China is delivering over 30% of Africa’s big construction projects. Here’s why.

By Kang-Chun Cheng
Posted on Wednesday, 16 March 2022 08:10

Workers are seen on site during the construction of the Nairobi Expressway, in Nairobi
Workers are seen on site during the construction of the Nairobi Expressway, undertaken by the China Road and Bridge Corporation (CRBC) on a public-private partnership (PPP) basis, along Uhuru Highway in Nairobi, Kenya October 20, 2021. REUTERS/Thomas Mukoya

Much of the infrastructure transforming the African continent is Chinese-funded. While the West might frame it as 'debt-trap diplomacy', a great deal are projects with World Bank guarantees - and the rollout unlikely slow down, given Africa's profound need for roads, rails and ports.

Even within the confines of World Bank-financed contracts, Chinese firms are accounting for an increasing proportion of total contracts won. It turns out that the economic diplomacy of Chinese investments is equally attractive to recipient African nations.

Paving the way

Joel Mwangi, a driver in Kerugoya, the largest town in Kenya’s Kirinyaga County – a region known for its agricultural production – says the newly tarmacked roads have made life easier. “The Chinese have done well […],” he says. “The roads are  […] okay here. You can now travel […] 20 kilometres from Kerugoya to the centre of town in 20 minutes, which used to take up to an hour.”

The roads have eased supply chain logistics for food growers and shippers alike. Previously, the town  was characterised by pot-hole studded roads that would be impassable during the rainy season.

Africa’s hunger for infrastructural development

In a recent study by the Centre for Global Development (CGDev), researchers found that China’s development banks (China Exim Bank and China Development Bank) outstripped the amount lent – by the US, Germany, Japan, and France combined – over those 13 years by more than double: $23bn versus $9.1bn. The study focused on 535 public-private infrastructure deals funded in sub-Saharan Africa.

Despite the publicised issue of ‘debt trap diplomacy,’ where China lends more than what the recipient can pay back, the style of non-political interference is preferable to African nations.

Even though the funding may be impressive, a gap between public-private investment and the infrastructure finance needs of sub-Saharan Africa still persists. From 2007-2020, the total domestic and external finance for financially-closed infrastructure projects (including private participation) remained stagnant despite professed commitments to increase the total financing volume – most notably, the World Bank’s ‘billions to trillions’ vision.

A topic of great speculation

Elijah Munyi, an assistant professor of International Relations at Nairobi’s United States International University-Africa, says the visual nature of China’s investment in Kenya – Chinese workers can be seen working through weekends – has sparked many conversations. “Although it is easy capital access from the Chinese perspective, each year here we’re debating the merits of national borrowing capacity. Kenyans would like to have a borrowing limit, but every year, Parliament pushes to extend the ceiling,” says Munyi.

Munyi cites the myopia of framing engagement with African nations solely through infrastructure, a known Chinese specialty. “Of course, the numbers might throw one off. It doesn’t capture the broader capital input in investment, such as agriculture, health, education, which are areas that the West – the US and Europe – tend to focus on more, but the West is putting in a lot of money. It may not be World Bank money, but it’s collateral money.”

He says China still perceives itself as a developing country. “China does not want to grant a collective trade [program] to Africa like the African Growth and Opportunity Act (AGOA – American policy with Africa) because doing so could be viewed as a declaration of not being a ‘fellow’ developing country.”

Reasons for dominance

Chinese contractors have also accounted for an increasing proportion of the total value of World Bank contracts – projects generally backed by recipient governments and the World Bank.

Since China has always been hands off, recipient countries believe that it’s better to stay with China.

Charles Kenny, the director of technology and development and senior fellow at CGDev, recently wrote about how an estimated 31% of all construction projects in Africa valued at $50m or more in 2020 are Chinese-funded. Kenny argues that reasons for China’s dominance may actually be benign. World Bank contracts, for instance, follow guidelines determined by competitive procurement approaches.

“… A good part of the explanation for China’s outsize role may be that the country’s construction firms are simply very competitive,” Kenny says. “That shouldn’t come as a huge surprise: China has been building a lot of late. Its companies still have considerably cheaper labour costs than firms based in high-income countries.”

Meanwhile, global labour-productivity growth in construction has been lagging over the past two decades, averaging 1% a year as opposed to 2.8% for the total world economy, according to a McKinsey study.

Developing reciprocal relations

Justin Siocha, a communications practitioner specialising in Chinese economic aid in Africa, believes that China will only continue becoming more attractive across the continent.

“Despite the publicised issue of ‘debt trap diplomacy,’ where China lends more than what the recipient can pay back, the style of non-political interference is preferable to African nations,” he says. “Since China has always been hands off, recipient countries believe that it’s better to stay with China. They respect us and don’t talk down to us like we’re small boys, unlike the Western ‘big brother’ attitude. They offer us debt relief. We’re comfortable with them.”

Due to the status of Exim Bank (as a state-owned entity), other multinational organisations, such as the IMF, are unable to beat its low interest rates, says Siocha. “It’s a south-to-south scenario. The Chinese are also more open to bargaining, which comes off as diplomatic to African nations since there’s room for negotiation.”

China has provided a niche for infrastructure capital, which in turn has changed the African view of demand and loans.

Siocha further points to how China has strengthened its diplomatic grip in Africa as part of the process. Its nationalist approach – taking into consideration geopolitical and economic long term benefits – plays to dethroning traditional colonialist superpowers via China’s own brand of economic diplomacy. “Many African leaders [stay] in power for 20, 30 years,” he says. “Establishing these long-lasting relations helps with business down the line.”

John Calabrese, the director of American University’s Middle East-Asia project, says although the study delineates China’s ‘dominance’ across the infrastructure finance landscape, it does not account for the accumulating dissatisfaction and pushback that China encounters from African partners along the way, “nor does it account for the fact that, even before the pandemic, Beijing had begun to reassess and scale back its overseas investment commitments”.

With regards to the rest of the world shifting from a ‘big-brother’ approach to a more reciprocal or mutually-beneficial one, such as that of China-Africa, Calabrese suggests furthering contact and revitalising existing multilateral approaches. “More opportunities by prominent members of the US business community and other influencers to experience Africa firsthand – seeing the success stories- and to interact with ‘real’ Africans, the talented and accomplished counterparts [could bring about] such change,” he says.

Africa will continue developing at whirlwind speed. “China has provided a niche for infrastructure capital, which in turn has changed the African view of demand and loans,” Munyi says.

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