Chinese investment and loans in Africa give priority to infrastructure

World Today

Chinese investment and loans in Africa give priority to infrastructure Photo by Xinhua

In recent decades, Chinese investment and loans in Africa have risen dramatically, and so have positive views of China.[1]

Liu Qinghai is head of the Center for African Economic Studies at the Institute of African Studies at Zhejiang Normal University and visiting scholar of the China-Africa Research Initiative at Johns Hopkins’ School of Advanced International Studies. Her analysis represents her views alone.

At the same time, Western critics have accused China of exploiting Africa’s natural resources.

Are 21st-century Chinese pillaging Africa like 19th century Europeans? The data shows otherwise. The benefit has been mutual, and so far favors Africans. Chinese investment and loans have focused on developing African infrastructure, rather than on siphoning off the continent’s mineral wealth.

Construction was the largest sector of Chinese OFDI to Africa
The combined value of Chinese equity and net loans to African enterprises – called China Outward Foreign Direct Investment (OFDI) – reached $39.9 billion by the end of 2016. The top 5 largest sectors for Chinese capital were construction, mining, manufacturing, finance, scientific research, and technology services. Construction and mining were the largest sectors—receiving 28.3 percent and 26.1 percent of Chinese capital. According to the U.S. Bureau of Economic Analysis, the top 3 sectors in US OFDI in Africa at the end of 2015 were mining, holding companies (non-banking) and manufacturing at 66 percent, 14 percent and 7 percent, respectively. It’s clear from the data that African mining was far more important to the U.S. than construction or manufacturing. Countries like U.S. have criticized China as a pillager of African resources. Do I detect a double standard here?

Infrastructure Emphasized in Chinese loans to Africa
For a long period, China has been supporting the development of African infrastructure. Under the Belt and Road Initiative, Chinese and African cooperation in this arena has become even more important.

Between 2000 and 2014, the top four African business sectors receiving Chinese loans were: transportation (28%), energy (20%), mining (10%), communication (8%). That’s according to research from the China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies.

In 2015, the top 3 sectors financed by Chinese loans were transportation (US$4.6bn), power (US$4.5bn), and industry (US$0.7bn). Mining didn’t receive any Chinese financing. It’s also worth noting that many Chinese loans didn’t go to resource-rich countries. Take Ethiopia as an example. A landlocked and resource-poor country, Ethiopia was Africa’s 2nd largest recipient of Chinese financing. Between 2000 and 2016, Ethiopia received US$13.3bn in Chinese loans. According to Johns Hopkins, 35 percent went to transportation and 24 percent went to the energy sector.

For the Export-Import Bank of China, the largest Chinese underwriter of African loans, the top financing sectors in Africa were transportation at $27.9bn (44 percent), energy and mining, $18bn (29 percent), water and sanitation, S$3.4bn (5 percent), and communications, $3.3bn (5 percent) during 2000-2001. In the same time period, the top sectors financed by the US Export-Import bank (the largest U.S. underwriter of African loans) were energy and mining at $1.2 billion.

In the near term, African countries get as much, if not more, return on investment from Chinese capital than China does. The benefits include improved technology, efficiencies of scale, efficient cost structures, speedy delivery and jobs. A 2017 McKinsey report shows Chinese firms lowered prices for existing products and services by as much as 40 percent. Far from being predator, China is a partner in building a stronger Africa. Building new infrastructure builds a better future for the continent.

[1] “According to Pew, views of China across Africa are generally positive – with the 6 countries surveyed averaging 58 percent favorability in 2017. This positivity corresponds to a larger trend over the last decade that has witnessed an average favorability of 67 percent among the African states that were polled. Of the African countries surveyed in 2017, Nigeria (72 percent), Senegal (64 percent), and Tanzania (63 percent) not only held the most favorable views of China in Africa, but also some of the most positive views of China globally.” (CSIS – China Power Project).