FOCAC 2021: China looks beyond infrastructure investment in Africa

December 2021

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As the eighth Forum on China-Africa Cooperation (FOCAC) began at the end of November, African leaders travelled to Senegal to participate in the triennial summit. The conference – a cornerstone of Sino-African relations – saw Beijing pledge USD 40 billion to the continent, marking the first time since 2000 that Beijing reduced its commitment, which stood at USD 60 billion in 2018. As Chinese president Xi Jinping virtually delivered the keynote speech, it was evident that Beijing had shifted its priorities in Africa. Alongside a decreased financial commitment, the focus on large-scale infrastructure – a key area of engagement for Sino-African cooperation – was noticeably absent.

Instead, President Xi presented nine programs focused on four proposals – COVID-19 recovery, practical cooperation, green development, and equality – where trade facilitation, including local empowerment initiatives, was the leading theme. This change represents the largest shift in Chinese policy towards Africa in recent years, providing a new direction for economic engagement.

Economic challenges and criticism from African leaders prompt policy shift

China’s change in Africa policy has been prompted by both internal and external forces. Domestically, COVID-19 slowed economic growth as supply chain disruptions interrupted global trade flows. China also faces concerns over corporate debt liabilities. This month, Evergrande, the second largest Chinese property developer, missed interest payments on USD 1.2 billion of international loans, prompting fears of financial contagion originating from the real estate sector.

In Africa, where there are mounting concerns over debt repayment of Chinese-backed loans, leaders have grown more critical of Chinese policies on the continent. At the core of their grievances, unequal relationships, which have proven costly to African nations, have motivated leaders to take a firmer stance towards Beijing. For instance, last month Ugandan president Yoweri Museveni asserted that Chinese infrastructure investments helped develop industry but did not provide a market for export. He further specified the need for China to prioritise quota-free and tax-free market access for African exports. This comes as Beijing was heavily criticised for reportedly staking Uganda’s airport as collateral for a loan obligation. In the Democratic Republic of the Congo, where Chinese investors control over 70 percent of the mining sector, President Felix Tshisekedi called for an audit of Sicomines, a Chinese mining conglomerate, in a move demanding more equitable and transparent dealings. In Zambia, President Hakainde Hichilema has been vocal about the country’s need to reduce its financial obligation to China, calling debt servicing a major socio-economic issue.

China reorients its Africa policy away from large-scale infrastructure investment

China has played the long game in Africa, making the continent the largest regional focus of the One Belt, One Road Initiative (BRI). Beijing’s new emphasis on trade facilitation will help counter accusations of trade imbalances. In the strategy for trade promotion, President Xi announcedgreen lanes for agricultural exports to China, which will expedite customs procedures for goods. The programme also includes a goal to reach USD 300 billion in imports from Africa over the next three years. In addition to supporting the African Continental Free Trade Area, China will provide USD 10 billion in support for trade finance and an additional USD 10 billion for private investment promotion.

Where Beijing has been accused of investing in Africa to the determinant of local labour, enterprises, and communities, the focus on trade includes provisions for equitable partnerships and empowerment of the African population.The programmes outlined by Xi aim to support the development of African SMEs by providing economic and technical assistance as well as marketing African stores and products on e-commerce platforms. Beijing will also encourage Chinese private enterprises to create over 800,000 local jobs, in addition to facilitating tourism and cultural exchanges.

China to remain embedded in Africa, despite policy shift

While FOCAC 2021 represented a significant shift in China’s Africa policy, in the short-to medium-term, it is unlikely to create noticeable changes in Chinese activity on the continent. The decreased emphasis on infrastructure, while important, does not indicate a wholesale move away from this sector. Under the investment trade promotion program, Xi included provisions for 10 connectivity projects in Africa. While the nature of these plans has not been detailed, Xi has also stressed green development initiatives for environmental protection and climate action.

Moreover, China, who has committed more than USD 150 billion in funding to Africa since 2000, is involved in projects in around 35 African countries, across various sectors. With long timeframes for implementation, this exposure will not decrease in the short-to medium-term. Furthermore, over 1,000 Chinese enterprises operate on the continent, and these companies will continue to be active drivers of China’s influence.

International interest in African infrastructure investment to grow

With China planning to shift away from large-scale infrastructure investment, opportunities for other global investors will rise, with international interest already having grown in recent years. While 42 percent of all engineering projects in Africa have been awarded to Chinese companies, other global entities have shown a strong willingness to invest in infrastructure. This month, DP World and the Congolese government signed a collaboration agreement in Kinshasa for the development of the deep-sea port at Banana, which will be key in transforming the Democratic Republic of the Congo into a regional trade hub. UK-based CDC Group has also signed to develop three ports in Senegal alongside DP World, with the goal of strengthening port access in West Africa. Likewise, countries including the UAE, Turkey, and Qatar have made strides in infrastructure investments in Africa. In May 2021, Qatar proposed a USD 2 billion investment fund for infrastructure projects in sub-Saharan Africa, which is expected to launch in 2022.

The willingness to invest in infrastructure has been supported by an enabling policy environment. At the start of December, the EU unveiled a USD 340 billion Global Gateway plan – a competitor to China’s BRI – which is expected to prioritise Africa. In June the G7 launched the Build Back Better World Plan, intended to help address global infrastructure gaps. This month, CDC Group launched a new strategy, which places a strong focus on infrastructure development.  While the US, EU, and UK have shown heightened interest in investing in Africa, their ability to follow through will largely depend on maintaining influence on the continent. The US, for example, has expanded the reach of its Africa policy, but over 800 overseas state department positions on the continent remain unstaffed.

AML expects to see increased investment in trade and logistics infrastructure throughout the continent from the West and from countries such as Turkey, the UAE, and Qatar in the short-to medium-term, with financing coming from both the public and private sectors. In light of the current focus on the green transition, this investment will take into consideration environmental, social, and governance factors, at levels not previously seen.

China’s trade push challenging to implement

Given its ambitious nature, China’s new strategy in Africa will be challenging to implement over a period of three years. China is one of Africa’s most significant trading partners, but interaction is characterised by major trading imbalances, in part due to economic structural differences, even as African countries increase value-addition in supply chains. Furthermore, an increased push for greater trade will depend on recovery from the COVID-19 pandemic. It remains to be seen, therefore, whether China’s stated move towards trade will reflect a real change from the infrastructure BRI that has defined Sino-African relations, or if it will be business as usual on the African continent.