C3S Occasional Paper II/25: Debt Diplomacy and Financial Sovereignty in East Africa: A Comparative Study of China’s and the U.S's Initiatives in Kenya and Ethiopia by Abia Fathima

Guided by Ms Navya Syam, Research Officer, C3S

Image Courtesy: China File

Occasional Paper: 2/2025

An occasional Paper is a single topic research summary of the knowledge surrounding an issue or a problem. It summarises the issue giving clear, concise, and complete information describing all facets of a particular issue including a detailed illustration in the form of images, data, and facts. It also includes recommendations for action and predictions on the future course of an issue.

Abstract

East Africa stands as a pivotal arena for global geopolitical competition, with China's Belt and Road Initiative (BRI) and the U.S.'s Prosper Africa initiative representing two distinct approaches to engagement. This report provides a comparative analysis of these initiatives in Kenya and Ethiopia, examining their multifaceted impacts on financial sovereignty and debt sustainability. China's BRI, characterized by large-scale, state-backed infrastructure loans, has significantly advanced development but has also contributed to substantial debt burdens and subtle forms of economic dependency. In contrast, the U.S.'s Prosper Africa, emphasizing private sector-led growth, transparency, and market-based solutions, seeks to bolster financial sovereignty by diversifying funding sources and strengthening domestic financial institutions.

The analysis reveals that while the direct "debt-trap diplomacy" narrative regarding asset seizures is often exaggerated, both initiatives exert economic leverage through different mechanisms. China's approach can lead to policy influence through contractual clauses and the sheer weight of debt, whereas the U.S. leverages market access and conditionalities related to governance. Kenya's experience highlights the trade-offs of rapid infrastructure development with less favorable loan terms, while Ethiopia's embrace of a state-led development model, heavily supported by China, has led to significant industrialization alongside severe debt distress. The competition between these global powers extends beyond economic transactions to a fundamental ideological contest over development models. Moving forward, East African nations must make use of models like ‘Circular economy’, strategically diversify funding, strengthen negotiation capacities, and foster robust domestic financial markets to enhance their financial autonomy and achieve sustainable development amidst this evolving geopolitical landscape.