of talk about the connection of the Standard Gauge Railway in Kenya to the Meter Gauge Railway in Uganda, to bring it to that Uganda border, as you mentioned. So, that might be an interim solution. One other thing to keep an eye on is Tanzania’s Standard Gauge Railway development, which is being done now at a fraction of the cost of what they paid for in Kenya. Chinese contractors are building parts of it, but the Chinese are not financing it. This question of railways, the winners, the losers, absolutely fascinating. The paper is Socio‐economic impact of China’s infrastructure‐led growth model in Africa: A case study of the Kenyan Standard Gauge Railway. It was published earlier this year in the Journal of International Development by Keren Zhu, Ben Mwangi from the Institute for Climate Change and Adaptation at the University of Nairobi. And Lynn Hu at the Pardee RAND Graduate School in Santa Monica. Keren, thank you so much for taking the time to join us. We really appreciate it. It was a fascinating article. And we’re really looking forward to continuing following your research.
Keren: Thank you very much for this opportunity, Eric and Cobus.
Eric: Cobus, what was so fascinating about the work that Keren and her colleagues did on this paper was really identifying clear winners and losers in the BRI, and that honestly is not a framework that we have heard very much in a kind of neutral, analytical way. You hear all the time from partisans on either sides. Certainly, the Chinese say, “There’s tons of winners.” Certainly, the Americans and European critics and Australian critics say, “There’s tons of losers.” But it’s really interesting to see in this analytical academic study framework of legitimate winners and losers based on research. Some people are benefiting, others aren’t. I hope we’re going to see more of these kinds of research going forward, on looking at the clear winners and losers the way they did.
Cobus: Absolutely. I think this paper really provides a very powerful demonstration of why it’s so difficult to show whether a piece of infrastructure really benefits development or not. Because what it shows is that it does, in some cases, it takes development away from some places and adds it to other places, and some sectors of the economy wins and others don’t. Obviously, there’s been much, much criticism through the years of using GDP as some kind of way of tracking development. There’s a lot of criticism about that in the development space, but at the same time, I can also see why people tend to do it. Because as Keren’s work shows, once you start getting on the ground and really asking stakeholders how a piece of infrastructure like the standard gauge railway impacted their lives, the answers are so complicated that you need to then sit and deal with that complexity. I think that, that aspect of the work has been very, very helpful for me.
Eric (32:43):
Over the weekend I had a chance to sit down, and I had lunch with a friend of mine who’s in the corporate space here in Vietnam who works on infrastructure and resources. It was fascinating, his inside take on a lot of these things. And he said that, “Here, in Southeast Asia, Vietnam in particular, the big problem is power.” This is nothing unique to Africa. We’ve talked about that endlessly, about the fact that without sufficient power supplies, and you in South Africa know that better than anybody right now, right? That without stable, reliable power, business simply can’t be done, much less industry. And he was talking about how Vietnam, which is, in many ways, a shining example of how a developing country is just moving forward and moving up the value chain, but is going to run into an acute problem in terms of power.
Number one, they have a power deficit of between $10 and $30 billion, if you can count it different ways. That’s an amazing power deficit for one country. Again, Vietnam is a manufacturing hub now, but they need more power in order to fulfill that that dream. The second thing is that they have a difficulty in countries like this of processing large amounts of capital that come in to build that. So, even if there were people lined up saying, “I’m ready to give you $10 billion to build a railway, or to build a power, or to build your infrastructure that you need to narrow that deficit,” the system simply can’t handle that kind of money.
And so, when we look at the urgency of infrastructure needs in Southeast Asia and in Africa, and we look at what the Chinese have been doing, the $6 billion for the Laos railway, the $6 billion for the Standard Gauge Railway in Kenya, the inability of these countries to be able to handle the debt loads and be able to process this money, and use it in an effective way, points to the fact that I think we’re going to have infrastructure deficits for a very long time, regardless of the fact that Global Gateway from the Europeans, and the PGII from the Americans are putting out these huge numbers, $600 billion, $300 billion, they can’t process the money even if it’s available.
