U.S. Economic Engagement in Africa
The AGOA
Since 2000, the African Growth and Opportunity Act (AGOA) has formed the foundations of US-African economic relations. The act provides duty-free access for African-made goods to enter the United States to advance Africa’s development.
Since its inception, the US has imported over half a trillion dollars worth of goods from eligible states. Initiatives from the US public and private sectors have a far-reaching impact on various industries, spanning energy, information technology, and manufacturing. Among these sectors, FDI input into African renewable energy dominates other industries as global demand increases. The United States allocates funding for projects in collaboration with its international partners, extending beyond the AGOA and other US-sponsored initiatives. This underscores Washington’s dedication to fostering a shift towards a renewable energy-oriented African continent. The Green Hydrogen Portfolio project, overseen by Niger, Egypt, Mauritania, Morocco, Namibia, and South Africa, is sponsored by the United Kingdom, France, Italy, and the United States, enabling the production of green hydrogen. International project partnerships aim to incentivise African nations to join US-led initiatives, such as the AGOA, by aligning with US policies, as participants are also more likely to receive further FDI support from US partners.
Participation in the AGOA requires African states to meet “rigorous” eligibility criteria. These include the “continual progress toward establishing a market-based economy, the rule of law, political pluralism and the right to due process.” There is additionally the expectation that African states refrain from “activities that undermine US national security or foreign policy interests” and “enact policies to reduce poverty, combat corruption, and protect human rights.”
On the economic front, the AGOA’s eligibility criteria intend to encourage African competitiveness in international markets while producing an economic climate supporting free enterprise domestically. On the political front, the AGOA is a vessel for the US to lead African development and set an agenda for the continent. For this reason, the eligible states in the AGOA are titled “partners” to the US, whereby investing in Africa’s development may also support US foreign policy interests. According to the CSIS Commission on Smart Power, the most rational strategy for the US concerning global development is the reinforcement of “American values”, including peace, justice, and prosperity.
The AGOA’s Political Complications
The AGOA’s eligibility criteria highlight the economic and political interests the US holds in African development. The AGOA’s success connects to broader US foreign policy ambitions of increasing cooperation with African nations, increasingly viewed as the next “swing states” in international politics.
In 2023, South Africa’s continued participation in the AGOA was questioned due to its close political cooperation with Russia. Amid accusations that South Africa had covertly supplied weapons to Russia and Pretoria’s refusal to condemn Russia’s invasion of Ukraine publicly, South Africa’s “non-aligned” position has interfered with US attempts to build a global consensus against Russia. US Senator James Risch said he was “disappointed” to learn of South Africa’s renewed eligibility in the AGOA given “South Africa’s continued actions that subvert US national security and foreign policy interests.”
Risch’s statement signals a concern in Washington DC that the White House does not robustly enforce the conditions of the AGOA, weakening US leadership amid a political climate that presents international issues through a binary East-West dynamic. The Biden administration has maintained the attitude of great power competition from the Trump administration, which held that Beijing’s “predatory” practices in Africa should be countered by increased US economic engagement.
AGOA is up for renewal in 2025. There is some bipartisan support for the AGOA’s re-authorisation as US congressional members have identified firms looking to “diversify their supply chains and reduce dependence on China.” Failing to renew the Act would limit the opportunity for American enterprises to find alternative sources of rare earth elements, which are critical for manufacturing high-technology equipment. It presents the opportunity for “friend-shoring”, a strategy aimed at building new strategic partnerships to access raw materials and reduce dependence on malign powers. With at least 20 African countries whose mineral sectors account for 25 per cent of exports respectively, the AGOA’s re-authorisation may enable the United States to maintain duty-free access to markets with growing mining and refining capacity, reducing reliance on China.
Despite South Africa’s souring relationship with the US, they remain an active beneficiary of the AGOA. US Census Bureau data compiled by Brookings underline South Africa’s importance to US mineral supply chains, as the US sources 98 per cent of its chromium ore and 37 per cent of its platinum from South Africa. Chromium is used to produce alloys, whereas platinum is used to develop fibre optics and hydrogen fuel cells. Both elements are essential for improving fuel efficiency, which President Biden has identified as critical to meeting his administration’s goal of reaching 80 per cent clean energy usage by 2030. Compared with the Central African Republic (CAR), which was removed from the AGOA in January 2024 for its security cooperation with the Wagner Group, CAR’s total exports to the US were valued at less than $1 million. CAR’s minimal involvement in the AGOA allowed the US to remove its beneficiary status without exposing the US to supply chain risks. South Africa’s continued place in the AGOA suggests that the conditions for removal from beneficiary status may depend on a nation’s importance to US strategic interests. While South Africa has pursued a foreign policy that has hindered the US's objectives of challenging Russia’s war in Ukraine and China’s growing presence in Africa, its mineral abundance provides the US with a robust route to supply chain diversification.
South Africa’s claim to neutrality in the Russia-Ukraine war demonstrates the increasing polarisation in world politics, where many African nations resist attaching themselves to one sphere of influence. Former Governor of Kaduna state in Nigeria, Nasir El Rufai, claimed that “African countries should be very, very careful about taking a side” on ongoing conflicts in Ukraine and Gaza. Of the 35 nations which abstained from the UN General Assembly vote to condemn Russia’s attack on Ukraine in March 2022, 17 were African. US Senator John Kennedy announced his support for renewing the AGOA, arguing that it “will play a pivotal role in helping Americans deter China’s growing influence” in Africa. While financial aid and political support are not the exclusive drivers prompting nations to endorse a US-led global agenda, they may contribute to gradually forming a positive perception of the US as a cooperative and valuable international partner. However, the US would continue facing the headwinds of African nations, which view the AGOA’s intended political reforms as burdensome to political support domestically and a strain to relations with US adversaries internationally.
