China, Africa Launch US$2 Billion Multilateral Investment Fund
China and the African Development Bank jointly unveiled a US$2 billion multilateral investment fund last week, marking a symbolic shift in their partnership. The initiative, known as the “Africa Growing Together Fund” (AGTF), would operate by allocating contracts to the most appropriate bidder, rather than being limited solely to Chinese companies.
The agreement was announced in Kigali, Rwanda on 22 May by Chinese Central Bank Governor Zhou Xiaochuan and African Development Bank President Donald Kaberuka, during the course of the African Development Bank’s (AfDB) Annual Meetings.
The fund will be administered by the Bank, and will provide co-financing to projects over the next decade, with the goal of supporting African infrastructure and industrial development. Future disbursement under the fund will therefore not be restricted only to bilateral government-government projects – a notable change from China’s traditional forms of financial support.
The fund appears to be part of a broader effort by Beijing to recalibrate its relationship with Africa, analysts say, especially given the growing criticism in some quarters over recent bilateral investment deals. Chinese officials themselves have lately acknowledged that some past agreements with African countries have been less than ideal.
“Different [Chinese] entities have behaved differently. There may have been some phenomena of Chinese investors [that were] not so good, not so satisfactory,” Zhou said in Kigali.
The US$2 billion investment fund, Zhou said, could serve as a way for China to begin changing the way it does business in Africa.
China-Africa trade has significantly increased over the past decade, with last year’s estimates placing it at US$200 billion – a twenty-fold increase from what it was in the year 2000, according to customs data cited by the Financial Times.
However, critics have often pointed to the fact that China primarily relies on Chinese labour for many of its infrastructure projects and appears more keen on pulling in African raw materials than on transferring skills. In fact, China‘s commercial engagement in Africa is characterised by a heavy concentration on imports of natural resources which, according to some experts, perpetuates the continent’s dependence on primary commodities.
For example, despite the strong growth in Africa – driven partly by the Asian demand for commodities over the past decade – the continent has experienced a relative decline of African manufacturing.
Furthermore, some Chinese deals in Africa have faced criticism over alleged corruption and lack of transparency.
The fund, observers say, represents a significant departure from China’s history of “cheque book” diplomacy, which critics claim has often prioritised the advancement of strategic economic interests as a political tool to cultivate other types of advantages.
What is most notable is that the fund will be working through a multilateral development institution such as the AfDB, which receives funding from various countries, both from within Africa and outside it. In addition, the fund will operate under the AfDB’s rules.
“China has been using a bilateral route in Africa. Now it is taking a more multilateral [approach],” an official familiar with the project told the Financial Times.
"The AGTF marks an important milestone in the long-standing relationship between China and the African Development Bank Group in particular and Africa in general," the AfDB’s Kaberuka said.
The fund, he added, “will operate within the strategic framework, policies, and procedures of the AfDB.”
Bilateral aid remains central
Despite this move, bilateral aid still remains a key element of Sino-African ties. The announcement of the fund comes just weeks after Chinese Premier Li Keqiang paid his first visit to Africa, during which he stated that “China is willing to move forward shoulder to shoulder with the African countries in equal treatment and sincere cooperation.”
Li’s declaration came following a pledge to increase his country’s aid to Africa by US$10 billion in bilateral loans, totalling US$30 billion. During that same trip, Li offered China’s cooperation to construct railways, highways, and a regional aviation network in Africa in order to promote greater interconnection within the continent.
An agreement was also inked between China and Kenya to construct a multi-billion dollar railway linking the Kenyan port of Mombasa to Nairobi and running on to neighbouring states, which experts say could serve as a major opportunity to promote intra-regional trade.
ICTSD reporting; “China, east African leaders sign up for new rail link,” REUTERS, 11 May 2014; “China Launches $2 Billion African Development Fund,” THE WALL STREET JOURNAL, 22 May 2014; “China’s central bank chief admits difficulties with Africa,” FINANCIAL TIMES, 22 May 2014.