Why Is China Building Africa?
Panos Mourdoukoutas | FORBES
China is all over Africa these days, building railroads, bridges, and ports, doing what European colonialists should have done long-time ago.
Why?
On the surface, the answer is that China is investing in Africa to place the continent on the global map, help African countries develop a sound infrastructure.
That’s what these countries need to sustain economic growth and join the global economy.
Below the surface, the answer is different. China is investing in Africa to gain political and diplomatic influence, as has been the case in Southeast Asia.
“Even though they are financed with Chinese loans and built with Chinese contractors and labor, most of these projects are designed to lock African countries into a long-term political and diplomatic relationship with China rather than to make money,” says Ted Bauman is a senior research analyst and economist at Banyan Hill Publishing.
China can use the diplomatic relationship, for instance, to gain Africa’s votes on sensitive matters in the UN, like the Taiwan and the South China Sea issues.
But are these Chinese investments economically viable?
“These projects can be economically viable for African countries, but it depends on whether the underlying assumptions behind them hold true,” says Bauman. “For example, China is funding and building a $3.6 billion railway upgrade between Nairobi and Mombasa in Kenya. In this case performance has exceeded expectations in both passenger and freight volumes, and will probably contribute significantly to Kenya's emergence as the premier economy in East Africa.”
Still, that may be the exception rather than the rule. “The bulk of Chinese investments are concentrated in Nigeria and Angola, are closely linked to their respective oil industries, and are coupled with commercial investment by Chinese corporations,” continues Bauman. “In these countries, Chinese project investment in the energy sector comprises a little less than 30% of the Chinese government total, but Chinese corporate investment in energy companies comprises 60% of the Chinese commercial total.”
What does it mean for the future of African energy companies? “That suggests that China is using state-funded energy infrastructure projects to open the door to Chinese corporate domination of African energy companies,” explains Bauman. “That could prove to be disadvantageous for their African partners, especially if the Chinese government uses its project financing to leverage lower prices for exports of African oil to China.”
That may certainly benefit Beijing, and the local elites that are in control of the energy sector in these countries. “African energy-exporting countries like Nigeria and Angola have a history of elite appropriation of the proceeds of oil exports,” he adds.
“But that's not necessarily an outcome of Chinese involvement. It was the same when European countries were doing investing.”
But there are exceptions to the rule, again. Like the Kenya railway project, for example, which definitely serves a broader public market.
In the end, it should be up to African countries to decide which projects Beijing will build in Africa, and whose interests these projects will serve.
Africa’s resource-rich nations are getting even more reliant on China for their exports
By Abdi Latif Dahir | QUARTZ AFRICA
The relationship between China and the world is under focus again this week.
World leaders are in Beijing this week for a summit on the Belt and Road initiative: the sweeping infrastructural project aimed at expanding global trade links and connecting China by land and sea to the rest of Asia, Europe, and Africa.
Developing countries have welcomed the idea since it began six years ago in a bid to fund much-needed roads, trains, ports, and other facilities. Yet the high costs of these projects have prompted complaints that some nations are falling into a “debt trap,” with critics warning sovereign entities might have no choice but to hand over controlling stakes in strategic assets to China.
While the BRI’s infrastructure is positioned to strengthen commerce, much of the conversation in Africa is still focused on trade deficits. Even as Sino-African bilateral exchanges have increased in the past decade and a half, imbalances continue to persist with African countries importing enormous quantities of consumer and light-manufactured goods as well as machinery and electronics. China, in turn, mostly buys minerals and metals from Africa since it doesn’t have enough natural resources of its own to meet its expanding industrial needs.
This has meant that some of the largest exporters to China from Africa in the past few years have been resource-rich nations. In fact, as the most recent data from MIT’s Observatory of Economic Complexity shows, many of Africa’s most mineral-rich states currently rely on China for a sizable margin—if not an outright one—of their exports.
The minerals Beijing lifts include crude petroleum from Angola and South Sudan, zinc and copper ore from Eritrea, cobalt from DR Congo, raw tobacco from Zimbabwe, besides iron and titanium from Sierra Leone.
Tying minerals to deals with China has proved precarious for some nations. As one of Africa’s largest oil exporting nations, Angola has sent oil in exchange for financing key infrastructure—a move that was undermined by the slump in commodity prices worldwide. In 2016, the southern African state was left with only one cargo to sell on the spot market, undermining its ability to raise cash.
Recent research from the China-Africa Research Initiative at John Hopkins University also shows that when Angola is removed from the list of Belt and Road-linked loans, the extent of Chinese lending to BRI signatories “shows a sharp decrease” between 2013 and 2014.
China also gets 95% of South Sudan’s crude petroleum exports as of 2017. These included funneling a sixth of its total daily output—30,000 out of 170,000 barrels—to the Export-Import Bank of China to fund the young nation’s infrastructure needs. Yet exploration and production have come at a cost for the China National Petroleum Corporation, whose employees have been killed and whose bottom line has been hurt by declining crude outputs due to the civil war. Beijing had hoped to avert such outcomes by deploying peacekeepers to oil fields, a strategy that has proved deadly with the killing of its soldiers.
The issue with some of these barter deals is that they don’t include any guarantee of the actual value countries would get in exchange for Beijing accessing valuable minerals. And with no competitive bidding for the infrastructure contracts to ensure transparency, observers have noted that the final projects could be shrouded in secrecy and delivered at grossly inflated costs.
China says it wants to fix the trade imbalance and help diversify imports from Africa. At the third summit of the Forum on China–Africa Cooperation last September, president Xi Jinping proposed eight key initiatives that included increasing non-resource imports from the continent. At the upcoming Sino-African trade expo in June, poorer African states will be exempted from paying exhibition fees to showcase their products.
Xi also said they will support mechanisms to promote e-commerce cooperation and hold joint activities to market Chinese and African brands. Beijing also committed to setting up a $10-billion special fund for development financing, showcasing a possible change from a resources-for-infrastructure model of financial engagement.
Beyond the bouquets of loan offers, grants, and debt cancellations dished every so often—with Ethiopia being the latest—the onus of balancing trade with China is equally the responsibility of African governments. And while the answer to widening disparities might lie with fairer and more open trade, observers say the African countries should look to each other for products and markets.
One way Africa could capitalize on itself is to implement the continental free trade agreement, which drew enough signatures to go into operation early April.
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