How an African state learned to play the West off China for billions

Over the course of the last decade, Ethiopia has become increasingly dependent on Chinese investment.

The Export-Import Bank of China put up $2.9 billion of the $3.4 billion railway project connecting Ethiopia to Djibouti, providing the landlocked country access to ports. Chinese funds were also instrumental in the construction of Ethiopia’s first six-lane highway — an $800 million project — the metro system, and several skyscrapers dotting Addis Ababa’s skyline.

Beijing also accounts for nearly half of Ethiopia’s external debt and has lent at least $13.7 billion to Ethiopia between 2000 and 2018, data compiled by John Hopkins University School of Advanced International Studies shows.

But finance ministry figures show that Beijing has begun to taper the amount it lends to Ethiopia in recent years — from $1.47 billion in the 12 months from July 2014 to $630 million in 2017.

Diplomats and observers of Ethiopia’s economy say that Beijing has grown frustrated after major investments such as the Djibouti railway line failed to generate sufficient revenues.

China’s partial retreat has thrown into relief Ethiopia’s indebtedness to Beijing. Observers say upending that equation is perhaps the greatest motivation for Ethiopia’s opening up to the West.

Speaking at a conference in Addis Ababa in December, Abiy went as far as to say the terms of Chinese loans had damaged the Ethiopian economy.

“There are some that say we are adding more debt to the country’s already high debt. But borrowing from the IMF and the World Bank is like borrowing from one’s mother,” Abiy said.

“What hurt Ethiopia is borrowing from other companies or some countries. For instance, Ethiopia borrowed to build a railway but was asked to repay the debt before the completion of the construction,” he added, referring to the Chinese-backed railway line to Djibouti.

European and American companies are hoping to make the most of the moment.

In December, Abiy received European Commission President Ursula von der Leyen, who laid out plans to forge a new relationship with Africa beyond just development aid and strategies to prevent the flow of migrants into Europe.

The previous month, Adam Boehler, the CEO of America’s International Development Finance Corporation, the investment branch of the U.S. government, said Washington is “prepared to make multibillion-dollar investments in Ethiopia.”

Such high-profile visits, analysts say, shows that Western economies have finally arrived at the table alongside China, the Gulf States and Russia, which have all been maneuvering for influence in Ethiopia since its economy started to boom about a decade ago. One of the most visible pledges came in 2018 through a $3 billion package of aid and investment from the United Arab Emirates.

“It would be a gross simplification to say that Ethiopia will no longer seek Chinese overseas development finance. China and Ethiopia continue to enjoy robust trade and investment relations,” said Mamo, the prime minister’s senior adviser.

But, he continued, “financing from the Word Bank and the IMF has an additional attraction of being concessional, long term and predictable without unduly distressing the public debt burden.”

Irmgard Erasmus, a senior financial economist at NKC African Economics, a research company, said China had been very flexible with Ethiopia in accommodating Addis Ababa’s hard currency liquidity challenges and restructuring their loans.

But, he added, “the Asian giant’s decision to start closing the funding taps came at the same time as some positive developments in the Ethiopian political space, which allowed Ethiopia to pivot to multilaterals as they are more willing to engage.”