Sao Tome Hopes to Become the “Dubai of Africa”

In November, Sao Tome and Principe, an island-nation off the coast of equatorial West Africa, announced its plan to become a regional transportation and tourism hub: the Prime Minister has dubbed this a plan to become  the “Dubai of Africa.” Since independence from Portugal in 1975, the archipelago’s cash crop economy based on cocoa, coffee, and sugar exports declined, forcing the government to engage in hundreds of millions of dollars in international debt relief in recent years.

Without external financial assistance, Sao Tome’s ambitions seem impossible to achieve. The country is home to just under two hundred thousand people. In 2009, 66.2 percent of the population lived under the $1.98 a day poverty line. Public debt constitutes around 70 percent of GDP, and commodities with tumbling global demand make up 80 percent of exports. In 2014, Sao Tome ran a significant trade deficit of $128.2 million.

Sao Tome’s plan to become the “Dubai of Africa” by 2019 requires an initial investment of $800 million to construct a world-class deep-water port serving the rapidly growing petro-economies located around the Gulf of Guinea. On its own, the country will be unable to afford this.

Enters China, which reached a deal with the archipelago to provide loans for a massive segment of the project. The loan will cover not only the port but also an overhaul of downtown Sao Tome, which was last renovated in the 1950’s under Portuguese colonial rule. Some observers question why the second-largest economy in the world located more than 7,000 miles away would display interest in the rejuvenation of Sao Tome.

Unexpectedly, the answer to this geopolitical puzzle is rooted in the diplomatic rivalry between Taiwan and China. At the end of the Chinese Civil War in 1949, the Communists established the People’s Republic of China (PRC) on the Chinese mainland, while the Nationalists relocated the Republic of China (ROC) government to Taiwan. While both governments continued to claim legitimate rule over the whole of China, only one can be recognized as the official government of China under the One-China Policy.

As the majority of African states gained independence in the 1960s and 1970s, most of the new nations initially sided with the ROC, until growing support for Beijing enabled the PRC to seize the Permanent Member seat from Taiwan on the UN Security Council in 1971.

In addition, over the past two decades, China’s economic rise has spurred a trade and investment boom in some African countries. This forced Taiwan’s last remaining allies in the region to reevaluate their allegiances. Just three countries on the continent remain supporters of Taiwan today: Burkina Faso, Sao Tome and Principe, and Swaziland.

Several years ago, China’s establishment of a trade office in Sao Tome and Principe raised concerns in Taiwan. China’s recent decision to finance Sao Tome may cause further fears of Taiwan’s marginalization in the international arena.

Much like Sao Tome and Principe, strategic countries in Africa could stand to benefit from playing off China and Taiwan against each other to vie for much-needed aid and investment. However, they will have to be wary of potential consequences, especially the development of sizeable foreign debt.