Over the past two decades, China has become Africa’s largest export destination, its largest source of imports, and more recently, its largest source of capital. The ongoing high-level Forum on China-Africa Cooperation which I am at in Beijing this week, attended by over 40 African heads of state, is a reminder of how much this relationship has evolved and its direction of travel: increased trade, more investment, and stronger diplomatic relations. In today’s world, China is Africa’s most strategic partner, and its ambitious Belt and Road Initiative is expected to further this partnership.
Yet, from the perspective of Western capitals, this relationship increasingly inspires suspicion and anxiety, perhaps as a sign of weakening traction and influence in the region, as not just China but also countries such as Turkey, Israel, India and the Gulf states are making concerted efforts to increase engagement. Additionally, despite challenging China for its economic strategy and political system, the traditional view on good governance seems to overlook a fundamental point: the continent is in dire need of infrastructure requiring an estimated $90 billion annually over the next ten years.
More than 600 million Africans do not have a reliable supply of electricity, and there are only 300 metres of paved roads per 1,000 persons across Sub-Saharan Africa, half of which are in South Africa, compared to 15,000 for OECD countries. This infrastructure is necessary for Africa’s economic growth and no one else but China is willing to finance it at the same pace or scale. Chinese firms and finance recently built the $3.2 billion Standard-Gauge Railway in Kenya, its biggest infrastructure project since independence, and the $3 billion Addis Ababa-Djibouti Electric Railway, connecting East African ports to large hinterland economic corridors.
More than 600 million Africans do not have a reliable supply of electricity, and there are only 300 meters of paved roads per 1,000 persons across Sub-Saharan Africa. This infrastructure is necessary for Africa’s economic growth.
”Chinese businesses of various sizes and sectors are also bringing capital investment, management knowledge, and entrepreneurial dynamism to Africa, accelerating the continent’s economic development. China-Africa trade grew 40 times over the last twenty years to $220 billion in 2014, while Chinese direct investment grew from $7 billion in 2008 to $26 billion in 2013. Although Chinese FDIs still only account for about 5% of total inflows, bilateral trade is now much larger than US-Africa commerce and catching up with the $300-billion Africa-EU trade.
China also provides a valuable blueprint: special economic zones, which have been the hallmark of its success over the past forty years. Given Africa’s often challenging business environment, these ‘areas of excellence’ provide useful testing grounds to accelerate industrialization, bringing together key conditions that investors seek: adequate infrastructure, workforce, input supply, business policies and services. This is particularly important given the estimated 85 million light manufacturing jobs to be relocated out of China in the coming years because of fast rising wages for unskilled workers.
China has lent an average of $6 billion a year to African governments between 2000 and 2014, which is expected to increase to $20 billion annually if China’s pledges are fulfilled – creating a worrying imbalance and sense of dependency. Chinese loans currently account for a third of new debt taken on by African governments, including more than 80% of Djibouti’s external debt. But terms can be renegotiated, and China’s loan process is arguably more flexible and responsive than Bretton Woods institutions, which have become too bureaucratic and risk averse for governments pressured to create jobs fast amid their youth bulge and the rise of automation in manufacturing.
Working closely with fourteen African countries, the Tony Blair Institute for Global Change experiences first-hand the challenges of creating inclusive economic growth and the continent’s pivot towards China. Our team in Guinea has been helping the government negotiate with the Export-Import Bank of China to build a mega hydropower project that will double the country’s power supply. In Ethiopia, the Institute is working closely with the government to create thousands of jobs in industrial parks focused on labour-intensive and export-oriented manufacturing, mostly Chinese-built. Togo, like Djibouti in East Africa, is leveraging its strategic location as a West African trade and logistics hub to increase investment from China, among others, to build world-class transport infrastructure.
Working closely with fourteen African countries, the Tony Blair Institute for Global Change experiences first-hand the challenges of creating inclusive economic growth and the continent’s pivot towards China.
”Ultimately, Africa needs many partners. To secure large benefits and avoid huge costs from their relationships with China, like any other, African countries must rely on leadership, especially in continental and regional blocs. This requires a compelling and focused vision for development anchored in a sophisticated understanding of global value chains – including China’s growing demand for African non-mineral products, especially food – combined with effective implementation mechanisms for viable, growth-oriented projects. Governments and the domestic private sector must also come together to target the right kind of financing and business partnerships according to their comparative advantages and socio-economic needs.
Liberia and Sierra Leone, for instance, have the opportunity of a recent change in government to renegotiate their partnerships with China and promote investment in productive sectors with greater spillovers, especially agro-processing, in addition to iron ore. To ensure that development benefits the majority of the population, local content policies can help promote skills and technology transfer and facilitate critical backward linkages with the local economy.
To secure large benefits and avoid huge costs from their relationships with China, like any other, African countries must rely on leadership.
”The China-Africa relationship, although dating back decades, it still at a nascent stage. We can expect to continue hearing about both legitimate and perceived social and environmental issues. After all, China’s priority is to sustain its own economic growth, and Africa will have to compete even harder for its share of China’s global trade. But we should also pay attention to its evolving and collaborative nature. China seems to increasingly see Africa as a genuine partner and effectively respond to its development priorities: there is a lesson here for Western aid, which too often still leans towards the paternalistic and patronising. The recent creation of China’s foreign aid agency is also a positive indication of its intent to engage in a more coherent, effective, and transparent way. This developing and multi-layered partnership, through day-to-day interactions, is shaping China and Africa’s shared future.