China’s Infrastructure Development Strategy in Africa: Mutual Gain?

21 March 2017

Plunder or mutual gain? On the ever-growing scale of China’s investment in infrastructure in Africa.

Africa is rich in natural resources and has enough people of working-age to drive the economy. However, despite swift progress in urbanisation, poor infrastructure is one of the key obstacles to its development. To accelerate domestic socio-economic development, there is an insatiable demand for more and better infrastructure, with most of the funding coming from outside. In 2015, the total reached US$83.4 billion, of which US$20.9 billion came from China.[1]

With the intensification of China’s overseas investment strategy in recent years, the overall scale of China’s direct investment in Africa has risen considerably. Chinese investment encompasses railways, highways, ports, oil and gas fields and power plants (for the latter, see Table 1), whereas investment from the US and European countries mostly focuses on energy and power. As many as 322 large-scale projects for infrastructural development began in Africa before June 2013. Around 12 percent of these projects were undertaken by Chinese companies, while 37 percent were undertaken by European and US companies.[2]

The value of contracts newly undertaken by Chinese companies in Africa reached US$75 billion in 2014, with a turnover of US$53 billion, which is 40 times more than the figure in 2000.[3] Among them, the coastal railway project contract in Nigeria, acquired by China Railway Construction Corporation Ltd, had a total value of US$11.97 billion, the highest value of a single-contract project in the history of China’s foreign engineering activities. Stage one of the Addis Ababa–Adama Expressway, with a total length of 78 kilometres, was completed in May 2014. Designed and constructed by China Communications Construction, this expressway is the first in Ethiopia and the first with such scale and quality in East Africa. Bidding for the construction of a new bridge over the Cuanza River in Angola was jointly won by an Angolan company, China Road, and a Portuguese company, Bridge Corporation, in November 2014. The project has a total contract value of about US$110 million, making it the first major public works contract won by a Chinese-funded company in collaboration with foreign companies since the influx of Chinese-funded companies into Angola in 2003.

Table 1: Number of power projects with Chinese participation in sub-Saharan Africa between 2010 and 2020

Source: OECD/IEA. “Boosting the Power Sector in Sub-Saharan Africa: China’s Involvement.” July 2016.

China’s approach to investment in infrastructural development in Africa differs from that of the West. While the latter emphasises the model of “democracy first,” China believes in driving the economic growth of the receiving country through infrastructural development. As a result, the West often questions the motive for China’s investment and construction support in Africa from its own point of view. The questions usually focus on the following three perspectives.

Does Chinese investment in infrastructural development take away jobs from Africans?

The Sino-African collaboration in infrastructural development is based on the global value chain concept of mutual benefit. All engineering projects undertaken by China involve the construction of infrastructures much needed by Africa. For that purpose, China introduces competitive industries urgently needed for African industrialisation and hires and fosters a large number of local workers and technicians for the construction. Global investment that follows infrastructural advance not only boosts local employment but also generates spillover effects, such as skill development, management experience, and technology transfer, which also help to reduce the high unemployment rate in Africa. According to unofficial statistics, the number of people employed by Chinese-funded companies in South Africa exceeded 26,000 by the end of 2015, of which 24,000 (90 percent of total employees) were locals.[4] China’s involvement in Africa has lasted more than a decade. To date, it has built six training centres, which provide training to 12,000 people annually.

Is it a form of “neo-colonialism” that facilitates plundering of resources?

China needs resources because it is a world leader in manufacturing and a major supplier for the global market. The economic cooperation between Africa and China brings mutual benefit and gains. China’s investment in infrastructural development in Africa comes with no political strings attached, as Chinese Premier Li Keqiang stated: “China will not follow the beaten track of colonialism of other countries or allow the re-emergence of colonialism in Africa. To Africa and China, collaboration means opportunities and mutual gain.” More and more people in the West are becoming aware that China’s development projects in Africa are part of its public diplomacy strategies to build friendly relations and win future international support.

In a paper dated July 2016, David Dollar, a senior research at Brookings, reached the conclusion that China’s involvement in Africa has been gradually shifting from natural resources to human resources.[5] Chinese businesses are placing a greater emphasis on the multiple social effects of investment, including in terms of technology transfer, capacity building, and ultimately improvement of living standards. In another study published in 2015, researchers come to the following conclusions.[6] First, China’s overseas investment is primarily profit driven. It is a rational business choice within the context of globalisation, as China keeps in mind the significant market potential of Africa and accordingly develops international collaboration. Second, China’s direct investment in Africa may be growing rapidly, but the amount remains relatively small, at about 3 percent of the total. Third, the investment of Chinese businesses in the field of natural resources in Africa is small compared to that in the services industry, which occupies a leading position, while investment in manufacturing is also significant.

Is Chinese investment in infrastructural development in Africa sustainable?