Cobus: And with it then becomes the bigger question of why is the global south’s energy transition, which is due to a large extent being forced by the historical emissions coming from the global north, why is all of that being financed in the form of these massive debts that are going to be loading global south countries under debt for the next 200 years? That is one of the bigger issues. And also, in this context, one can completely see why the Chinese are moving the BRI so aggressively onto green energy. Because not only that there’s a massive need for and a massive gap for them, but also because I think the disjuncture between the messaging coming out of the West, and the West’s own, their own planning for their own energy transition, it’s just so stark.
That, as problematic as China is in a billion different ways, what China at least brings to the table is a coherent mix of engagement and local kind of domestic development in the solar and other kind of technology sectors that are all pulling in the same direction. One can also see the thinking behind it where they see, well, there’s no way for Chinese companies to make money in these areas without stable power supplies. That luckily happens to be a thing that China is very good at, so let’s go. That kind of combination of factors are just frequently not in place on the Western side no matter how stridently the rhetoric is trying to do most of the work.
Eric: Let’s pick up on what you were saying by focusing on the Chinese side of the equation. Last week, there was this report that came out from the Center for Research on Energy and Clean Air, CREA is their acronym, and then the Global Energy Monitor. I don’t know either one of these organizations. I don’t know if they are nonpartisan, but they were quoted in a Reuters story, and I want to get your take on something. They apparently found that China approved 15 gigawatts of new coal fired power capacity, and another 30 million tons of coal-based iron making capacity in the first half of 2022, the first half of this year. 15 gigawatts of new coal power. That’s valued at $26 to $33 billion in investment in both coal and steel. Okay? This is hard for me to reconcile because I hear all this about the green BRI, right? We hear all these wonderful things about how China’s greening the BRI. Great. But if they’re pumping out 15 gigawatts of new coal power in China, does it really matter? Again, it’s like, we’ve said this before, it’s like peeing in in one third of the pool.
I mean, and this is, I hate to say it, and I you’re going to kill me for referencing this, but John Kerry did have a point here that mother nature doesn’t care where the emissions come from. Okay?
Cobus: Exactly. I mean, he’s not wrong. He’s just ignoring a particular set of places where a whole bunch of the emissions came from, but-
Eric: That’s right. He shouldn’t have brought that up in an African context. It should have been brought up in a Washington, US, or European context.
Cobus: Yeah, it was a failure of politics, not a failure of climate accounting. But yeah, you’re 1000% right about the Chinese side because I think there are all these different older and newer ideas of what development means in China. And one of those is, if you’re hitting an historical economic slump, like the way China is doing at the moment, you throw money at the steel industry and you throw money at coal power. That’s what they’ve been doing for a long time. And that short-term solution that is then supposed to be phased out again for the long-term solution is one of these weird contradictions in Chinese industrial planning that has massive implications for the rest of the world emissions wise. Yeah, it’s a mess. It’s a mess on both sides, but I think where the Chinese, in a narrow perspective from an African perspective, what at least what is happening in China is that there’s also a huge solar panel industry that is producing it at such a scale that it actually brings down the price, for example. Those kind of things on the ground in China are actually are happening, and there’s ways for Africa to draw on those. But the broader set of contradictions are insane. And also, I think frequently, it’s such a clear like one step forward, two steps back situation.
Eric: Yeah. And the issue of the greening of the economy goes back to power as well in many respects. Because here in Ho Chi Minh City, for example, the number of cars has just skyrocketed. They’re trying to bring in electric cars, but they can’t build the charging infrastructure because the grid infrastructure simply isn’t strong enough to handle it. And then the distribution networks aren’t strong enough. And this is again, a classic problem in the global south, that you can have one piece of the puzzle, but you need six other pieces in order for that to work.