The US and its African partners have experienced positive socio-economic advantages directly attributable to the legislation. In 2021, the top three countries in export revenue were South Africa ($15.7 billion), Nigeria ($3.5 billion), and Ghana ($1.7 billion). Ethiopia grew its clothing and leather exports by $273 million from 2000 to 2021, which also created almost 120,000 jobs in the US.
Ghana
The symbiotic relationship between the US and the African continent, indicated by mutual socio-economic benefits, is demonstrated further by increased US foreign direct investment in strategic African nations. In 2022, the US-Ghana commodities exchange reached $3.7 billion, elevating Ghana’s trade surplus by $1.8 billion. To further bolster trade, the US increased its FDI in the country to $150 million for agriculture, economic development, human rights, governance, security, and education. These include $32 million in agricultural aid and $25 million in support for micro to medium-sized agrarian firms. Furthermore, the US unveiled a $300 million investment strategy to foster digital economic transformation. Ghana’s main exports to the US are transportation equipment ($95 million), chemicals and related products ($79 million), and agriculture products ($56 million). US investments are meant to advance the nation's most successful industries and cultivate emerging sectors. Around 25,000 businesses in Ghana have been supported through USAID and Feed the Future, a US-financed food and security initiative, with $192.9 million in financial assistance, generating over $98 million in agricultural sales. Additionally, with the aid provided by US programmes, 798,000 producers could utilise new technologies in agricultural production. US public investment also spurred private initiatives in the region, as 3Farmate Robotics (an innovative agritech company in Ghana) received an angel investment from a Silicon Valley investor to develop their AI-driven technology further.
The high economic performance of AGOA-driven exports also supports funding for lagging industries, which have the potential to diversify national production further. The recent partnership worth $300 million between African Data Centers and the US International Development Finance Corporation will support the construction of a new data centre capable of sustaining up to 30MW of IT load. The project aims to bolster Ghana’s digital transformation and allow its data to remain within its borders. In doing so, Ghana will further its proliferation of digital services, including government services, fintech and mobile money, and digital agriculture. FinTech and mobile money are particularly significant for the country as 59.7 per cent of the population has a digital money account. Increasing national data security will stimulate digital economies by incentivising e-commerce, innovation hubs, and technological entrepreneurship. As such, Ghana has the potential to become a leading nation in digital transformation in the region and increase further investment opportunities, which could directly influence economic growth. Whilst these investments can not be credited solely to Ghana’s membership in the AGOA, their direct correlation with economic growth strengthens ties between the two nations, influencing private and public investment in the region.
Nigeria
Nigeria is also a significant trading partner with the US due to its AGOA membership. Its three most profitable goods are transportation equipment ($510 million), energy-related products ($222 million), and agricultural products ($376 million). Similarly to Ghana, Nigeria receives a lot of FDI in its key performing industries, which also coincides with current government policy, which aims to diversify the economy away from oil and gas. To achieve this, Nigeria aims to advance its manufacturing industry, the agricultural sector, and technological development. The United States adopted a Nigeria strategy similar to their strategy in Ghana, supporting key industries and those perceived as undeveloped but with significant potential. The DFC perceives Nigeria as one of the key countries in the region, which is why it holds a portfolio of $780 million predominantly concentrated in the energy and financial sectors within the country. In 2022, cumulative FDI from the United States amounted to $5.6 billion, focusing on sectors such as mining, information services, and professional, scientific, and technical services.
Numerous US-based firms facilitate projects to support Nigerian development. Most notably, a US-based company, Sun Africa, has pledged to invest in an energy infrastructure project worth $2.2 billion. The construction of a 961MWp solar photovoltaic coupled with a 455MWh battery storage facility would significantly aid the nation as it only has a total installed power generation capacity of 16,384MW, which is significantly below total demand.
The US also seeks to develop other sectors of the Nigerian economy, which could lead to mutual economic interests between the two nations. One of the most significant industries is mining, due to a recent discovery of high-grade lithium deposits. The lithium reserves could propel the country’s mineral production and exports, substantially influencing its economy and international trade. Membership in the AGOA could play a significant role in the lithium trade and could benefit Nigeria as the prices of raw materials continue to increase. For this reason, in 2023, Nigeria initiated funding discussions with the US for mining-related projects.
Social Benefits
Increased engagement with the US economy instigated the creation of the US President’s Advisory Council on Doing Business in Africa (PAC-DBIA), which aims to strengthen the administration’s commercial partnerships in Africa. The organisation recommends policies and programs in trade and investment engagement in various sectors, notably energy, finance, tech, food-water security, and health. Among the most recent recommendations is to increase funding for Prosper Africa, which is responsible for resource management and energy sustainability projects.
It is also important to note that membership in the AGOA is not the only factor that acts as a determinant for aid. A good example is Cameroon, which lost its status on 1 January 2020 due to its humanitarian record. Although Cameroon has yet to regain its status, US-led social initiatives in the country are still ongoing. A notable example is a US Trade and Development Agency-funded energy study in Cameroon that helped to connect 100,000 households in rural areas to the power grid; the Renewable Energy Innovators Cameroon (REIc) partnered with a California-based energy company, SimpliPhi Power, to deliver the project. Cameroon’s rural electrification is only 35 per cent.
