A US Belt & Road Alternative? Not While Washington Mixes Loans And Geo-Political Strategy

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Ethiopia Telecoms debacle shows how dangerous US foreign investment policy can be when compared to the China model 

Last week, a United States led consortium, also including British and Japanese firms, won a US$850 million contract to create Ethiopia’s 5G telecommunications network. The consortium was backed by the US International Development Finance Corporation (DFC) who preconditioned the loan on the grounds that the money would not be used to procure Huawei or ZTE equipment to build the network. US mainstream media have been quick to depict it as a win for America “Over China” in Africa.

The opposing bid was a South African backed rival, the MTN group.

On Monday (May 24) the US Department of State implemented sanctions on Ethiopia’s leaders and security forces concerning the conflict in the Tigray Region, wherein the government have been fighting separatist insurgents.

The US accuses Ethiopia of committing atrocities and human rights abuses. The sanctions include “wide-ranging restrictions on economic and security assistance to Ethiopia” and may extend to a further ban on international lending to the Ethiopia from both the World Bank and the International Monetary Fund (IMF).

These two developments are completely contradictory and illustrate serious shortcomings for sovereign governments – and co-investors when considering development financing offered by the US Government.

The message such actions send are that not only that the US is inconsistent, it is also unreliable. The US Government is prepared to damage the commercial interests not just of its own financial institutions (DFC) but also of its partners – in this case the British and Japanese consortium members. US geo-political strategy triumphs above all else, apparently so fixated on its power base that it tramples, either deliberately or as a result of broken communication channels, its own, and its allies’ commercial interests.

The Ethiopia telecommunications bid was won by a fair corporate auction as opposed to geopolitical means, with the US consortium offer far more attractive than South Africa’s competing MTN group bid. Yet that win is now marred by the geo-political nuances.

It signals to Addis Ababa – and other sovereign governments listening to US financial bids, that they must be wary in their relationships with Washington and recognize that such investments have obvious political strings attached. US sanctions will be leveraged to subjugate recipient nations to follow US foreign policy preferences. In a nutshell, it means that borrowing from the United States becomes a trojan horse.

It is not a new phenomenon. US led Bretton Woods institutions, including the International Monetary Fund, when asked to provide fiscal support, typically impose strident political and economic conditions on recipient nations under the guide of “opening up” and “restructuring” their economies towards neoliberal systems in line with the global trend of that time.

These requirements have in the past consisted of dramatic scale privatization – often placing strategic assets into the hands of US investors (Iraq, Libya) – and reducing tariff barriers. It has not always ended well, serving to dismantle the economy of the given states, decimating industry, and agriculture, increasing inequality depleting the standard of living, in some instances to the point of famine as has been the case in several MENA nations – Ethiopia itself and Yemen being just two.

Only now is the extent of this becoming apparent – and ironically when measured against China’s Belt & Road Initiative as an alternative. United States lending often attaches ideological and political strings to its support which can undermine the prosperity and sovereignty of the country targeted. In response to China’s Belt and Road Initiative, accusations were made by the US that Chinese lending was leading to ‘debt traps’, an accusation still in common circulation despite the denials of China, the recipient countries, and studies by both John Hopkins University and the UK’s Chatham House showing this is not the case. Journalistic investigations into the China Debt Trap by The Diplomat, The Atlantic, and research from the Lowy Institute all found the same thing: there is no evidence of a planned Chinese debt trap when it comes to Belt and Road financing.

The US DFC, created in 2019, is an institution of the US government and is designed to be an American counterweight to China’s Belt and Road initiative, in offering low interest rate loans to developing countries such as Ethiopia. Although this sounds promising, to receiving financing from the DFC comes with significant political strings attached. This can now be seen as forcing the recipient nation to fall in line with the United States political anti-China requirements, as well as privatizing national infrastructure to US investors.

There are examples. In early 2021, DFC made a deal with Ecuador’s government to clear debt which Washington attributed to China. The agency would pay off debt payments early in exchange for first nationally signing up to Pompeo’s “clean network” initiative, excluding Huawei and ZTE on a national scale, privatizing Ecuador’s oil assets for the benefit American investors, with the United States making a foreign policy point by controlling strategic energy reserves in Latin America – a component part of which is pursuing regime change in Venezuela.

The US is now targeting Ethiopia as a country of strategic interest, because it sits near a critical juncture between the Red Sea and the Indian Ocean and has a close relationship with Beijing. Whilst promising financing for 5G, it is moving to block other forms of aid and assistance over the Tigray Conflict. Combined, this allows the US to increase its influence over Ethiopia and bend it to fit US foreign policy goals.

In contrast, China’s lending, and investment through the BRI does not come with the political conditionality that other countries or companies are excluded, nor does Beijing’s dealings on the continent attempt to upend national sovereignty in the way the US have sanctioned Ethiopia’s army over fighting the Tigray conflict.

This creates an ironic twist, although the United States have long accused China of “predatory lending” and “debt trap diplomacy” the reality is in fact reversed, the US uses lending to procure political and ideological change in respective countries, whereas China does not.

This is precisely why African nations have primarily chosen China as a partner. Addis Ababa may now already be regretting last week’s 5G deal; one can be sure that impending sanctions were not mentioned until the ink had dried. But should the Ethiopian government fail to defeat the separatist Tigray forces, this would result in the partition of Ethiopia, something the US seems happy to explore. It is a classic example of Trojan lending by Washington. The way the deal was concluded was legitimate and on the best market premise, yet also appears to be an attempt to subjugate Addis Ababa. It remains to be seen how the Ethiopian government will react to the sanctions imposed after the telecommunications deal was signed. This is one instance when a gift horse should well and truly have been looked in the mouth. The warnings concerning the United States and activities of the DFC are apparent. Consortium partners should be aware of alternative US intent beyond the pure financing, and sovereign governments should be aware of hidden strings attached.

South Africa’s MTN group meanwhile should have their lawyers look at the DFC contract bid and examine where and how the Ethiopian government can extricate themselves from a deal with rather more strings attached than building a national 5G network.

This article has been adapted from a piece that originally appeared in the Southern African Times. The original article can be read here.

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Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com