Special Report – Belt and Road

Sino-African relations: Chinese private sector becomes more active in trade

Last year saw a 106 per cent jump in projects from China, which also committed a US$700m loan to the National Bank of Egypt, while planning US$15 billion of investments in Egyptian infrastructure initiatives

PUBLISHED : Tuesday, 20 June, 2017, 12:10pm
UPDATED : Wednesday, 21 June, 2017, 2:37pm

Transport, mining, energy and other critical infrastructure in Africa have formed a solid amount of trade between the continent and China, and this looks set to accelerate as Beijing invests more energy into its global expansion plans. As reported by Reuters, total trade between China and Africa rose 16.8 per cent year-on-year, the first increase since 2015.

Last month’s report from EY on Africa showed that China has invested in 293 FDI ventures on the continent since 2005, with a total outlay of US$66.4 billion, creating more than 130,000 jobs. Last year saw a 106 per cent jump in projects from China, which also committed a US$700m loan to the National Bank of Egypt, while planning US$15 billion of investments in 15 Egyptian electricity, transport and infrastructure initiatives.

Last July, Chinese companies and banks reached US$17 billion worth of co-operation pacts in infrastructure, energy, and pharmaceuticals, while last October a Chinese-built railway with a US$4 billion investment launched between Addis Ababa and Djibouti.

“China has developed a good relationship with Africa and has supported its development through state-owned enterprises (SOEs). In recent years, private companies have entered Africa,” says Liao Qun, general manager and chief economist, research department, China Citic Bank International.

Other analysts have reported that private companies and entrepreneurs are making their moves. “China’s involvement in Africa will gradually shift from government-backed loans and foreign trade toward direct investment in local production,” says analyst Robert Bianchi, lecturer at the University of Chicago Law School and visiting professor at the Shanghai International Studies University.

The investments have expanded from an earlier emphasis on infrastructure and mineral expansion to focus onagriculture, light industries, financial services, information technology and telecoms. Bianchi says: “Sino-African relations will be shaped more by direct connections between Chinese immigrants and African citizens’ groups rather than official government channels.”

Liao believes state-driven investment will remain the impetus, saying: “Africa’s priority is infrastructure, and this will continue via SOEs. For private companies the focus will be on manufacturing and selling consumer goods. This will mean investment will be more diversified, as poorer countries in Africa also have a need for better goods, food and clothing.”

Factors driving this trend include growing middle classes in China and Africa creating a demand for mass markets in food and consumer goods. With greater mobility via affordable travel and rise in online connectivity, independent and private entrepreneurial endeavours are becoming influential in trade. “These social and economic transformations are generating political pressures on Chinese and African leaders for greater transparency and inclusiveness that will challenge entrenched centres of power and wealth,” Bianchi says.

Liao says private investors and entrepreneurs will have to contend with financing issues along with risks related to return on investment. “For private companies, finance is always an issue, and overseas investment is difficult. State banks will help finance private companies investing in Africa and the government will encourage and help. Additionally, investment funds interested in Africa market will be involved if the projects are commercially viable.”

The EY report on Africa says: “A critical driver of economic development will be the promotion of entrepreneurship – small- and medium-sized enterprises will be the main drivers of the jobs and other economic opportunities required to realise inclusive, sustainable growth.”