Ratio Magazine :: The Inside Track to East Africa’s Economies - Renaissance Capital Publish China in Africa Report

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Renaissance Capital Publish China in Africa Report

Thursday, 21 April 2011

The GDP boom in China and Africa over the past decade has been exceeded by even faster growth in Chinese-African economic relations. While Chinese trade with the world has risen eightfold, with Africa it has seen a tenfold increase, from USD11bn in 2000 to USD129bn in 2010, and unlike China’s trade with most of the world, it is Africa that has the upper hand in this trading relationship. By 2015, trade turnover could have reached nearly USD400bn, with Africa’s surplus around USD40bn.
To improve its trading position, China is now lending billions of dollars to Africa in tied loans that guarantee Chinese companies contractor rights and ensure Chinese goods are used in development projects. The loans tend to be granted when their repayment can be guaranteed by payments from China for African exports. So China is buying African exports, but trying to ensure the African export revenues are spent on Chinese goods and companies, while aiming, over the longer term, to boost African GDP and the African market of 1bn consumers. What Africa gets in return is cheaper, longer-maturity loans, investment in infrastructure, and the ability to afford Chinese-made items to meet consumer demand.
Chinese private sector firms have now followed state-owned enterprises (SOE) and state banks into China, with the first tentative suggestions that Africa may now become a manufacturing base.
How big is Chinese investment in Africa? The figure varies hugely depending on the source. Chinese foreign direct investment (FDI) quadrupled between 2005 and 2009, reaching a stock of USD9.3bn according to Chinese Ministry of Commerce (CMC) figures; we believe this could soar to USD40bn by 2015. But according to US Heritage Foundation (HF) data, Chinese investments were USD44bn over the period from 2005 to 2010. The HF data fit better with United Nations Conference on Trade and Development (UNCTAD) data showing a total global sum of USD287bn of FDI to Africa from 2005 to 2010. We see evident problems in both the Chinese figures (e.g. they seem to exclude the USD5.5bn Standard Bank investment), as well as the HF data, which includes project work done by Chinese companies that is not necessarily FDI.
Much of the investment is financed by aid and loans. We estimate total Chinese foreign aid at USD11.5bn since the 1950s, but aid is now overshadowed by loans from China Eximbank (CEB), which totalled USD7bn by 2009, and China Development Bank (CDB), which has promised USD10bn to Africa and has already disbursed over half of this. Their recent numbers do compare favourably with lending by the World Bank or African Development Bank (AfDB), and future plans suggest a boom in lending in the coming years. China’s cheap financing is giving it a dominant position in Africa, which will force developed and other emerging market economies to fight harder for access to African resources and markets.
What is clear is that China, and indeed the 200,000 to 750,000 Chinese, are here to stay. This report, co-authored with our consultant Lucy Corkin, aims to provide an overview of existing linkages, as well as country snapshots highlighting the progress to date and planned growth in Chinese-African relations at a country level. It is the first in a new series of thematic pieces on Africa’s renaissance.