In contrast, 96 per cent of urban areas have access to power. Enhancing energy accessibility in the region has the potential to drive economic growth and foster social equality and environmental responsibility. According to the African Development Fund, extending electricity to rural areas would enhance the quality of education and healthcare. This initiative would positively impact individual households by increasing the adaptation of domestic appliances, thereby reducing the time spent on daily chores. Consequently, more time can be allocated to income-generating activities, encouraging the development of artisanal workshops that stand to benefit from electrical tools like small sawmills and workshops. Moreover, electrification aims to decrease water-borne diseases by encouraging modernising water supply systems.
With rising electricity access in Africa, digitalisation has become necessary in the content industry as the demand for digital services continues to rise. Trends, such as population increase and urbanisation, accelerated internet and cell phone coverage as more people require access to e-commerce and government services. Covid-19 also played a significant role, forcing many to use the internet to access information and purchase goods. Consequently, many countries in Africa have focused on improving their internet penetration. Since 2010, Cameroon has experienced an increase in internet penetration by 123 per cent, and Kenya witnessed a rise of 114 per cent. Much of this is attributed to AGOA membership, which provides access to external mobile service providers that see economic value in the digitalisation of the continent. Services and mobile technologies in Sub-Saharan Africa added $155 billion of economic value in 2019 alone. The US has a significant role in this process as it invests in various projects on the continent. The Digital Connectivity and Cybersecurity Partnership (DCCP) aims to expand internet access to emerging markets, promote secure digital infrastructure, adopt cybersecurity practices, and export US Information and Communications Technology (ICT).
As Africa’s swiftly growing network supports economic activities and government services, it has become increasingly susceptible to cyber risks. AGOA initiatives work towards advancing digital security for citizens, promoting digital literacy, and encouraging the establishment of legal and regulatory frameworks. These measures are geared towards safeguarding privacy and upholding freedom of expression in the digital realm. The combination of digital infrastructure and funding initiatives from the US government, exemplified by the allocation of $100 million to the network operator Africell by the US International Development Finance Corporation, aims to support continental projects in expediting internet access, affordability, and security. Africell aims to enhance mobile network infrastructure across the Democratic Republic of the Congo, Gambia, and Sierra Leone.
The US also seeks partnerships with private US companies to promote further digitalisation efforts in Africa. The new Africa Tech for Trade Alliance created by the US Government’s Prosper Africa initiative invited US and African companies to promote e-commerce and address significant global digitalisation challenges. The alliance seeks to find solutions for existing regulatory bottlenecks and share existing technologies among the key companies to support critical sectors on the African continent, such as supply chains, digital payments, e-commerce, and digital skills and training.
The Politics Behind AGOA
In January 2024, the Central African Republic, Gabon, Niger and Uganda were officially removed from the AGOA after failing to uphold their AGOA conditions of protecting political pluralism and upholding human rights. Eligibility in the AGOA is reviewed annually, and Uganda’s removal follows the passing of the 2023 Anti-Homosexuality Act, which received international condemnation for including the death penalty for individuals found performing certain homosexual acts. Following its enactment in May 2023, President Biden described the law as a “tragic violation of universal human rights”, stating that his administration will “incorporate the impacts of the law into our review of Uganda’s eligibility for AGOA.”
Uganda’s subsequent removal from the AGOA indicates that advancing human rights remains an inflexible objective to US economic engagement in Africa. Uganda’s Special Presidential Advisor Odrek Rwabwogo remarked that Uganda’s removal from the AGOA was “a stick to beat the populace of African countries who vote in a way that offends the social sensibilities of the developed West.”
Rwabwogo’s statement reflects a widespread discontent among African nations for economic engagement conditional on political reforms. Survey data from Afrobarometer concludes that 45 per cent of Africans believe that economic engagement (including loans and developmental assistance) should be connected to promoting democracy and human rights. In comparison, 50 per cent thought that the domestic government should determine political reforms on democracy and human rights, free from international influence. Afrobarometer data suggests that the AGOA’s strict conditions surrounding political reforms are likely to be resisted by African nations, which oppose international interference in domestic politics, limiting its impact as a diplomatic device to drive political change in the region.
The AGOA’s success as a tool of political reform is likely to be a factor in the conversations US congressional members will have as they decide whether to renew the AGOA next year. A 2024 US Congressional Research Service Report highlights how the “rhetorical and policy emphasis” on political reform risks “complicating” certain US objectives abroad, challenges China and Russia are less likely to encounter.
The AGOA’s commitment to political reforms may limit its potential as a counterweight to growing Sino-Russian influence in Africa, which may weaken rather than strengthen US-African relations. Following Uganda’s removal from the AGOA, Ugandan President Yoweri Museveni has maintained a defiant tone against the US, asserting that Uganda can “stand independently from Western influence.” Pro-Kremlin broadcaster Tsargrad has used Museveni’s anti-gay stance to present Russia and Uganda as nations united against the “legalisation of sodomy,” binding both nations to cooperation borne from their mutual resentment of US policy. Uganda’s removal from the AGOA effectively functions as a sanction, similar to the World Bank’s freezing of loans to Uganda in August 2023 following the passage of the Anit-Homosexuality Act. Uganda’s bilateral trade with Russia more than doubled from $30 million in 2009 to $74 million in 2018, indicating that Uganda can meet its target of increasing commercialisation and international market integration with nations other than the United States. The AGOA’s commitment to political reform may push African nations to forge closer economic and later political partnerships with China and Russia, as neither nation includes human rights reforms as a condition of increased cooperation.
