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.

Financial Nigeria Magazine - - Eco­nom­ics And Mon­e­tary Pol­icy - 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 Pres­i­dent Xi Jin­ping (cen­tre) at an event on Ad­vanc­ing South-South co­op­er­a­tion

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