How should Africa deal with a resurgent China?
African governments and businesses need to work hard to steer the continent’s relationship with China in the right direction, say Hannah Ryder and Ovigwe Eguegu
The year 2020 was a difficult year for many if not most relationships – from the personal level to the country level. For the relationship between Africa and China, there were some challenges, in particular the racism experienced by Africans at the early stages of Covid-19 management in China, and the continued closure of China’s borders to most Africans thereafter.
Apart from this, however, the relationship appeared to strengthen – including relative to other development partners – on several very tangible levels. Figures for the first 11 months of 2020 suggest total Africa-China trade fell by just 10% on 2019 levels, compared with a 21% fall in Africa-US trade and a 20% fall in Africa-EU trade. African agricultural exports to China actually increased by 4.4%. FDI from China grew marginally by 0.04% to $2.8bn, amid an overall projected 25-40% fall in global investment into Africa in 2020, according to UNCTAD.
The Chinese government claims to be the largest contributor to the G20 Debt Service Suspension Initiative (DSSI) – fairly easy to achieve given low levels of bilateral loans from others in recent years and the fact that the multilateral organisations did not participate in the initiative.
But what does 2021 have in store for relationships between African nations and China? Our expectation is mostly continued strengthening, rather than faltering, though this will bring its own specific chal
lenges. Let’s focus on three specific areas: Covid-19, trade, and lending. Obtaining vaccines
Covid-19 vaccines have become the new focus for 2021, added to the border management, social distancing and testing that marked 2020. Chinese pharmaceutical companies have developed their own vaccines and the government has promised that they will be for a “global public good”. This doesn’t mean they will be free to everyone, but it’s likely they will be for the poorest countries, many of which are in Africa.
Free – or at least extremely cheap – access to vaccines will be crucial for Africans in 2021. Without vaccines, African economies will be marginalised as tourism, trade and other sources of economic growth remain subdued, while other regions recover. Our firm estimates that at least $5bn will be needed to vaccinate just a fifth of the African population, but $5bn could equally be spent by African nations on other key priorities, from poverty reduction to education to infrastructure. If China can help with this in early 2021, and – based on its own development path – also help African countries to begin manufacturing vaccines themselves, that will be of great help in Africa’s economic recovery as well as helping Africa avoid increased import dependency.
Africa-China trade
Second, Africa-China trade – and FDI – will likely increase in 2021. China’s new post-Covid-19 “dual circulation” policy implies reduced dependency on singular sources of imports into China. African countries may well benefit from the trade diversification that the policy implies. That’s why there have already been noises of a potential free trade agreement (FTA) between China and Africa – via the African Continental Free Trade Agreement (AfCFTA) – as a key 2021 outcome.
But there are still risks for African countries. On the one hand, an FTA could provide huge opportunities for African products to reach China’s half a billion and growing consumer market. Moreover, global manufacturing and supply chains eventually need to shift from China to African nations to make the AfCFTA a success. On the other hand, a poorly negotiated FTA may pave the way for more Chinese manufactured and high-tech products to enter and dominate African markets, the majority of which already have trade deficits with China.
There is a delicate balance to achieve here, and increased FDI from China into manufacturing and trade logistics in Africa specifically (as opposed to FDI into African domestic consumer markets or commodities) will be key to watch as an indicator of progress.
Concessional and commercial lending
Third, and perhaps surprisingly to many, concessional and commercial lending from China may well increase in 2021, for both supply and demand reasons. With respect to supply, while several domestic Chinese banks are facing major post-Covid-19 challenges, central and provincial governments have so far maintained pre-Covid-19 incentives to “go out” to deliver infrastructure projects “along the Belt and Road”, including to African nations. These incentives may
even intensify in a bid to help Chinese firms recover. Furthermore, in our experience, Chinese banks also assess “debt sustainability” very differently to other lenders such as the World Bank, meaning they will not necessarily go with the grain of international “debt crisis” narratives.
Indeed, African countries will need more finance for recovery in and beyond 2021, and not just for debt repayments as took place in 2020. The big issue now is how African countries can get external support to invest in green infrastructure and digitalisation, which are essential for Africa’s structural transformation. African economies also need to work in multilateral forums to create liquidity and avoid austerity programmes, for instance through issuance of special drawing rights. Right now, the Chinese government is indicating that it will support these priorities in 2021 and beyond, which will be of great importance to the incomes and jobs of young Africans.
Avoiding downsides
Are we therefore upbeat about all aspects of AfricaChina relationships in 2021? On many counts yes, especially in comparison to other development partners. Who else can offer brand new multi-million sized consumer markets to high-end African brands and poor farmers alike? What other country has an explicit policy to shift manufacturing overseas?
At the same time, the same problems we saw in 2020 may rear their ugly heads. Prior to Covid-19, African countries were beginning to vie for Chinese tourists, which have all but dried up. In the other direction, had Covid-19 not occurred, our projections suggest that China would have been hosting the largest cohort of African students worldwide. It’s possible that due to stringent border management policy, 2021 may see one of the smallest, even behind the US. China’s border management policies have also restricted African business peoples’ access versus other foreigners, which will eventually impact on the depth of the relationship. And of course, there are risks in Covid-19 management policies, in trade, FDI and higher debt.
That said, our experience is that Chinese diplomacy usually sets a path for Chinese business. To kick off 2021, and despite Covid-19’s continued presence on the continent, China’s foreign minister visited five African countries, bringing the tally to 99 visits of Chinese leaders to 44 African countries Africa since 2007. The messages was: China is still here. Not only this, the 8th Forum on China Africa Cooperation (FOCAC) in Dakar (or online) will take place in 2021, an event that always raises Chinese interest in African destinations. The question will be whether African leaders can use this forum just as actively for the continent’s own interests.
And that’s the crux. While 2020 was difficult for most relationships, Africa-China relationships somehow survived. We expect the same and more for 2021. But this time, African governments and businesses alike must grab this opportunity in a highly strategic manner, and steer China in their interests, to avoid downsides and future risks. n
Hannah Ryder is the CEO of Development Reimagined, a pioneering African-led international development consultancy based in China.
Ovigwe Eguegu is a policy adviser at Development Reimagined and a specialist in geopolitics.