The Tanzania–Zambia railway is often used as an example of the non-sustainability of Chinese infrastructural investment. Although it was the beginning of China’s investment in railways in Africa and played an unparalleled and historical role, it fell into neglect after a vicious circle of insufficient maintenance and funds, loss of technicians, continuously reduced transport capacity and heavy losses. On the one hand, China’s investment in Africa has a clear competitive advantage. China offers lower quotations for investment in infrastructural development, attributable primarily to the mature technology and efficient engineering of Chinese businesses in the field, thus greatly shortening construction schedules without compromising on quality. Furthermore, a lot of the raw materials come from China, being cheaper than the local ones. The cost of financing is also more favourable: the interest rate on loans from China to African countries is lower than the local rate. On the other hand, the uncertainty brought about by the huge scale and long-term nature of investment in infrastructure, the intricacy of the various political, legal, and culture factors at play in the host country, as well as the heated international competition, generates significant challenges for the sustainability of Chinese investment in infrastructural development in Africa.

Currently, economic growth in Africa is lower than expected due to a sluggish global economy, uncertainty about economic globalisation, and the decrease in global commodity prices. In this context, Sino-African collaboration is an asset, particularly in infrastructural development, and should be a source of hope and optimism. At the Forum on China-Africa Cooperation in December 2015, China announced its offer of US$60 billion and support for the “Ten Major Collaborative Plans,” which involve areas such as industrialisation, agricultural modernisation, infrastructure, finance, green development, trade and investment, poverty reduction and public welfare, public health, and peace and security. At the G20 Hangzhou Summit held last year, Chinese President Xi Jinping proposed establishing a global alliance for interconnectivity among infrastructures and intensified monetary investment and intellectual support in infrastructural development projects, so as to accelerate the process of interconnection and intercommunication in the field of infrastructure at the global level. This initiative, as well as China’s proposal for the establishment of an Asian Infrastructure Investment Bank in 2013, shows the country‘s determination in advancing infrastructure development as a global public good, including through infrastructural investment and financing.

The development advantages of China, in terms of funds, technology, markets, businesses, talent, and experience of success, closely combined with the natural resources, huge population, and market potential of Africa, are bound to yield promising development outcomes for the people of China, Africa, and the world.

Way forward: What should be the priorities for Africa?

In conclusion, the following recommendations would enable African policymakers to make the most of Chinese investment in infrastructure development, so as to foster sustainable development on the continent.

First of all, African countries need to seize the unprecedented opportunity for China and Africa to team up in planning and promoting infrastructural development and industrial collaboration, so as to accelerate industrialisation and agricultural modernisation. Financing should only be carried out after scientific assessments of each party’s risk tolerance to minimise any dangers of insolvency.

Secondly, political stability and continuity is the foundation and guarantee of successful Sino-Africa collaboration in infrastructural development. To attract much-needed investment, including from China, African countries need to put in place far-sighted and appealing investment policies and provide a macroeconomic environment and micro-operations settings that are politically stable, business friendly, and open. Certain complementary preferential policies need to be in place during the initial stage at a time when there are risks to be managed, including opaque policies, corruption, and security concerns.

Thirdly, the success of projects depends on how African governments execute and maintain them. China should be asked to manage the follow-up operations for a certain period of time where that is possible. In many unsuccessful cases, the problem can be attributed to a quick transfer of authority to the local side on completion.

Finally, African countries need to increase the effectiveness of their training of local technicians and try to retain them. This not only determines the project’s success but also lays the foundation for Africa’s future industrialisation. The Tanzania–Zambia railway should serve as a classic example, when the technicians cultivated by China eventually migrated to other countries, such as South Africa. The situation was compounded by Tanzania’s persistently declining educational standards since the 1980s, which led to a gap in the technicians’ training process, with dire consequences.

Authors: Yabin Wu, Executive Dean and Associate Professor of Research Institute for Global Value Chains of the University of International Business and Economics, Beijing. Xiao Bai, postgraduate student at the Shanghai University of International Business and Economics, Shanghai.

[1]The Infrastructure Consortium for Africa. Infrastructure Financing Trends in Africa 2015. November 2016.
[2]“Current Situation and Prospects of China 's Infrastructure Investment in Africa.” Oriental Morning Post, 16 December 2014.
[3]“Relations between New Infrastructure Construction Policies in Africa and China.” Xinhua Expatriate Labor Service Center, 8 February 2017.
[4] South African Chinese Economic and Trade Association. 2015-2016 Annual Report on Chinese Enterprises Developments in South African. January 2017.
[5] Dollar, David. China’s Engagement with Africa: From Natural Resources to Human Resources. Washington, DC: John L. Thornton China Center at Brookings, 2016.
[6] Chen, Wenjie, et al. “Why is China investing in Africa? Evidence from the firm level.” Brookings Institution, 2015.

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