Value Chains
Failure to renew the AGOA would negatively impact the value chains that lead to increased production and exportation. South African President Cyril Ramaphosa argued that extending the AGOA may “encourage the further development of value chains” and “enhance the diversification of African economies.” In 2017, Intra-continental trade in Africa stood at under 20 per cent of total exports, compared to approximately 68 per cent in Europe and 59 per cent in Asia. Sustainable economic growth in Africa requires product diversification; 50 per cent of the continent’s exports to the rest of the world are mineral goods, leaving firms exposed to external shocks.
By renewing the AGOA beyond 2025, the US would provide certainty for prospective investors who intend to capitalise on Africa’s increasing industrialisation, supporting a more comprehensive range of industries that can better insulate Africa from external shocks. Reducing dependence on a limited basket of goods requires a long-term focus, which includes national governments undertaking major public works projects to improve access to regional markets. Expanding transport networks is essential to reducing the logistical inefficiency that dissuades investment in new industries.
Tunisia’s Migration Crisis
Climate change is a major driving force behind migration and is one of the most controversial topics in today's geopolitical debates. Migration is often a reaction to dramatically shifting climate conditions, which is especially evident in Africa where rural flight - often partially driven by climate change - is a significant contributor to increasing urban populations. According to some estimates, 216 million people could be displaced across six world regions by 2050 as a direct result of climate change. The number is highest in Africa, where it is projected that as many as 86 million people will become internal climate migrants. This issue is notably prominent in Tunisia; Tunisias constitute the predominant nationality among migrants travelling to Europe via the Mediterranean Sea, comprising 18.7%.
Between 2009 and 2014, 46,000 people migrated to Tunis, and around 119,600 people migrated to the central and southeast regions of Tunisia. Although, according to the Wilson Center, about 64% of individuals who pass through Tunisia are principally motivated by economic factors, it is important to note that climate change and economic performance are interconnected. In rural regions the economy is especially dependent on climate; thus, climate change is a significant contributor to the deteriorating economic conditions that drive migration.
Climate change: The primary driver of the Tunisian migration crisis
Climate change trends in Tunisia highlight a consistent increase in observable average seasonal temperatures. Between 1901-1930 average annual temperatures were 10.63, 17.60, 27.17, and 20.61 celsius for winter, spring, summer, and autumn, respectively. In contrast, between 1991-2020, these averages were 11.62, 18.96, 29.12, and 22.09 for the same seasons. In the last 30 years alone, temperatures increased by 0.4 celsius per decade on average. A similar pattern is observable for precipitation, which has decreased by 3% per annum since 1901, according to the World Bank. These changes have an impact on agricultural yield in the country, which is influenced by temperature and precipitation fluctuations as well as extreme climatic events. In addition to agricultural production, these changes affect ecosystems, which play a crucial role in national food security. Moreover, the low precipitation rate combined with temperature increases directly facilitates soil degradation and the multiplication of pests and diseases.
Although Tunisia only moderately relies on agriculture, which accounts for 12% of the country's GDP, the agricultural sector employs around 16% of the country’s population. Younger generations in rural areas that rely on agriculture are more likely to migrate to urban centres or abroad as they search for more stable livelihoods and socio-economic prospects. Although these decisions are economic, the precarious economic state many in Tunisia find themselves in is driven by climate change as it causes rural areas to become less fertile.
This exodus in part explains Tunisia’s 16.1% unemployment rate. High unemployment in Tunisia is magnified by urban migration. This is an increasing economic risk as Tunisia's slowly developing economy cannot provide sufficient employment opportunities to migrants. But Tunisia’s rural-urban migration is only a fragment of a broader issue. Over the years, Tunisia has evolved into a pivotal junction for international migrants seeking passage into Europe. Historically, Libya occupied the central role as a transit hub for migration northwards. However, from 2017 onwards, the influx of migrants reaching Italian shores from Libya declined due to increased Italian support for the Libyan coastguard. By 2020, 40% fewer migrants departed from Libya, with Tunisia emerging as the new epicentre for transit to Europe via the Mediterranean.
This is partly due to the current political situation in Tunisia, where the government has begun to silence dissent and terrorise opposition figures. Political oppression is a key trigger for migration, including for migrants from other parts of Africa who reside in Tunisia. The government has accused African migrants of bringing violence into the country, which has instigated aggression towards the migrant population. A report from 5 July described a machete attack on a group of migrants in the city of Sfax, which left two people wounded. In this case, the economic hardships brought on by climate change can also lead to political oppression, which further influences migration. Many critics, namely the Tunisian Forum for Economic and Social Rights, have stated that the anti-migration speech given by Tunisian President Kais Saied on 21 February was designed to distract Tunisians from ongoing economic problems.
Migration and Europe
Migration is currently at the top of the European political agenda as more migrants continue to attempt to travel to the EU. Between January 2023 and July 2023, the number of migrants travelling to Europe rose by 13% and reached 176,100, the highest figure since 2016. Simultaneously, migrants have started to use a sea route through the Central Mediterranean, which according to Frontex, is the most dangerous. Increasing pressure is being placed on Tunisia and Libya to curb the influx of migrants. In both countries smugglers are offering lower prices for passage to Europe, leading to higher demand for their services.
