The threat of economic colonisation.

The Threat of Economic Colonization.

The game of Monopoly is an interesting pass time. It also offers a lot of life lessons. The game is marked with euphoric victories and crushing spirals into defeat. The game is played as a combination of luck (rolling the dice) and strategy. Each player does their best to gather territories, build on them to raise their value and charge rent to the other passing players. When the rent becomes too steep for a passing player to pay, he then has to bow out of the game and surrender all his remaining properties to his creditor.

In an attempt to explain capitalism and danger of monopolistic entities, the comedian Louise C.K describes playing a game of monopoly with his daughter. He casts the audience in her place and speaks to them as though they were her. And slowly and masterfully highlights the reality of property loss to large monopolistic institutions.

He does this through a comedic lens, to indirectly point at the harsh truth.

The strategies outlined in these juvenile board games may seem direct and easily noticeable; however it is astonishing to see them applied in real life.

The Country of China is an economic power-house!

The Chinese companies price their goods and services at aggressively low prices in order to get a larger market share. They have slowly established themselves as the world’s manufacturing hub with companies as large as Apple having their factories there. The low prices allow for companies to provide products at competitive prices while still making a profit.

A FRIEND IN NEED!

Developing nations across the worldare in the middle of an infrastructure boom. They need to develop working spaces, Transportation systems, Education and Health Centres in order to keep up with the internal growth and catch up with the rest of the world. These countries are aspiring to accomplish a lot but lack the funds, expertise and equipment needed to properly execute the stated projects.

Some of these countries have tried various methods to raise capital, with

the idea that the raised funds would go towards pursuing infrastructure development. Despite some of their best efforts, they don’t raise enough.

They then go out in search of a lender who would help them surmount the problem they’re facing. And sometimes, on the other side of this negotiation table they meet Chinese companies who offer not only the finances but also the expertise needed to execute these extensive infrastructure projects. The deal in itself might be the best option for most developing countries sitting across the table and so, some of them take the deal.

A FRIEND INDEED?

In banking, debt is viewed as an assetclass in its own right. It is considered a relatively less risky asset class than the rest and returns are generally in form of interest payments and/or capital gains due to impact of interest rates changes over time.

That kind of logic can be applied here in a way. Using debt, these state owned Chinese companies can press their advantage when asking to be paid back and negotiate for whatever the state of China wants, much to the disadvantage of the developing countries.

These kinds of deals have been taking place for a long time now, so why the sudden alarm. Well, in the past these deals did not threaten the sovereignty

of the developing nations. China has gone unchecked for a while and has kept pressing for more and more in form of repayment.

Quite recently, in a move that woke the whole world right up, the nation of Sri Lanka handed over the strategic port of Hambantota to China on a 99-year lease. This move raised red flags and highlighted the intention behind the deals that China was making. Sri Lanka owes more than $8 billion to state-controlled Chinese firms, officials say.

Sri Lankan politicians said the Hambantota deal, valued at $1.1 billion, was necessary to chip away at the debt, but analysts warned of the consequences of signing away too much control to China.

The ‘monopoly’ like deal has been said to threaten the sovereignty of the state of Sri Lanka.

Former Secretary of State, Rex Tillerson, (while in Kenya) spoke out against the economic relationship between China and Africa saying that it encouraged dependency. This comes hot on the heels of the Sri Lankan port lease to China towards the end of 2017.

The move has shocked many states including India. “India has been overwhelmed by China’s offensive in its strategic backyard,” said Constantino Xavier, a fellow at Carnegie India in New Delhi, to the Times.

Something clearly needs to be done to curb the influence of growing superpowers. Especially if they seem to be beyond reproach. In the mean-time there have been reports of push-back to Chinese investment in South-east Asia. This includes the recent side-lining of hydro-power projects in Nepal, Pakistan and Myanmar.

Africa needs to watch closely and follow suit!

Kenya has issued new Euro-bonds and about 80% of the money raised may be used to pay the country’s debts.

These kinds of moves should be replicated throughout Africa. There is a need for some kind of inter-country arbitration both during and after deal-making.

Organizations like the United Nations and IMF also need to step in. We hope that the port exchange will be the last of its case and that countries will adopt caution when pursuing such deals by always having a plan in place for debt repayment. ◊ ◊ ◊ ◊ ◊