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Tribune News Network
Doha
A new economic order is emerging in Africa as the composition of foreign investment and trade changes. China's economic footprint in Africa is rapidly outstripping the regional position of the US, said a Qatar National Bank (QNB) report on Saturday.
Africa has been trading more with China than with the US since 2008. Last year, Africa-China trade was over three times higher than US- Africa trade. Chinese direct investment (FDI) flows to Africa have surpassed those from the US for the first time in 2014, the bank said.
From 2011 to 2016, outstanding Chinese FDI in Africa increased by 130 percent to stand at $53 bn, against flat levels from the US and UK. The largest recipients of Chinese FDI were, respectively, South Africa ($6.5 bn), Congo ($3.5bn), Algeria ($2.5 bn), Nigeria ($2.5 bn), Zambia ($ 2.5 bn) and Zimbabwe ($.8 bn).
Three factors contribute to the spree of Chinese FDI in Africa. China's resource-intensive growth is coupled with Africa's relatively untapped natural wealth. China's growth is still dominated by fixed investments and therefore demands large volumes of imported energy and metals.
Around 31 percent of China's total imports are commodities, including 13 percent of hydrocarbons and mineral fuels. While the demand is there, Africa's resource-abundant countries often lack the capital or skills to extract natural resources. This complementarity prompts resource-seeking Chinese FDI in Africa, the report said.
China's 'financial diplomacy' or bilateral loans are a major source of support for Chinese activities in Africa, contributing to push additional investments into the continent. According to the China-Africa Research Initiative, Chinese government, banks and contractors extended $ 143 bn in loans to African governments and their state-owned enterprises (SOEs) from 2000 to 2017.
Most of these loans are associated with Chinese policy banks such as the Export-Import Bank of China, China Development Bank and Agricultural Development Bank of China. With a book of $35.5 bn in loans to 500 projects in over 40 countries in Africa, the China Development Bank became the largest provider of concessionary loans to the continent, surpassing even the World Bank.
A large amount of these loans to Africa are in the form of export or supplier's credit, often arranged within the traditional 'Angolan model' i.e., financial cooperation packages modelled as bilateral resources for infrastructure deals. In fact, 81 percent of the total Chinese loans are directed to either infrastructure or commodity related sectors in Africa.
Chinese loans to Africa usually come with 'strings attached' and require Chinese exports or participation in the project being financed, but their actual and potential benefit for the region should not be understated. According to recent estimates of the African Development Bank, Africa needs to invest $130-170 bn annually in infrastructure, and the financing gap is currently in the range of $70-110 bn, the report said. Africa is becoming ever more cost effective for large Chinese manufacturers. As China catches up with advanced economies and local salaries naturally rise, industrial production is gradually migrating to regions with lower costs, including Africa.