For European countries, and specifically for point of arrival countries, migration is starting to become a major financial and political struggle. Italy, which has the highest number of arrivals, spent around 1.7 billion euros on migrant reception alone in 2018. This is causing political dilemmas as Italy and other countries begin to question the role of the EU in dealing with irregular migration. In 2018, the EU contributed only 46.8 million euros, or 2.7% of total Italian spending on migration-related measures. Increasing pressure from its member states has forced the EU to rely on alternative solutions. On 16 July, the EU signed a memorandum of understanding with Tunisia, which includes a 700 million euro funding package for the country. 105 million euros are to be designated for migration management.
The EU is attempting to transfer the responsibility for migration to the port of origin countries; however, sceptics question the ethics and sustainability of such an approach. In the case of Tunisia, the official purpose of the EU support package is budgetary support. But given the rising tensions in Tunisia, it is difficult to predict how much is going to be allocated to providing services to migrants in need. Further, accounting for the Tunisian government's recent rhetoric surrounding migration and its resulting violent consequences, the EU’s migration policy may lead to human rights abuses at the hands of Tunisian security forces. In Libya, where the EU provided financial assistance for migration management efforts, people face high levels of violence and abuse from the coast guard and other militias.
Despite the decrease in the number of individuals attempting to journey to the EU from Libya, the EU has faced allegations of overlooking human rights violations in Libya, and adopting short-term measures rather than formulating a substantive, enduring solution. As the numbers of those migrating from Libya dwindled, a corresponding surge occurred in Tunisia. Implementing a similar approach in Tunisia would likely have similar results, facilitating human rights abuses and pushing migration routes into neighbouring countries. According to a Human Rights Watch report from 19 July, three days after the memorandum was signed, there had already been documented cases of abuses against migrants by Tunisia’s security forces. These included torture, arbitrary arrests, and detention. The report also states that the majority of these incidents occurred after the presidential speech on 21 July.
Implications
Although it is difficult to estimate the impact of the signed memorandum between Tunisia and the EU, organisations should monitor the development of efforts, especially with regard to potential human rights abuses. Tunisia should be held accountable for how it spends the money it receives from the EU. Although Tunisian efforts to address criminal groups that facilitate illegal migration into Europe have the potential to reduce the overall number of migrants travelling from Tunisia to the EU, these efforts could come at a cost. As climate change continues to worsen, many will continue to migrate north as supplies become scarcer, employment more difficult, and conflicts more frequent. As Tunisia battles internal and external migration, it has the chance to create a policy - which can act as an example for other African nations - that aims to forge long-term solutions and combat the source of the problem, not just the symptoms of it.
The Influence of China’s Belt & Road Initiative on Kenya’s Economic Development
Africa’s economic development in the 20th and 21st centuries has been heavily influenced by foreign investment, most notably from the US, France, the UK, and China. Despite becoming involved in the 1980s, China did not become a significant investor until the beginning of the 2000s. The annual rate of Chinese compound investment in Africa increased by 18% per annum from 2004 to 2016 and peaked in 2015 at $55 billion. According to scholarly data, a 1% increase in foreign direct investment has equated to a 0.138% increase in economic growth in sub-Saharan Africa, meaning that economic growth in African countries can be partially attributed to foreign investments and international projects. Such projects are vital for the development of African infrastructure, namely roads, rail networks, and dams. However, these investments come at a cost, with around 12% of the continental debt burden being owed to China and Chinese lenders. In some cases, debt payments have the potential to overshadow the benefits of international investment. Some countries, including China, are using financial leverage in Africa to win political favours and gain an economic foothold on the continent.
China’s Belt and Road Initiative in Kenya
As of March 2020, 138 countries have signed cooperation agreements for the Chinese Belt and Road Initiative (BRI), which aims to facilitate connectivity and international trade, as well as boost financial integration. Between 2013 and 2019, sub-Saharan Africa received around 22% of all BRI related investments, which amounted to approximately $160.6 billion. Kenya has the largest economy in East Africa and is a major regional transportation hub, which is largely why it has become a major benefactor of BRI investments. Various ‘mega projects’, such as the construction of the Nairobi Expressway, the upgrade of the Standard Gauge Railway (SGR), and the formation of the Eldoret Special Economic Zone (ESEZ), which is part of the African Economic Zone project, have all been developed in close cooperation with China as part of the BRI. The expressway and the SGR upgrade are aimed at improving the transportation infrastructure linking Nairobi to key hubs in the country to boost trade and social mobility. The purpose of the ESEZ is to increase levels of technological development and attract manufacturing and service companies.
Both the Nairobi Expressway and the SGR were contracted to the China Road and Bridge Corporation (CRBC). The expressway started trial operations in 2022 and is currently managed by Moja Expressway Company, another Chinese firm. Totalling 27km, the toll road was designed to ease city traffic and provide access to the Jomo Kenyatta International Airport. Since the trial operation in 2022, around 50,000 motorists have been using the road daily. However, because the CRBC’s government contract states the corporation will collect all proceedings for the first 27 years, the proceeds from the expressway will go to CRBC instead of the Kenyan government. As of February 2023, 10 million motorists had used the road and CRBC had collected around $14,396,538. The SGR, which is designed to connect the port in Mombasa to Uganda, is also predominantly financed by China. This new fast rail link project is designed to increase domestic and international trade and promote international cooperation, but is far from completion. While the Kenyan government has already spent $5 billion to upgrade the SGR, mostly financed by China, it still requires an additional $3.7 billion to finish the project.
