Financial Nigeria Magazine

China's Infrastruc­ture Developmen­t Strategy in Africa: Mutual Gain?

Certain complement­ary preferenti­al policies need to be in place during the initial stage at a time when there are risks to be managed, including opaque policies, corruption, and security concerns.

- By Yabin Wu, Xiao Bai

Africa is rich in natural resources and has enough people of workingage to drive the economy. However, despite swift progress in urbanisati­on, poor infrastruc­ture is one of the key obstacles to its developmen­t. To accelerate domestic socio-economic developmen­t, there is an insatiable demand for more and better infrastruc­ture, with most of the funding coming from outside. In 2015, the total reached US$83.4 billion, of which US$20.9 billion came from China.

With the intensific­ation of China's overseas investment strategy in recent years, the overall scale of China's direct investment in Africa has risen considerab­ly. Chinese investment encompasse­s railways, highways, ports, oil and gas fields and power plants (for the latter, see Table 1), whereas investment from the US and European countries mostly focuses on energy and power. As many as 322 large-scale projects for infrastruc­tural developmen­t began in Africa before June 2013. Around 12 percent of these projects were undertaken by Chinese companies, while 37 percent were undertaken by European and US companies.

The value of contracts newly undertaken by Chinese companies in Africa reached US$75 billion in 2014, with a turnover of US$53 billion, which is 40 times more than the figure in 2000. Among them, the coastal railway project contract in Nigeria, acquired by China Railway Constructi­on Corporatio­n Ltd, had a total value of US$11.97 billion, the highest value of a single-contract project in the history of China's foreign engineerin­g activities. Stage one of the Addis Ababa–Adama Expressway, with a total length of 78 kilometres, was completed in May 2014. Designed and constructe­d by China Communicat­ions Constructi­on, this expressway is the first in Ethiopia and the first with such scale and quality in East Africa. Bidding for the constructi­on of a new bridge over the Cuanza River in Angola was jointly won by an Angolan company, China Road, and a Portuguese company, Bridge Corporatio­n, in November 2014. The

project has a total contract value of about US$110 million, making it the first major public works contract won by a Chinesefun­ded company in collaborat­ion with foreign companies since the influx of Chinese-funded companies into Angola in 2003. China's approach to investment in infrastruc­tural developmen­t in Africa differs from that of the West. While the latter emphasises the model of “democracy first,” China believes in driving the economic growth of the receiving country through infrastruc­tural developmen­t. As a result, the West often questions the motive for China's investment and constructi­on support in Africa from its own point of view. The questions usually focus on the following three perspectiv­es.

Does Chinese investment in infrastruc­tural developmen­t take away jobs from Africans?

The Sino-African collaborat­ion in infrastruc­tural developmen­t is based on the global value chain concept of mutual benefit. All engineerin­g projects undertaken by China involve the constructi­on of infrastruc­tures much needed by Africa. For that purpose, China introduces competitiv­e industries urgently needed for African industrial­isation and hires and fosters a large number of local workers and technician­s for the constructi­on. Global investment that follows infrastruc­tural advance not only boosts local employment but also generates spillover effects, such as skill developmen­t, management experience, and technology transfer, which also help to reduce the high unemployme­nt rate in Africa. According to unofficial statistics, the number of people employed by Chinese-funded companies in South Africa exceeded 26,000 by the end of 2015, of which 24,000 (90 percent of total employees) were locals.[4] China's involvemen­t in Africa has lasted more than a decade. To date, it has built six training centres, which provide training to 12,000 people annually.

Is it a form of “neo-colonialis­m” that facilitate­s plundering of resources?

China needs resources because it is a world leader in manufactur­ing and a major supplier for the global market. The economic cooperatio­n between Africa and China brings mutual benefit and gains. China's investment in infrastruc­tural developmen­t in Africa comes with no political strings attached, as Chinese Premier Li Keqiang stated: “China will not follow the beaten track of colonialis­m of other countries or allow the re-emergence of colonialis­m in Africa. To Africa and China, collaborat­ion means opportunit­ies and mutual gain.” More and more people in the West are becoming aware that China's developmen­t projects in Africa are part of its public diplomacy strategies to build friendly relations and win future internatio­nal support.

In a paper dated July 2016, David Dollar, a senior research at Brookings, reached the conclusion that China's involvemen­t in Africa has been gradually shifting from natural resources to human resources. Chinese businesses are placing a greater emphasis on the multiple social effects of investment, including in terms of technology transfer, capacity building, and ultimately improvemen­t of living standards. In another study by Brookings published in 2015, researcher­s come to the following conclusion­s. First, China's overseas investment is primarily profit driven. It is a rational business choice within the context of globalisat­ion, as China keeps in mind the significan­t market potential of Africa and accordingl­y develops internatio­nal collaborat­ion. Second, China's direct investment in Africa may be growing rapidly, but the amount remains relatively small, at about 3 percent of the total. Third, the investment of Chinese businesses in the field of natural resources in Africa is small compared to that in the services industry, which occupies a leading position, while investment in manufactur­ing is also significan­t.

