The Africa growth story may be overhyped — rising worries about debt and public finances in many African countries in the face of low global prices for natural resources are making the continent’s growth prospects less rosy — but that is not stopping Beijing pledging billions more dollars in development aid.
President Xi Jinping announced at the triennial Forum on China-Africa Cooperation (Focac) in South Africa that a larger-than-expected $60 billion worth of assistance and loans would be made available to Sub-Saharan African nations over an unspecified period. We shall return later to whether that is a lot or a little.
The newly pledged money is a mix of:
- free aid and interest-free loans ($5 billion),
- preferential loans and export credits ($35 billion);
- additional capital for the China-Africa Development Fund ($5 billion);
- additional capital for the Special Loan for the Development of African Small- and Medium-sized Enterprises ($5 billion); and
- initial capital for a China-Africa production capacity cooperation fund ($10 billion).
The funding is probably a mix of old and new promises. Some will underwrite expanding trade. As of October, Africa’s exports to China, dominated by oil and minerals (85%), had slumped in value by 32% year-on-year, though they are virtually unchanged in volume.
Angola, South Africa, the Democratic Republic of Congo, Equatorial Guinea and Zambia — natural resources-rich all — are China’s main trading partners in Africa. Together, they account for more than 70% of all that China buys from Africa.
The slump in export values together with the steady rise in exports from China to Africa has turned Africa’s overall trade surplus with China into deficit for the first time since the early 2000s.
The inflow of Chinese direct foreign investment to Africa fell by 40% in the first half of the year from the same period a year earlier, after having shrunk 5% last year over 2013. Nonetheless, much of the newly pledged money will end up funding much-needed infrastructure projects that will also provide lucrative contracts for China’s road, rail, port, power-station and dam builders.
China’s investment in Africa has hitherto focused on natural resources and to a lesser extent farmland. The global slump in commodity prices, driven in part by China’s own slumping demand as its economy slows, means that Chinese investors are looking to put their money elsewhere, at least for as long as it takes for this turn of the commodity cycle to pass.
Contrary to popular perception, most of the more than 2,300 Chinese companies doing business in Africa are privately owned, though the big state-owned ones dominate the big-ticket investment flows. China is still the largest lending country to infrastructure projects in Africa but in 2014 it accounted for only 4% of total commitments, compared with about 50% the previous year, a reflection of both the slowing economy at home and a more realistic eye being taken to the potential return on investments being made, as Chinese investors are also doing in Latin America.
All of which provides some background to whether $60 billion is a lot or a little — to which the answer is it is difficult to say.
Untangling the true level of Chinese investment in Africa is tricky. Official statistics put the stock of Chinese foreign direct investment in Africa at $32.4 billion as of last year (up from $1.6 billion in 2005). If all of the Xi’s pledged $60 billion went into FDI, it would triple the stock, which sounds impressive, but if that took, say, five years to happen, the rate of annual growth would decline by a quarter.
However, as noted above, not all the $60 billion will take the form of FDI — and FDI is a rough and ready reckoner of true investment levels anyway (for any country, not particularly China, which uses the standard OECD/IMF definitions of FDI). The numbers won’t include loan financing of capital investments, any investment that comes via third countries, usually tax havens and acquisitions of non-African companies that have assets in Africa. They will also undercount smaller investments, which tends to mean mom-and-pop scale retailing and manufacturing businesses (who also tend to get missed from the count of Chinese businesses in Africa).
Independent tracking under the aegis of the American Enterprise Institute and the Heritage Foundation that aims to get round this undercounting puts the flow of new Chinese FDI into Sub-Saharan Africa in 2013 at $15.25 billion against the official number of $3.37 billion, although we caution that that is commitments rather than actual flows. Between 2005 and now, the AEI estimates, Chinese firms have signed $197.2 billion in investments and contracts since 2005.
Sixty billion dollars would be a substantial but not transformative addition to that. We also note that Xi’s figure includes aid, about which China is far more secretive than FDI.
China is clearly not backing off its interest in Africa; a first military base on the continent, in Djibouti, is in prospect as sign of the magnitude of both of its national interests and assets in the content. But Xi’s latest assistance package indicates that Beijing is also maintaining a realistic view of what it can get for its money.
Update: According to a Foreign Ministry spokeswoman, China has helped Africa build 5,675 kilometers of railway, 4,507 kilometers of highway, 18 bridges, 12 ports, 14 airports and terminals, 64 power stations, 76 sports facilities, 68 hospitals, over 200 schools and 23 agricultural demonstration centers.