Kenya also accepted strict terms on their Chinese loans. The government borrowed $1.6 billion from China for the construction of the Nairobi-Naivasha portion of the rail network at a 2% annual interest rate, and signed an agreement that states that 42% of all revenues will be used to repay the loan. The agreement also stipulates that Kenya needs to approach China first if it wants to purchase any goods with the proceeds from the rail network. Such terms force Kenya into economically unviable decisions, of which China is the only beneficiary. If the SGR is not profitable, Kenya has to repay its debt to China, and if the SGR is profitable, Kenya has to repay its debt and purchase Chinese goods with the rail proceeds. Onerous contracts are incentivising Kenya to seek alternative funding from Europe to finalise the construction of the railway. Being unable to finance the construction of new tracks, the government decided to upgrade part of a 120-year-old track to Melba for $400 million, which was originally constructed by the British in the 19th century. With no additional funding, the country will not be able to finalise the construction of the SGR, which could impact its long-term profitability and consequently prevent Kenya from meeting its debt obligations in the future.
Kenya signed an agreement worth 200 billion Kenyan shilling with China for its Special Economic Zone project in Eldoret. The town is projected to become a major industrial hub, promoting technological innovation and attracting manufacturing and service companies. Kenya contracted the project to Guangdong New South Group Ltd. Five years since the project’s initiation, no progress has been made. From the beginning, water shortages and lack of road access halted progress, and whilst the government predicts that construction will finish within 10 years, the project’s profitability remains uncertain. The official website indicates that only one manufacturer signed a non-legally binding memorandum of understanding, and no additional companies have confirmed that they will operate in the SEZ. The details of the project’s financing remain opaque; however, the Kenyan Finance Act of 2022 might be an indication that the government intends to pay its debts through the Kenyan taxpayer rather than through project proceeds.
Is China ‘Debt-Trapping’ Kenya?
These Kenyan mega projects play a vital role in stimulating the domestic economy. Kenya estimates the projects will create thousands of new jobs. For example, the construction of the SGR created around 30,000 new employment opportunities, whilst the construction of the ESEZ added around 40,000. According to the Kenyan Investment Authority, Kenyans make up 95% of the workforce within 106 Chinese companies operating in the country. As of 2014, foreign contractors were also mandated to subcontract a third of their projects to Kenyan companies; however, Chinese companies often failed to meet this requirement.
Kenya predicts that the successful completion of all projects will contribute to the diversification of the country’s economy. Despite the projects’ faults, the ESEZ attracted the world’s largest silk producer. If the agreement comes to fruition, the company will set up silk production facilities, in addition to contracting around 8,000 hectares of surrounding land for the production of mulberry leaves. The manufacturer is predicted to create a further 300,000 jobs. Economic cooperation with China can also attract Chinese investments in manufacturing plants, which would promote Kenyan exports and help diversify its economy. Currently, Kenya’s economy is reliant on agricultural production. Because Kenya has trade agreements with the US, the UK, and the European Union, augmenting Kenyan manufacturing would provide additional trade opportunities.
However, many of the projects remain economically dubious. The most significant issue is that new employment opportunities created by Chinese contractors are low paying. In addition, as Chinese companies fail to sub-contract Kenyan firms, local businesses miss out on lucrative infrastructure projects. Kenyan companies received only 0.9% of the 1.31 billion shillings for a road construction project from Kisumu to Mamboleo. Another difficulty is that the projects must be successful for Kenya to economically benefit in the long-term. The current state of the SGR indicates that projects may fail as the railway currently operates at a loss. Within three years, the SGR lost around $200 million mostly due to truck transportation, which is more efficient in Kenya. Kenya might have to look for alternative sources of financing to complete its projects and pay its debts to China, which might demand payment in other forms, such as natural resources, if the projects remain unprofitable. This is further worsened by the fact that Kenya’s debt is already substantial. In 2019, Kenya’s public debt was 55.5% of GDP. In 2022, due to mounting economic pressures, China began to request repayments. It also fined Kenya around $11 million for defaulting on one of its SGR payments. China’s ownership of a substantial part of Kenya’s national debt gives them leverage over Kenya, which is required to repay its debt in full regardless of the profitability of the projects.
Consequences for China and the World
Economically, investments in Africa are beneficial for China. By providing loans for projects in various countries, China can secure trade agreements with its borrowers and assure a continuous stream of goods. In the case of Kenya, Chinese companies were not only chosen as contractors for the projects. All required materials were also sourced from China, increasing the revenues of Chinese companies. For instance, all locomotives and freight wagons for the SGR upgrade were purchased from Chinese companies. In addition to collecting financial proceeds, China also collects produced goods. Angola repays its Chinese loans in oil - in 2020, Angola exported 61% of its oil to China. This is an indication that debt ownership provides China with economic influence over African countries.
China’s dominance in Africa can also manifest politically. Africa is a major voting power internationally; by providing economic support to African countries, China can secure African votes in its favour. A study in 2022 by the Foreign Policy Research Institute determined that $1 billion invested in Africa equates to around an 8% increase in political alignment with China based on “ideal points,” which is a metric constructed from the United Nations General Assembly voting data, indicating national voting preferences. The same study determined that as political alignment with China increases, political alignment with the US decreases by an average of 1.3% for every $1 billion invested between the years 2008 and 2012.
