China is a big winner in Africa these days. When it comes to infrastructure investments, that is, which are beginning to change the old continent.
It is a winning model for doing business in Africa, and it is helping China to beat Europe and America there.
Chinese investments in Africa have grown rapidly in recent years, beating those of Europe and America, and placing Africa on the globalization map.
According to the 2018 World Investment Report, China invested a total of $45.1 billion in greenfield projects for the 2016-2017 period, up close to $40 billion from the 2013-2014 period.
That's well above the $34.57 billion and$7.54 billion invested by EU and the US respectively over the 2016-2017 period.
How are they doing it? It's all about China's business model.
That's according to NJ Ayuk, JD, MBA, author of Billions at Play. "The Chinese cooperation model is so attractive because it comes with no conditionality and no conditional actors like the World Bank and the IMF," he says. "Chinese investors and companies mean business. They inject capital and technology without conditions linked to the political or economic system in place within a given country.The idea of 'foreign interference,' which Europe or the US are often criticized for, does not apply to China."
Then there's China's "supply-side" approach to investing at home and abroad, which begins with "capabilities" and "resources" rather than needs, as is the case with the "demand side" approach. China has construction companies that can build big projects, and it has state-owned banks ready to provide the financing.
This approach makes projects that aren't economically viable for American and European companies viable for the Chinese.
"China has shown a stronger investment appetite and a willingness to take risks in Africa, which pays off," says Ayuk. "It invests where no one else is, and in critical projects. Chinese companies have the ability to make multi-billion dollar investment deals in projects of considerable importance such as hydropower dams or railway lines. It makes it a very strong contender in Africa and tough competitor for European and American investors."
Meanwhile, infrastructure projects allow China to gain political and diplomatic influence in Africa, as has been the case in Southeast Asia. China can use the diplomatic relationship, for instance, to gain Africa's votes on sensitive matters in the UN, as was discussed in previous pieces here.
Are these projects a win-win game for both sides? Ayuk thinks so.
"To the extent that China brings in much-needed capital to develop Africa's natural resources and explore its basins, its investment is win-win," he says. "It is especially true in the case of critical infrastructure such as railways, ports and roads whose development is so important to support the continent's economic growth."
But the benefits of Chinese projects for African nations are limited, since projects are mostly contracted to Chinese companies. "This has limited local procurement of goods and services and local jobs creation,"he says. But that is slowly changing.
How? "African nations are becoming better negotiators and are building negotiating capacities. In addition, several new regulations have been passed on local content development and domestic capacity building that will ensure that foreign investments into the continent benefits more Africans."
Still, China's "supply side" approach to investing could leave African nations with unneeded projects, saddled with debt to Chinese banks, as is currently the case with some Southeast Asian nations.
We all know what that means.
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