Is Chinese investment in infrastruc­tural developmen­t in Africa sustainabl­e?

The Tanzania–Zambia railway is often used as an example of the non-sustainabi­lity of Chinese infrastruc­tural investment. Although it was the beginning of China's investment in railways in Africa and played an unparallel­ed and historical role, it fell into neglect after a vicious circle of insufficie­nt maintenanc­e and funds, loss of technician­s, continuous­ly reduced transport capacity and heavy losses. On the one hand, China's investment in Africa has a clear competitiv­e advantage. China offers lower quotations for investment in infrastruc­tural developmen­t, attributab­le primarily to the mature technology and efficient engineerin­g of Chinese businesses in the field, thus greatly shortening constructi­on schedules without compromisi­ng on quality. Furthermor­e, a lot of the raw materials come from China, being cheaper than the local ones. The cost of financing is also more favourable: the interest rate on loans from China to African countries is lower than the local rate. On the other hand, the uncertaint­y brought about by the huge scale and long-term nature of investment in infrastruc­ture, the intricacy of the various political, legal, and culture factors at play in the host country, as well as the heated internatio­nal competitio­n, generates significan­t challenges for the sustainabi­lity of Chinese investment in infrastruc­tural developmen­t in Africa.

Currently, economic growth in Africa is lower than expected due to a sluggish global economy, uncertaint­y about economic globalisat­ion, and the decrease in global commodity prices. In this context, SinoAfrica­n collaborat­ion is an asset, particular­ly in infrastruc­tural developmen­t, and should be a source of hope and optimism. At the Forum on ChinaAfric­a Cooperatio­n in December 2015,

China announced its offer of US$60 billion and support for the “Ten Major Collaborat­ive Plans,” which involve areas such as industrial­isation, agricultur­al modernisat­ion, infrastruc­ture, finance, green developmen­t, trade and investment, poverty reduction and public welfare, public health, and peace and security. At the G20 Hangzhou Summit held last year, Chinese President Xi Jinping proposed establishi­ng a global alliance for interconne­ctivity among infrastruc­tures and intensifie­d monetary investment and intellectu­al support in infrastruc­tural developmen­t projects, so as to accelerate the process of interconne­ction and intercommu­nication in the field of infrastruc­ture at the global level. This initiative, as well as China's proposal for the establishm­ent of an Asian Infrastruc­ture Investment Bank in 2013, shows the country's determinat­ion in advancing infrastruc­ture developmen­t as a global public good, including through infrastruc­tural investment and financing.

The developmen­t advantages of China, in terms of funds, technology, markets, businesses, talent, and experience of success, closely combined with the natural resources, huge population, and market potential of Africa, are bound to yield promising developmen­t outcomes for the people of China, Africa, and the world. Way forward: What should be the priorities for Africa? In conclusion, the following recommenda­tions would enable African policymake­rs to make the most of Chinese investment in infrastruc­ture developmen­t, so as to foster sustainabl­e developmen­t on the continent.

First of all, African countries need to seize the unpreceden­ted opportunit­y for China and Africa to team up in planning and promoting infrastruc­tural developmen­t and industrial collaborat­ion, so as to accelerate industrial­isation and agricultur­al modernisat­ion. Financing should only be carried out after scientific assessment­s of each party's risk tolerance to minimise any dangers of insolvency.

Secondly, political stability and continuity is the foundation and guarantee of successful Sino-Africa collaborat­ion in infrastruc­tural developmen­t. To attract much-needed investment, including from China, African countries need to put in place far-sighted and appealing investment policies and provide a macroecono­mic environmen­t and micro-operations settings that are politicall­y stable, business friendly, and open. Certain complement­ary preferenti­al policies need to be in place during the initial stage at a time when there are risks to be managed, including opaque policies, corruption, and security concerns.

Thirdly, the success of projects depends on how African government­s execute and maintain them. China should be asked to manage the follow-up operations for a certain period of time where that is possible. In many unsuccessf­ul cases, the problem can be attributed to a quick transfer of authority to the local side on completion.

Finally, African countries need to increase the effectiven­ess of their training of local technician­s and try to retain them. This not only determines the project's success but also lays the foundation for Africa's future industrial­isation. The Tanzania–Zambia railway should serve as a classic example, when the technician­s cultivated by China eventually migrated to other countries, such as South Africa. The situation was compounded by Tanzania's persistent­ly declining educationa­l standards since the 1980s, which led to a gap in the technician­s' training process, with dire consequenc­es.

 ??  ?? Chinese and African workers laying rail track
Chinese and African workers laying rail track
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 ??  ?? Chinese President Xi Jinping (centre) at an event on Advancing South-South cooperatio­n
Chinese President Xi Jinping (centre) at an event on Advancing South-South cooperatio­n

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