Cobus: And then you also need political will, which in the global south is frequently the hardest thing to muster. In that case, South Africa is exhibit A. So much of South Africa’s dysfunction on so many different levels. It’s not because there aren’t climate transition plans or that the technology doesn’t exist. Both of those things exist. There’s no political will to implement it. And there is an endless political will to let the country stew in its juices while they’re trying to fight these internal fights. Yeah, it’s tough.
Eric: But this also speaks to this question that my friend was talking about in terms of the capacity. This capacity question isn’t just about, there are not the financial mechanisms in place to process $10 billion. One has to think, for example, that the billions of dollars that the international community is considering now to bestow upon South Africa to fix ESCOM, may be misused, may not be efficiently used, because as you’ve talked about, there is no political consensus. And without political consensus, one has to really question whether or not a lot can be achieved. I certainly have that question about my own country where not a single Republican member of Congress voted for the Inflation Reduction Act, which is the climate bill that is supposedly going to make America very green again. I mean, without political consensus, how much faith do we have that anything can really be done, even if the will is there?
Cobus: In the case of South Africa, it’s going to be a very interesting test case for Western countries, and PGII particularly, all of their rhetoric around standard setting and transparency, and monitoring, and so on. We’ll see. We’ll see. If the G-7 can overcome the internal inertia and trickiness and game playing that characterizes South African politics, kudos to them. I’d be very, very happy to be proven wrong, but we’ll see.
Eric: Well, so goes South Africa, so goes Africa in many respects, because when you look at the weight of economic activity in Africa’s major economies, Nigeria, Ethiopia, Kenya, and South Africa in particular, that accounts, and I saw a statistic, I don’t have it off the top of my head, but it was shocking to see how four or five countries account for well over half of all of the economic activity on the continent. Okay? So, if you guys go down the tube, you’re going to bring a lot more than just your own country. You’re going to bring a number of other countries with you who depend on South Africa. So, there’s a lot at stake in South Africa getting this right.
Cobus: And I can tell you this power crisis in South Africa is causing havoc. The kind of economic damage it’s causing is really visible. For example, just in my very little bougie corner of Johannesburg, there was this great little cheese shop in Joburg that sold mostly South African cheese, and therefore represented agricultural jobs all across the kind of rural parts of South Africa. Many little goat farms, and so on, making small batch cheeses that then get sold in that little shop. That shop is dead now simply because they couldn’t run the refrigeration that they needed because of constant blackouts. Literally, during our taping of these comments, the power went out in my house. We are speaking on battery at the moment. This is happening right across the entire South African economy, and there’s no way it can keep going.
Eric: It’s not sustainable. It’s not sustainable. No, no. And there’s going to be a political backlash.
Cobus: Oh, yeah. Several, yeah.
Eric: That will manifest itself in all sorts of unhealthy ways if this keeps going. Again, this is the importance of infrastructure and the access to capital. And again, talking about the winners and losers in all of this, I just cannot recommend enough that you take a look at this paper that Keren and the crew did. It’s absolutely fascinating. We’re going to put a link to it in the show notes. I’ll also put a link to this map that I was referencing about the Chinese railway networks here in Southeast Asia. Absolutely fascinating to think about what they’ve been doing in Africa, and also what they are now doing in Southeast Asia, and how really the priority, in many ways, is here in ASEAN. So, absolutely fascinating to think about that.
Cobus, let’s leave the conversation there. Again, if everybody wants to follow all of these topics, we cover them in detail every single day in our daily China Global South newsletter, plus on our website. Subscriptions are very affordable. Go to chinaglobalsouth.com/subscribe, and you’ll find all the subscription options there. Lots of discounts for student and teachers. We really appreciate all of our subscribers. And also, a big shout out to all of our Patreon supporters, thank you so much for all of your generous support for us. We really appreciate it. You are our heroes. Cobus and I will be back again next week with another edition of The China-Global South Podcast. Until then, for Cobus van Staden, I’m Eric Olander, thank you so much for listening
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