There is evidence of pro-Chinese alignment and anti-US sentiments in certain African countries. Like China, many African countries have maintained a neutral stance with respect to the ongoing war in Ukraine, and together have pressured Russia and Ukraine to end the conflict. Simultaneously, many African countries criticise US hegemony and advocate for a multinational global order facilitated by a shift in the balance of power. In the past, African nations have also supported China in its domestic issues. In 2020, around 25 African countries supported Chinese suppression of the Hong Kong protests. In return for supporting China’s domestic policies, African nations not only hope to receive further economic aid and investment, but also legitimacy and political recognition. This is especially the case for nations that the West would consider undemocratic or abusive - undemocratic leaders laud China for not intervening in their domestic affairs. China’s rise in Africa could also increase its global influence. As China continues to win political support from Africa because of its economic influence over the region, China could dominate key resource sectors (as in Angola) and influence the global resource market through both trade and production.
‘debt-trapping’ is in action that is hard to define, but there is evidence which indicates that China benefits from its economic sway over the region. Kenya owes billions to China and has signed agreements which gift most of the projects’ proceeds to the country over more than two decades. China benefits regardless of the success of the projects, as it receives debt repayments and political support. The growing importance of the African continent on the international stage will likely continue to incentivise other nations to invest in Africa, as well as to engage in mutually beneficial partnerships with African countries.
Over the last year, the United States Government, through a number of state linked development finance entities, has drastically increased levels of concessional financing to African countries, as Chinese investment in Africa has dwindled amid a domestic economic crisis and frustration derived from unprofitable projects on the continent. As the US and western partners are likely to maintain higher levels of development financing over the long-term to abate Chinese influence, western and African companies operating on the continent stand to benefit, particularly in countries with strong governance frameworks. These opportunities, especially if met with increased levels of FDI, will likely be particularly fruitful in the fields of trade logistics, mineral and resource extraction, healthcare, contracting, renewables, agriculture, and manufacturing.
The Nile Negotiations
Since 2011, Ethiopia has been in the process of constructing an immense hydropower dam that has the potential to make the country energy independent, and influence the entire East Africa region. Once fully operational, the Grand Ethiopian Renaissance Dam (GERD), located on the Blue Nile River, is expected to generate 15,692 Gigawatt Hours (GWh) of electricity and store around 74 billion cubic metres (BCM) of water. In contrast, the largest water basin in Ethiopia, Lake Tana, has only around half of this capacity. When successfully constructed, the dam is expected to supply electricity to around half of the Ethiopian population, and any excess energy will be exported to neighbouring Sudan, Kenya, and Djibouti. The project - worth around $4.7 billion - has created thousands of employment opportunities in the region and stimulated infrastructure growth, such as the construction of transmission lines and roads which are necessary for future power exports.
The Grand Ethiopian Renaissance Dam
The GERD is part of a broader redevelopment plan from 2012, titled the Green Development Strategy. The plan aims to tackle poverty in Ethiopia through a series of projects that will stimulate employment and provide necessary electricity to the population, whilst also reducing the national carbon footprint. However, the strategy has not been fully implemented since its formulation 11 years ago. According to a UN report from 2021-2022, Ethiopia ranks 175th out of 191 countries on human development. This can be broadly attributed to past crises, namely armed conflict and famines. At present, Ethiopia’s northern regions are facing famine, in part brought on by the war in Tigray, which has also caused severe population displacement. Repeated conflicts and economic hardship are partly why Ethiopia is considered one of the most educationally disadvantaged countries in Africa. Levels of access to healthcare in Ethiopia are some of the lowest on the entire continent, which leads to higher mortality rates and hinders development. Health outcomes are worsened by poor electricity access, as only around 40 per cent of the country has access to power. The GERD will likely help Ethiopia to address poverty, and presents it with an economic opportunity to become a major hydroelectric power. However, the GERD’s completion faces significant diplomatic obstacles, which if not addressed have the potential to lead to armed conflict.
The Negotiations
Since the beginning of the GERD’s construction, Egypt has been the largest critic of the project, arguing the dam poses a threat to its water security. Since circa 3000 BC, Egypt has relied on the Nile. Today, around 90 per cent of Egypt’s fresh water is supplied by the river, which stimulates agricultural production and fishing, as well as supplies water to urban dwellings. Most of Egypt’s settlements are located along the Nile, as the remainder of the country lacks sufficient access to fresh water. The Nile has two main tributaries: The Blue Nile and White Nile Rivers, which intersect in Khartoum, Sudan. Of the two, the Blue Nile is more crucial as it makes up approximately 85 percent of the Nile’s waters during the rainy season. Egypt and Sudan are therefore dependent on these tributaries to provide enough water to satisfy demand.
The GERD when fully operational will not obstruct water flow and will have the capability to regulate supply downstream during dry seasons. However, the filling of its 74 BCM storage during construction could disrupt water flow downstream, depending on how fast Ethiopia decides to finish the project. A compromise is required for Ethiopia to fill the dam without compromising the water supply downstream. In 2015, Ethiopia, Sudan, and Egypt signed a Declaration of Principles which stipulated that the filling and the operation of the GERD must be agreed upon by the three parties.
Since the declaration, none of the parties have been able to agree on the details of how the GERD should be operated and how long it should take to fill. The Nile plays a key role in narratives around domestic identity in both countries, which makes any bilateral negotiations a zero-sum game. For Ethiopia, the project is a symbol of renewed socio-economic hope, with the potential to revolutionise the country’s energy production and transform it into one of the greenest economies on the continent. Whilst for Egypt, the Nile is a symbol of ancient power as well as its primary source of freshwater.
