China’s Infrastructure Investments in Africa: An Imperative for Attaining Sustainable Development Goals or A Debt-Trap?

Abstract

In recent times, China, as part of its ‘Going Global Strategy’, has extended its development aids to countries in Africa. Being the largest country-to-country lender in the world, China has become the largest supplier of infrastructural finance and second largest source of foreign direct investments (FDI) to Africa. Some scholars have expressed concern that the engagement is a debt trap, a ruse towards modern neo-colonization and resource extinction in Africa. However, others have documented the significance of such investments in attaining SDGs. In this paper, we employ the Heckman two-stage model and logistic regression to predict the debt-trap crisis in Africa and the results establish no debt-trap paradigm for China’s infrastructure investments in Africa. Contrary to the belief on resource-seeking motive, we find that commodity-based infrastructure loan reduces debt burden on African countries, albeit other inherent factors contribute to the upsurge of government debt. Furthermore, we test the impact of China’s infrastructure investments on achieving the SDGs, specifically SDG 3 (human development) and SDG 7 (environmental sustainability through access to modern energy). While we reckon that China’s infrastructure investment is beneficial for SDG attainment, our study recommends that fiscal policy governing foreign financial flows should be periodically reviewed to avoid debt overhang.