The argument by the Organisation for Economic Cooperation and Development (OECD) that tightening South Africa’s wealth tax regime would rebalance ... generational inequality has a fundamental flaw: it targets a “flighty” base, says an expert from the African Tax Institute.
The incumbent economic czar, Liu He, is set to announce his retirement at this year’s Congress, leaving a vacancy and the possibility of change. The 70-year-old is seen in Beijing as relatively fiscally conservative.
He has frequently emphasised the need to reduce spending and debt, and prioritise “quality” economic development over fast growth.
Liu has also sought to implement reforms in the financial sector to mitigate economic risks and has been prepared to accept slower growth rates as a consequence of his measures.
Reducing foreign lending
Partly due to these policies, China drastically scaled back the BRI under Liu’s stewardship of the economy.
The world’s second biggest economy sought to reduce the amount of money it lent to foreign markets, including in Africa, because of fears that debtor countries wouldn’t be able to pay off their debts.
Credit, therefore, dried up and various infrastructure projects were left uncompleted, such as a super-fast railway line connecting Kenya and Uganda.
Overall, Chinese investment in BRI countries fell by 54% between 2019 and 2020. In Africa, investment in the 40 countries, which receive BRI funds, fell from $11bn in 2017 to $3.3bn in 2020 – a 70% decrease.
More Africa funding under He Lifeng
However, with Xi Jinping confronted with a poor economic situation and low growth in China, a strategic shift seems forthcoming.
Most observers expect Liu He’s successor to be He Lifeng, a close ally of Xi’s. His track record suggests that he will take a much different path than Liu’s.
African countries are now turning against China.”
When running the finances of China’s third largest city, Tianjin, in the aftermath of the financial crisis, He sought to stimulate growth by borrowing billions of dollars to invest in infrastructure projects.
During his time leading the powerful National Development and Reform Commission (NDRC), He has likewise pumped trillions of yuan into “megaprojects” such as high-speed railways and water tunnels, believing that doing so ultimately leads to stronger economic growth.
There are also signs that he may approach foreign markets with a similar high-spending mentality, and thereby reinvigorate China’s BRI investments in Africa and elsewhere.
He is already closely associated with the project and currently serves as a deputy leader of the Belt and Road Construction Leadership Group.
This would suggest that He may seek to reboot the BRI if put in charge of the Chinese economy, and would potentially commit China to spending more money on infrastructure projects in Africa and loaning African governments greater sums of money.
Less welcoming Africa?
Some experts, however, are not convinced that every African country would necessarily welcome this renewed Chinese interest.
Edward Howell, a lecturer at the University of Oxford and specialist in East Asian politics, argued that “African countries are now turning against China”.
“Even before the days of the BRI, China’s psychological and coercive interventions on the continent have not gone unnoticed, not least as Chinese private security contractors, in effect, mercenaries, seek to protect China’s BRI’s projects on the continent – from Kenya to Djibouti – and further China’s influence through clandestine actions,” he says.
Boon to African economies
Despite the potential risks involved with Chinese investment in Africa, many recognise that BRI projects can yield significant economic benefits for recipient countries, helping them become more attractive locations for foreign investment and stimulating higher growth rates.
Mathias Althoff is a Vice Chief Investment Officer and Partner at Tundra Fonder, a Stockholm-based asset manager that specialises in frontier markets. He says determining whether BRI investment in Africa is positive or not “isn’t a simple yes or no question,” but that he would be more inclined to say “yes”.
Althoff adds that BRI infrastructure projects could be particularly useful in Africa by unlocking economic potential.
“Africa [consists of] 54 countries and they’re all very different,” Althoff tells The Africa Report. “But in general, they’re all very underdeveloped: it’s probably the continent with the biggest need for infrastructure on the planet. The lack of roads, railways, and electricity is a huge obstacle for industrialisation and economic growth.”
China’s psychological and coercive interventions on the continent have not gone unnoticed.”
Althoff pointed to Nigeria as an example of a country that could benefit from investment in infrastructure, whether that comes from BRI or other sources.
“Nigeria has a huge deficit in infrastructure,” he says. “It costs as much to transport goods from China to the Port of Lagos as it does to take it about 50km out from the port.”
This means that, while Nigeria is a huge market “that’s big enough to be a production hub for anything,” the high cost of moving goods around the country is a major deterrent to foreign investors and manufacturers. Resolving such problems – both in Nigeria and across the continent – would help unlock considerable economic potential.
Althoff said previous Chinese investment in Africa has helped spur growth in certain sectors, particularly when it comes to natural resources.
“Chinese investments in the first 10 years of the millennium really helped a lot of African economies to monetise the assets they had in the ground,” Althoff said.
“So you were able to get the stuff up from the ground, transport it to the seaside, and ship it elsewhere. And that helped a lot to bring in new money, that [the countries] could invest in hospitals, education, or other productive assets.”
Funding mega projects
Should China decide to recommit to funding high-spending infrastructure projects in Africa, and the signs suggest they may intend to, this may present both risks and opportunities to African markets.
Governments will need to ensure they’re not at risk of “debt-trap diplomacy” and that they’re agreeing to contracts on transparent and acceptable terms.
However, targeted investment – particularly in infrastructure – could also help to drive economic growth and market development across the continent.
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