Could Africa’s resource boom and infrastructure projects unlock yet more decades of China’s rapid growth?

 

In the wake of declining growth prospects for the Chinese economy, could the resilient African continent support the economic boom has spanned over a decade?

“If you want to be rich you must first build roads,” says a well-known Chinese proverb. This has been integral in Chinese growth and they have replicated the approach on the African continent. China remains at the fore front of building African infrastructure but the assistance has been tied to African resources which are the cornerstone of Chinese industries. The system has opened the African markets to Chinese exports and Africa’s growing middle class could well increase the demand over the next decade if past trends are an indicator of what is yet to come. Trade between China and Africa has grown from USD 10.6 bn in 2000 to USD 160.0 bn in 2011. Africa’s switch from her traditional western trade partners to Asian economies could also work in China’s favour.

Africa’s infrastructure deficit still lingers and is currently estimated at USD 93.0 bn on an annual basis according to the World Bank. In response, over the 2000 and 2011 period, China is estimated to have spent about USD 90.0 bn on over 1,700 projects on the African continent. This includes but is not limited to construction of 2,000 kms of railway, 3,000 kms of road, 100 schools and 60 hospitals.

Having already grown its outbound investment tenfold in the past decade in the period to 2011, Economists predict that China will inject USD 788.0 bn into the global economy in 2013 USD 150.0 bn of which is intended for investment in infrastructure projects.

Africa’s quest to become an industrial force to reckon with continues but is hampered by limited access to electricity. Only a quarter of the continent’s population has access to electricity and achieving universal access  for Sub Saharan Africa by 2030 requires in excess of USD 300.0 bn according  to IEA estimates. While China has partly provided solutions to this challenge, they have come at a price. In 2011, China’s Sichuan Hongda Co. Ltd signed a USD 3.0 bn deal to mine coal and iron ore and in return build a 600-megawatt coal fired power plant in Southern Tanzania. In Ethiopia the USD 4.1 bn Grand Renaissance Dam was constructed thanks to China and will contribute USD 500 m to help Uganda construct the Karuma dam along the River Nile, payment of which is expected to come from oil revenue. China’s CNOOC is one the key players in Uganda’s oil industry expected to construct the pipeline. Tanzania estimated to have 41.7 trillion cubic feet of natural gas also recently secured a USD 1.2 bn loan from Exim Bank to help in the construction of 534-km long natural gas pipeline from Mtwara-Dar es Salaam. It is expected to supply 103 million cubic metres of gas to the latter.

The bonanza continues as a Chinese consortium could still be awarded the tender to construct the Inga 3 expected to have a power output of 4800 MW at a cost of USD 12.0 bn if they win competitive bidding process involving Spanish, Korea/Canadian consortia. With South Africa’s already interested in buying about half of the power generated from Inga 3 when complete, we could even see the completion of the Grand Inga project that could generate up to 40,000 MW at USD 80.0 bn. However raising this amount of money for the latter remains a tall order given the political risk in the DRC. Could the world’s second largest economy come to the ‘rescue’…?

Unlike western aid and financing, Chinese have a non-intervention political policy which is much appreciated by African leaders and has won them increasing preference over western powers as development partners. The aid however has commercial conditions like construction often has to be executed by Chinese companies that usually come with their workers. As a consequence, a lot of the financial benefits flow back into their economy. The profit repatriation also bolsters their economy and grows their companies’ profitability. Much of the financial aid is targeted at countries with mineral wealth necessary for China’s industries. No surprise therefore that in the period between 1979 and 2002, out of the total investments in Africa estimated at USD 444.0 bn, over 76.0 per cent was allocated to mineral rich South Africa, Zambia, Tanzania and oil endowed Nigeria.

Currently the world’s second consumer of oil after the U.S. it is obvious why China has vested interests in oil producing countries on a continent that now accounts for 10.0 per cent of the world’s oil reserves. It explains the aid, concessional loans and infrastructure projects in countries like Angola, South Sudan, Gabon, Uganda, and Niger etc. that are endowed with oil reserves.

Now that the ties have been created, roads have been built to facilitate trade and make it even cheaper, doors have been opened to Chinese investors, cheaper labour is available in Africa compared to China, growing middle class to consume their products, electricity is being provided to facilitate industrialisation, oil and natural gas deals have been struck, minerals are being extracted; could Africa provide the perfect frontier for revived exponential growth of China?

Further reading

AFRICA INVESTMENT-Can Obama’s Africa Power plan hold a candle to China? http://www.reuters.com/article/2013/07/02/africa-investment-idUSL5N0F821520130702

Infrastructure investments boost China’s economy                     http://www.pwc.com/gx/en/capital-projects-infrastructure/assets/gabriel-wong.pdf

Will ‘world’s biggest’ hydro power project light up Africa? http://edition.cnn.com/2013/06/28/business/biggest-hydropower-grand-inga-congo

China in the heart of Africa                                                 http://www.un.org/africarenewal/magazine/january-2013/china-heart-africa

China commits billions in aid to Africa as part of charm offensive – interactive

http://www.theguardian.com/global-development/interactive/2013/apr/29/china-commits-billions-aid-africa-interactive

A renewed partnership between China and Africa?                  http://chinaperspectives.revues.org/519

Africa’s oil and gas outlook 2013                                                 http://www.mmegi.bw/index.php?sid=10&aid=18&dir=2013/May/Friday17

The Chinese approach to securing Africa’s oil                                   http://www.cfr.org/china/expanding-china-africa-oil-ties/p9557

                          

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