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Africa and China – reinforcing the ties that bind

TXF News: The Week That Was

China is putting more major funds and resources in place to further cement trade and investment ties with Africa, but asks Jonathan Bell is this sustainable and what are the pros and cons for African states?

China has invested in Africa like no other nation has done. Anyone who goes to sub-Saharan Africa will see Chinese firms at work on everything from roads and rail to conventional and renewables power projects. Chinese funds and investments have often come where no other nations wanted to play. 

Many in the West have griped about the Chinese involvement and the ability of China to operate there with concessional loans. African states have, in many cases, taken these loans as nothing was on offer from the West and other nations. The Chinese have largely invested in sectors, such as infrastructure, a sector traditional partners have avoided. That’s the reality.

China's economic data shows trade between Beijing and African countries increased 14% last year to $170 billion from the previous year. But overall this two-way trade figure has fallen from its peak of $220 billion in 2014, largely because of the drop-off in commodity prices. And, in terms of loans, China contributes about one-sixth of all lending to Africa, according to a study by the US John L Thornton China centre at the research group Brookings Institution in Washington DC. 

Last week in Beijing at the Forum for China-Africa Cooperation (FOCAC 2018), which was attended by leaders from 54 African countries, China’s President Xi Jinping offered a further $60 billion in financial support to African countries. It is no wonder that this forum, which takes place every three years, is the biggest single platform where China-Africa deals get done.

President Xi said the amount included $15 billion in grants, interest-free loans and concessional loans, a credit line of $20 billion, $10 billion for development financing and $5 billion to purchase imports from the African continent. 

Looking at these figures, the large amount pledged in interest-free loans presents an opportunity to some African countries attempting to reassess their debt for vital projects. But it is still debt. And the $5 billion for Chinese imports of African goods and commodities is significant given the trade war that China is involved in with the US. China can be expected to increase imports of crude oil and agricultural products, for example, to replace those previously purchased from the US.

Chinese companies will also be taking the opportunity to sell capital equipment to African countries in the absence of US competition, which had previously relied on cover or direct loans from US Export-Import Bank (US Exim). However, US Exim is still unable to authorise any new loans over $10 million.

In addition, Xi also added that Chinese companies will be encouraged to invest no less than $10 billion in African countries in the next three years. These funds come on top of the $60 billion offered at the last summit in 2015.
He also said that government debt from China's interest-free loans due by the end of 2018 will be written off for indebted poor African countries.

There is limited data available on China’s overall lending patterns to African countries, but according to data compiled by the China-Africa Research Initiative at Washington's Johns Hopkins University School of Advanced International Studies China lent around $125 billion to Africa countries between 2000 and 2016. How much of this is outstanding and contributing to the debt burden is unknown.

The FOCAC summit also focused on strengthening the involvement of Chinese companies in major infrastructure projects in Africa related to China’s Belt and Road initiative (BRI). However, no detail was released on specific projects.

Nevertheless, on the issue of sustainability Xi did note that China will carry out 50 projects on green development and environmental protection in Africa, focusing on fighting climate change, desertification and wildlife protection. This announcement comes very much as a result of criticisms levelled at China for not engaging enough in these areas.

Xi stated: "China-Africa cooperation must give Chinese and African people tangible benefits and successes that can be seen, that can be felt."

Speaking before the start of the forum Xi also stated: "China does not interfere in Africa's internal affairs and does not impose its own will on Africa." 

However, this FOCAC forum has come when there is more focus on the debt burden of African countries than ever before. Questions have come not only from African sources but also from within China itself.

In a leading article in the Kenyan newspaper The Daily Nation it stated: “Kenya is reeling under the burden of foreign debt, the bulk of it arising from the mega infrastructure projects by China, which, though making a difference in the lives of the citizens, will remain a thorn in the flesh for years to come. Many countries are beginning to ask themselves if the huge loans are worth it and sustainable in the long run.”

The newspaper added: “Besides the financial pain, China’s influence has extended to the social levels, where they export labour and take up local jobs. Increasingly, Chinese workers have permeated all sectors with a negative impact……We have to trade with the East just as we have with the West. But all these engagements must be in the interest of our nations.”

Within China, at the same time as the FOCAC forum, there was rare criticism on Chinese social media over why the Chinese government was spending so much money in Africa when money was needed in certain sectors within China, such as education. Such online criticism was quickly removed by Chinese censors.

Xi has countered accusations of ‘debt diplomacy’ by stating: “Only Chinese and African people have a say when judging if the cooperation is good or not between China and Africa. No one should malign it based on imagination or assumptions.”

One of the many tangible deals to come out of the FOCAC forum last week has been the extension of $850 million in financing facilities made available to the African Export-Import Bank (Afrexim). This involves a $500 million facility to enable Afrexim to support infrastructure projects across Africa, and a $350 million facility with Bank of China (BoC) targeted at direct bank-to-bank loans, participation in syndicated loans and trade finance.

The BoC and Afrexim also signed a wide-ranging MoU under which the two institutions committed to collaborate in the “identification of co-financing and co-investing opportunities; cooperating in projects and transactions to enhance trade and investment between China and Africa; and supporting projects under the Belt and Road Initiative in order to bring shared development opportunities to China and Africa”.

Whatever the criticisms of China’s approach and activity in relation to trade and projects on the African continent, one thing we can be sure of is that China’s involvement will only be heightened in the coming years. And let us be very clear about the bigger picture, Chinese investment in Africa is vital to help fill the massive infrastructure funding gap which exists.

I will be in Abidjan, Cote d’Ivoire next week where TXF is hosting an African Roundtable in conjunction with the African Development Bank on Wednesday 19 September. I look forward to seeing some of you there.

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