In 1929 Britain signed a colonial agreement with Egypt which stated that Egypt had the uncontested right to 48 BCM of the Nile’s annual flow. The same agreement gave Sudan the right to 4 BCM. In 1959 Egypt and Sudan revised the document in a bilateral agreement, agreeing to a split of 55.5 BCM and 18.5 BCM respectively. The 1959 agreement did not consider any other nation that benefited from the Blue or White Nile, and Egypt received the right to veto any projects that could impact its share of 55.5 BCM. For this reason, Egypt has demanded that the GERD’s filling cannot impact its annual water flow. But Ethiopia refused to accept this demand on the basis that it was not part of the 1929 nor the 1959 agreement. To find a compromise, Ethiopia sanctioned an independent scientific study of the GERD by the National Independent Scientific Research Group (NISRG) to determine the impact of any future filling plans. Although the study was endorsed by the three countries, Egypt disregarded the group’s findings and in 2019 demanded that Ethiopia release 40 BCM of water from the first filling. It also demanded that Ethiopia obtain approval from Egypt on any subsequent fillings. Ethiopia countered the proposal in 2020, presenting a two-stage plan for the first filling of the GERD; 4.9 BCM in the first year and 13.5 BCM in the second year. As the plan was again refused by Egypt, the negotiations came to a halt and in May 2020 Egypt took the matter to the United Nations Security Council.
International Involvement
After Egypt made its case to the Security Council, Ethiopia began the two-stage filling of the dam in June 2020 and later in 2021. It did so without reaching an agreement with either Sudan or Egypt. Egypt has since warned that any disruption to its water supply will have a devastating effect on its population, hinting that a decrease in water supply may lead to an increase in illegal migration to Europe. In doing so, Egypt is trying to pressure European nations to get involved in future negotiations. Simultaneously, Egypt wants the United Nations to acknowledge that the issue of the GERD violates the standards of Article 34 of the UN Charter. In response, Tunisia drafted a resolution demanding that Ethiopia, Sudan, and Egypt resume negotiations mediated by the African Union, and resolve the dispute within six months. But adoption of the resolution has the potential to escalate the issue into a military conflict. If an agreement is not reached within six months, Egypt may opt to use military force to satisfy its demands. In 2021, Egypt’s President Abdel Fattah al-Sisi made a public statement warning Ethiopia that if water flow into Egypt decreases, Egypt might have no choice but to use military force; however, a case can be made that Egypt wants to abate the possibility of an open conflict with Ethiopia, as it did not pressure Tunisia’s resolution.
Possibility of Conflict
It has been over 10 years since the construction of the GERD commenced. With no resolution in sight, the possibility of conflict remains. Egypt already made threats in the case that diplomacy fails and has the military capability to carry out an assault. The CIA Factbook estimates that Egypt has around 450,000 armed personnel, including 325,000 ground force, 18,000 Navy, and 30,000 Air Force personnel. In contrast, Ethiopia has around 150,000 troops, which includes around 3,000 Air Force personnel. Egypt has the military capacity to attack and destroy the GERD, securing its downstream water flow and preventing any future disruptions. Such an attack would unlikely be without consequences. Any Egyptian offensive action would not only impact Ethiopia, but also every member of the Eastern African Power Pool (EAPP). In the case of an attack, EAPP countries might support Ethiopia in protecting their own power supply from the GERD. Whilst it remains highly unlikely in the short to medium term, this could result in a cross-national armed conflict on the scale of The Great War of Africa (Second Congo War). A conflict of this magnitude in Ethiopia would kickstart a cascade of humanitarian crises. It might also instigate further internal conflict in Ethiopia.
Although there is no mediation plan for the Nile negotiations, foreign investors have taken an interest in the GERD. China has invested heavily in the GERD’s construction. In 2013, China granted a $1.2 billion loan to Ethiopia for the construction of power transmission lines to deliver electricity produced by the GERD, and an additional $1.8 billion in 2019, for the expansion of the Ethiopian energy sector. Chinese contractors, such as Sinohydro, the Gezhouba Group, and Voith Hydro Shanghai have also worked on the project. Whilst China has been expanding its military presence across Africa, namely in South Sudan, Djibouti, and Mali, an intervention in Ethiopia remains unlikely. This is due to China’s non-interventionist policy and lack of interventionist precedent outside of the Korean War. However, China’s military presence in Africa gives China a strategic advantage in terms of troop deployment, which it could use to pressure a diplomatic resolution to protect its financial interests. Possible foreign intervention - direct or indirect - in this issue is significant, as conflicting geopolitical interests in Africa are playing a growing role in the continent’s affairs. If international economic and political interests clash in Ethiopia, they could spark further proxy-wars, the likes of which we are currently witnessing in Sudan and Yemen.
The GERD’s ability to deliver electricity to the majority of Ethiopians has the potential to change the country’s global economic position and stimulate further socio-economic growth. Simultaneously, Ethiopia could become a leading energy exporter in the region. These two factors are the primary reasons why Ethiopia is unwilling to agree to Egypt’s demands on the GERD’s filling. The pursuit of energy self-sufficiency and security is also a primary reason why Ethiopia does not accept Egypt’s water claims, which it perceives to be backed by unlawful colonial agreements. But the Nile dispute could also have a detrimental effect on Ethiopia if Egypt opts to respond militarily. Although it remains unlikely, the destruction of the GERD would not only prevent Ethiopia from delivering valuable power to its people but also would cost the country billions in lost investment. Any such conflict would further underline geopolitical risk in East Africa, potentially driving foreign investors elsewhere.