An Ignored Canary in an Unknown Coal Mine: The Caribbean’s Economic Engagement with China
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China is in no way a newcomer to the Caribbean in terms of providing development assistance: Beijing’s first foreign aid project in the Western Hemisphere was a brick factory in Guyana built in the 1970s. More recently and much more substantially, it has been estimated that over the last two decades, China’s policy banks have provided close to $9 billion in lending to the states of the Caribbean Community states (CARICOM), with the overwhelming majority of these loans coming from the Export-Import Bank of China (Ex-Im Bank).
The Caribbean has received less attention than most other regions in terms of the evaluation of Chinese lending practices. This is ironic in that the Caribbean could have served as “the canary in the coal mine” of Chinese lending long before the Belt and Road Initiative’s (BRI) Hambantota port debacle in Sri Lanka came to light and governments began to reconsider their relations with Chinese President Xi Jinping’s signature global initiative.
Nevertheless, despite its history, the region continues to be susceptible to China’s largess in light of the perceived lack of alternatives and the view of hard infrastructure development as a panacea that (incorrectly) can ultimately resolve the Caribbean’s deep and long-standing economic challenges. Just last year, following its shift of official recognition from Taipei to Beijing, Luis González, director of Asia and Oceania relations at the Dominican Ministry of Foreign Affairs, stated that overall Chinese investment in the country would reach $10 billion over the coming years.
The Caribbean was the first region to experience what have become the main critiques of BRI – lack of transparency, white elephant projects, ignored environmental concerns, investments long on promises and short on results, etc. – even before BRI was launched in 2013. Guyana provides a useful case in point.
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The Chinese firm Baishanlin International Forest Development set up shop in Guyana in 2007, having signed an agreement to establish a $100 million wood processing plant, promising local job creation in the timber-rich country. The plant was never built. The Guyanese authorities ultimately announced that it would repossess all of the firm’s 627,072 hectares of forestry concessions while the Guyana Revenue Authority seized some corporate assets, noting a failure to pay import taxes. Former Guyanese auditor general Anana Goolsarran noted what are now standard outcomes of Chinese “win-win” investments, namely that the firm had not met requirements for the requisite permits and had not demonstrated the necessary technical and financial qualifications, nor any history of compliance.
In the area of infrastructure, China’s Cheddi Jagan International Airport project in Guyana has become something of regional legend. Construction started in 2012 and was supposed to last for 32 months; eight years later and it has yet to be completed. The project is being built by the China Harbor Engineering Company (CHEC), the same company that built the equally problematic North-South highway in Jamaica – an initiative that ended with a portion of the outstanding loan being repaid by the transfer of 1,200 acres (485 hectares) of land. With a typical aversion to transparency, the project was shrouded in secrecy; local Guyanese media only found out about the deal from a Jamaican news source. (CHEC’s regional headquarters is in Jamaica.)
CHEC was also permitted to bring in 60 percent Chinese labor for non-technical work and an entirely Chinese workforce for technical aspects. Public contract tenders and open bidding were non-existent. In September of this year, Guyana’s new president, Irfaan Ali, with Chinese ambassador Ciu Jianchun in the room, finally let rip and declared that Guyana had had enough: “I am holding everyone responsible; the contractor, the consultant, the project management team,” he said. “This is not acceptable for the Guyanese people. In this current position it is very clear from all that I have seen and heard, and from all the questions asked, it is very clear that something is horribly wrong. The right decision at this moment is that we cannot accept this.”
While Beijing’s model as a supplier of investment and infrastructure in the Caribbean has been deeply problematic, its approach does respond to real demand side issues, i.e., the yawning gap Caribbean states confront in terms of how to fund infrastructure development. The Caribbean Development Bank (CDB) estimates that need to sit at around $20 billion, with similar numbers from the Inter-American Development Bank (IDB). It is also true, in light of the region’s relatively small size, that BRI could fund and Chinese state-owned enterprises (SOEs) could perhaps build all of it.
