ISSN 2330-717X

Africa’s Approach To Chinese Investment Is Maturing – Analysis

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Initially announced as a means of improving infrastructure, kick-starting industry and stimulating growth in Africa and beyond, China’s Belt and Road Initiative (BRI) could be running dry as China is re-thinking its investments on the continent. Following international criticism that BRI is overly indebting host countries and domestic concerns that Beijing is giving money away too loosely, China has pulled the plug on several projects, such as a planned railway connection between and Uganda, in response.   

Beijing has also strengthened oversight of how money is spent during projects and is cooling its interest in projects across the continent. This turn of events shouldn’t deter Africa leaders from pursuing business deals with the Chinese altogether, but it does signal that they need to change their approach to foreign investment and learn the appropriate lessons.

Altruistic aid or underhand entrapment?

There is no question that China’s financial clout has promised big things for Africa. China funds one fifth of all African infrastructure and constructs one third – an investment seven times its nearest competitor. Given that the African Development Bank (ADB) estimates continental infrastructure needs at as much as $170 billion per annum, Chinese willingness to stump up the cash has been most welcome.

However, this spending spree has come at a price. The top ten indebted countries in Africa owe a cumulative total of $85.8 billion, with China responsible for 85% of Djibouti’s external debt and 72% of Kenya’s bilateral debt. This over-reliance has led both Moody’s and the IMF to downgrade the latter country’s rating in the last 18 months – causing China to abandon the railway project between Kenya and Uganda.

Kenya is not the only country to have been left high and dry in this manner. A recent study named 16 countries around the world who are borrowing more than they can repay. It’s feared that the sheer size of Chinese investment means that countries become susceptible to political pressure and asset acquisition, as has already happened in Sri Lanka. After defaulting on payment after payment for the construction of sea port Hambantota, the country was forced to cede 85% control of it to their financial backers, fuelling fears the same could happen in Africa.

Once bitten, twice as shy

Those who support Chinese investment in Africa argue that Hambantota is the only instance in which the Chinese have taken direct control of an asset in a host country, despite having participated in over 3,000 such projects, making it the exception rather than the rule. Moreover, the idea that China insists upon using its own workers and operators in construction projects might be true in certain instances, but appears to have been grossly exaggerated: a 2017 McKinsey report found that 89% of the workforce in Chinese Africa ventures was African.

Even so, it does make prudent sense for African leaders to proceed cautiously when it comes to doing business with China. As it turns out, African countries seem to be learning their lessons. Senegal’s Macky Sall views China as a key collaborator in achieving his Plan for an Emerging Senegal (PES), an outlook which has drawn caution from the IMF.

 However, that same body gave Senegal a glowing review last year, citing continued growth of 7.2%, stable inflation at 1.3% and completion of three out of five structural benchmarks (and significant progress on the other two).

According to experts, it is this solid growth in conjunction with great potential for profitable exploitation of oil resources that will help Senegal avert the fate of other countries. The importance of the oil sector is paramount in this, to the extent that Sall was named Africa Oilman of the Year for his part in rejuvenating his country’s fortunes. Senegal is also a fairy new partner for Beijing, having only earnestly re-established bilateral relations in 2005. Dakar has carefully observed developments on the continent and is now clearly confident to be able to navigate the difficult waters of Chinese investments.

The Ivory Coast has also taken advantage of Chinese investment through the addition of a 275MW hydro-electric dam, with 85% of its cost funded by Beijing. 10 out of 18 businesses bidding for the project’s original tender were Chinese, but the Ivorians neatly sidestepped the traps which have befallen other countries by imposing various stipulations on the deal. These included the condition that French must be the official language onsite, that local materials must be used in the construction and that a maximum of 20% of the workforce could be Chinese. It’s measures like these which take advantage of Chinese capital without exposing the beneficiaries to exaggerated risk.

Certain countries have gone further, refusing Chinese cash outright when faced with unreasonable Chinese demands. For example, Sierra Leone has scrapped plans to build a Chinese-funded airport over fears of the debt it would incur. Tanzania has shelved a $10 billion port plan amid rumours China stipulated that they must hold it on a 99-year-lease with no rival ports in the country permitted. Tanzania also recently ditched China for building a $1.1 billion railway, opting instead for a Portuguese-Turkish deal at half the Chinese cost.

Balancing caution with optimism

Ironically, China’s increasing influence in Africa has commanded both parties pause for thought, as neither wants to become involved in a relationship that could become disadvantageous. However, with the US apparently ambivalent as to Africa’s fate under Trump and the EU unable to match the magnitude of Chinese financing, Beijing could prove to be a vital partner in elevating Africa out of the poverty which plagues much of its populace.

Following the sensible examples set by early trend-setters Senegal and Ivory Coast, the rest of the continent would do well to balance caution with optimism as they benefit from China’s ambitious BRI expansion plans. As the African attitude towards Chinese investment becomes more mature and pragmatic, it can only result in improved relations between the two powers and better living conditions for the continent’s 1.2 billion people going forwards.

*David Meijer is a senior security analyst based in Amsterdam specialized in trans-national contraband.

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