Made in China: Africa’s Infrastructure Projects and their Future
Chinese involvement in African infrastructure is a highly publicised affair. It appears romantic that a nation that itself was economically backward a few decades ago is aiming to help in the development of a whole continent. China believes that its actions are a stark contrast to the actions of colonial powers in Africa in the 20th Century. However, a deeper delve into China’s activities in Africa suggests that the world’s 2nd largest economy may not be as benevolent as it would first appear.
If China is able to construct infrastructure in African countries that enables it to transport these raw materials to its own borders then its economic future will look more secure. It is for this reason that Africa has been made a key component in Xi Jinping’s trillion-dollar One Belt One Road initiative. There is also economic rationality behind China’s investment in Africa; the underdeveloped continent represents a good growth opportunity for Chinese capital and China has excess capacity in its construction and transportation sectors.
From a geopolitical standpoint, China is in a sense repeating the USSR’s strategy of waging wars globally to spread its influence, though in this case the wars are currently being fought based on economics and business rather than violence or ideology. By providing investment to essential economic sectors such as utilities and telecoms, China is able to gain significant influence over African countries. Indeed, it has counted on this through UN votes to advance its own agenda on Taiwan and the South China Sea issues. China has also started to beef up its military presence in the region as it seeks to counteract US military supremacy around the world. A starting point has been the building of a navy base worth $590mn in Djibouti, located strategically on the Horn of Africa. The following pie charts prove that China’s interests in the continent are largely based on resource extraction and transportation.
Source: Bruegel The Chinese impact on infrastructure is not just limited to the construction process. For the Mombasa-Nairobi railway in Kenya the main contractor for construction, the China Road and Bridge Corporation, was also contracted to operate the line for its first 5 years. Moreover, even as late as July 2018, despite employing 25,000 Kenyan workers, Chinese workers occupied the most critical positions such as train drivers. This railway was also built in line with China’s standard gauge specification, meaning that the railway is in a way locked into a relationship with China. Chinese investment does not come for free. Rather it is made of loans that can end up being extraordinarily expensive and perhaps outweigh the economic benefit; the Addis Ababa-Djibouti Railway ended up costing Ethiopia almost ¼ of its entire government budget for 2016. What is the impact of Chinese investment on African people? Africa is the fastest growing region in terms of population, with demographic experts suggesting there may be 2.4 billion Africans by 2050. These people need jobs, but China’s FDI into Africa is not actually creating that many jobs. The job creation rate of Chinese FDI into Africa through greenfield investments is 1.78 people per $1 mn of investment compared to 2.24 in all other regions.
Some of this can be attributed to the lower levels of education in Africa compared to other developing regions. There may not be enough African workers with the skills required to fill all the vacancies available. If Chinese investment continues to flood in without a simultaneous improvement in education levels, then African governments will be forced to sacrifice jobs meant for their own citizens to Chinese workers. Without significant job creation, FDI into Africa might not be sustainable in the future due to the population trends of the continent.
The impact on Africans is also highly dependent upon what type of investment is conducted. For example, the development of the Mombasa to Nairobi railway meant an improvement to a public good and helped both passengers and the transport of goods. However, a lot of Chinese investment in Africa is in Nigeria and Angola and is focussed on the oil industry. This typically provides little benefit to everyday people, instead it often lines the pockets of the corrupt elite. Hence, the impact of Chinese investment is dependent on how many jobs are created and what industries are being invested in. Africa needs $130-170bn a year to meet its infrastructure. African nations came well below this figure even before coronavirus, which has depressed commodity prices (a staple for many African economies). With Western economies facing their own economic struggles, the chances of them ploughing billions of dollars into African infrastructure have been slashed. There is also less reason for them to do so; unlike China their economies are largely dominated by the services industry and countries like the USA are largely self-sufficient in terms of energy so there is little need for them to develop infrastructure to move natural resources from Africa to their own country. Thus, China is able to quench Africa’s desire for investment more so than any other major economy in the world.
However, Africa has the ability to reduce its reliance on Chinese investment through internal solutions such as the African Continental Free Trade Area (ACFTA). By allowing a free movement of goods and people there is an increased incentive to build infrastructure spanning multiple countries. Financial flows may also be freed up, which would lead to more funding from more developed countries such as South Africa. The ACFTA could have the ability to strengthen Africa’s side in the relationship with China. A continental approach to negotiations would lead to more scrutiny of the deals done with China, ensuring that African people benefit and that no country is left with a debt trap. Chinese investment in Africa is helping the continent to develop. However, African countries could develop quicker and more sustainably if the following criteria are met; 1. African countries band together to ensure that their collective bargaining results in good deals for them, which won’t leave them with mountains of debt 2. There are pushes for improved education and an increased emphasis from governments negotiating with China that more African jobs must be created 3. Investment is more evenly spread across the different sectors of the economy so that Africa can develop rather than just being used for its resources If these conditions are met then a mutual relationship between Africa and China can blossom with both partners benefitting strongly. If China continues to dominate the relationship as it does now then this may drive Africa away from Chinese investment in the medium to long term and it may seek to foster strong relationships with other countries willing to finance African investment. It is in China’s best interest to remain cosy with Africa if it seeks to realise the long term goal of being a superpower.