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Thus, in the absence of major new lending from other sources, a significant number of Caribbean countries have already joined BRI. Trinidad and Tobago first came on board in May 2018, followed by Antigua and Barbuda, Barbados, Cuba, Dominica, the Dominican Republic, Grenada, Guyana, Jamaica, and Suriname. In June 2018, one month after joining BRI, Trinidadian Prime Minister Keith Rowley frankly and ominously described the terms of the relationship: “We told them we need your investment and you need our location in the Caribbean.” Former Guyanese President David Grainger, despite his own country’s less than ideal experiences with Chinese lending, had stated before he left office earlier this year “We cannot develop without infrastructure and we just do not have the capital to do it on our own. So, whether it comes from America, China or Britain we have to have it, and of course we have to look for the best deal.”
The primary question for the Caribbean as to its future economic engagement with China in general, and with the BRI in particular, is one that has been raised in other parts of the world: whether debt traps will be created. The “debt-trap diplomacy” narrative, the most prevalent critique of BRI, has somewhat diminished in recent years. As more data have become available, it has become clearer that debt traps are not an inevitable outcome of BRI. However, they remain a genuine concern – and perhaps no place more so than in the Caribbean.
In the context of the region, the realities are stark. Even with concessionary loans, these economies are not productive enough; do not grow fast enough; and do not have sufficient fiscal capacity to sustain a new influx of Chinese lending.
Even before the COVID-19 pandemic, the region’s GDP growth hovered around a distinctly sub-par 0.8 percent; meanwhile, more than two-thirds of Caribbean states have a debt-to-GDP ratio of over 60 percent. In many countries, nearly 20 percent of government revenue already goes to debt repayment. Since 2010, St. Kitts and Nevis, Antigua and Barbuda, Barbados, Belize, Grenada, and Jamaica (twice) have defaulted on and restructured their debts. Across the board, it is important to note that these small island economies have very small GDPs – Antigua and Barbuda comes in at $1.6 billion; Grenada at $1.2 billion; and Barbados at $5.2 billion – which inherently casts doubt on the feasibility of paying back future loans in the hundreds of millions of dollars.
At the same time, the Caribbean remains a difficult region for entrepreneurship and trade in general. According to the Ease of Doing Business Report, the highest ranked Caribbean country is Jamaica at 71 followed by St. Lucia at 93. While Chinese loans come with the promise of economic diversification, the realities on the ground indicate that infrastructure development will not be remotely sufficient to facilitate either that outcome, or the promised increases in GDP growth. There is little reason to think Chinese loans could be paid back without becoming a burden.
Caribbean governments must be ruthlessly strategic in how they select infrastructure projects and with whom they partner. These projects must be of the sort that increase the earning capacity of the economy at a level that does not increase the debt burden – a difficult hurdle to surmount. At the same time, the governance standards of Caribbean states have been lackluster. When you couple this endemic problem with the availability of Chinese loans untethered from rigorous requirements around transparency, distributional management, and supervision, the inevitable result is poor performance and unsustainable debt.
Recognizing these challenges and the questions as to how the Caribbean will move forward, one aspect that is generally overlooked is that China is a non-borrowing member of the CDB, unlike the United States which is not part of institution. As a donor member of the CDB, China has the opportunity in the Caribbean to test out real engagement with other multilateral partners. In 2017, the CDB signed a MOU with China’s Ex-Im Bank in order to coordinate lending. While that agreement has not resulted in significant progress, if Beijing is serious about becoming a responsible partner among the global community of donor states, demonstrating that in the Caribbean via real cooperation with the CDB and CARICOM would be a good place to start. After all, the region was the first victim of irresponsible Chinese lending and investment practices – it is certainly the logical place for Beijing to begin to make amends and demonstrate that BRI can adhere to best practices and coordinate with, rather than, compete against other institutions while providing real “win-win” outcomes for less developed countries.
Bradley J. Murg, Ph.D. is Senior Advisor and Distinguished Senior Research Fellow at the Cambodian Institute for Cooperation and Peace.
Rasheed J. Griffith is a Consultant at Kelman PLLC, based in Bridgetown, Barbados.
This article is the second of a three-part series about China’s investments in the Caribbean. The first part is available here.