Building bridges?

September 2016  |  FEATURE  |  FINANCE & INVESTMENT

Financier Worldwide Magazine

September 2016 Issue

September 2016 Issue


Africa’s infrastructure deficiency has been known for some time. If the continent is to fulfil its economic potential, it requires considerable investment, particularly in power, transport and water and sanitation. Previous estimates have suggested that Africa requires infrastructure investment in the region of $93bn per annum.

Though efforts are underway to bolster infrastructure investment across the continent, there is still much work to be done. A 2015 report from PwC estimates that infrastructure spending in the region is currently at around $70bn per annum, however there is hope that investment flows will reach $180bn per annum by 2025.

Tools on the ground

Enter China. Existing links between China and Africa advanced further in December 2015 when Chinese president Xi Jinping offered a $60bn loan and aid package to Africa for the continent’s development. Subsequently, the Chinese government has announced its intention to develop infrastructure across Africa while also improving agriculture and reducing poverty. Energy investment in Nigeria, for example, is suffering as the country battles with its worst economic crisis in decades. Nigeria is reliant on decaying refineries and neglected gas and power networks. However, 38 Chinese companies, including Sinopec, were party to a provisional agreement which could revitalise the largest economy in Africa. The memorandum of understanding signed between the Nigerian government and the Chinese businesses outlines plans which will see new pipelines developed amid an almost complete overhaul of the Nigerian oil industry.

Chinese investment across Africa has skyrocketed in recent years, climbing from $7bn in 2008 to more than $26bn in 2013. As Western investment has dwindled, China has been more than willing to step into the breach. Whereas in days gone by it was European boots on the ground developing infrastructure projects, today China is Africa’s contractor-in-chief. Africa now accounts for the majority of China’s overseas contracting, overtaking Asia for the first time.

Chinese investment across Africa has skyrocketed in recent years.

Asia-based Development Finance Institutions (DFIs) have played a major role in the development of African infrastructure in recent years. China-based DFIs are estimated to be the largest single source of funding to African infrastructure development, contributing more than $13.4bn in 2013, according to the Infrastructure Consortium for Africa.

In late July, China’s Ministry of Commerce confirmed that Chinese aid into Africa will continue to rise. Since 2000, China has helped build more than 120 educational facilities in China, around 40 irrigation projects designed to support agricultural production across the continent, and more than 70 medical facilities. On 28 July, more than 40 deals worth $18bn were agreed between Chinese and African businesses and financial institutions. The agreements, which were signed during a China-Africa Business Cooperation seminar, have secured addition infrastructure construction, energy and manufacturing investment across Africa, further re-emphasising China’s commitment.

A two-way street

While China is doing a huge amount of much needed work in Africa, it is of course not motivated purely by altruism. Though there are undoubtedly considerable benefits on offer for African economies, the same must also be said for those Chinese companies active on the continent. Africa’s vast population – approximately 1.1 billion – is a hugely attractive proposition, specifically the emergence of its burgeoning middle class. The lure of a billion prospective customers for Chinese businesses looking to branch out into new markets has not been ignored.

Question marks remain

However, there are questions to be asked about China’s involvement within Africa, and the types of investment opportunities being created by and for Chinese firms. Though China has remained within the confines of the ‘Beijing Consensus’ and committed itself to maintaining African sovereignty and not interfering with African countries, some critics believe that China has run roughshod over the continent for its own ends.

Moe Shaik, chief executive of the International Division at the Development Bank of Southern Africa, told an African Energy Forum in June that “China has brought destruction to the entire infrastructure value chain on the continent”. He added: “Infrastructure is not simply the absence of things. Infrastructure is about much more than that. It is about learning, it is about building the capacities, it is about meaningful partnerships.”

More and more commercial Chinese development in Africa, particularly in the east of the continent, has replaced the previous government to government investing. Some critics argue that, given the size of the continent and the wealth of its natural resources, it would be wise for African nations to diversify not only their business partners, but also the types of energy on which they rely. A diverse, sustainable and flexible future is required if Africa is to flourish, and though China has proved to be a beneficial partner thus far, more variety is needed.

Much of China’s ‘economic miracle’ was built on the back of huge infrastructure development projects. Of course, it would be difficult to replicate the Chinese miracle in Africa, given the differences in land ownership regulations across the continent. But there is hope that China can help deliver a financially stable, socially responsible, environmentally sound and operationally sustainable African infrastructure network which could be hugely beneficial – and profitable – for all concerned.

© Financier Worldwide


BY

Richard Summerfield


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