Increased investment in infrastructure forecast as a prime topic for Beijing FOCAC summit
The third Forum on China-Africa Cooperation, scheduled to be held in
Beijing in September, comes at a tumultuous time, as globalization is
under siege from unilateralism and trade protectionism. Africa, however,
is rising above sluggish growth as commodity prices recover, and the
continent is seriously investing in structural transformation to quickly
generate jobs for its rising population. Recommendations from the
summit are therefore expected to steer the two partners to firmer
The forum, where both China and Africa lay bare their development
ambitions, has helped galvanize the participants' global image.
"Because we share the common believe of changing the world order,
both partners have made strides in deepening relations and making
visible the agreements," says Peter Kagwanja, CEO of the Africa Policy
Institute, a think tank based in Kenya. The past two decades have seen
the continent move from being viewed as without hope to becoming
regarded as the last frontier, with seven out of 10 of the world's
fastest-growing economies in the world found in Africa.
"That is no coincidence," Kagwanja says
Formed in 2000, FOCAC has given momentum to Africa's renaissance
narrative, buoyed by China's financial assistance, which tripled during
President Xi Jinping's first term, when he pledged a funding support of
$60 billion (52 billion euros; ￡46 billion) during the second FOCAC
summit, held in Johannesburg, South Africa, in 2015. He also proposed a
10-point strategy that included industrialization, agricultural
modernization, infrastructure, financial services, green development,
trade and investment facilitation, poverty reduction and public welfare,
public health, people-to-people exchanges and security.
However, establishment and completion of these projects has faced
hurdles. There have been concerns from experts who have expressed
caution, voicing worries over discrepancies between financial and
technical commitments made by China at the forum and the speed of
implementation on the ground, which is determined by African
At a think-tank meeting held in June in Shanghai and organized by the
Shanghai Institute for International Studies and the Bill & Melinda
Gates Foundation, Xu Jinghu, the special representative of the Chinese
government on African affairs, said implementation of projects had faced
head winds in the past two years due to rising anti-globalization
sentiments, natural disasters that disrupted the priorities of African
governments, and falling commodity prices.
"Increased efforts are therefore needed in designing strategies that
would enhance sustainable China-Africa cooperation. China does meet its
commitments and we aim to continue with this trend," Xu said.
The move is expected to steer the style of engagement between China
and Africa away from the profit-oriented strategies used by traditional
partners, she said. "China does not encourage blind investment and has
ensured that intensive feasibility studies are undertaken and integrated
planning is designed to ensure that mega-transportation and energy
projects complement industrial growth," she said.
Giving a preview of the September summit, Xu hinted that
infrastructure investment would continue to take precedence in the
discussions. This time, however, the projects - railways, roads and
ports - would be designed to support an industrial ecosystem.
"We will see a more integrated development, and these industrial nodes will make railways more beneficial," she said.
The Chinese-funded projects will also be highly conscious of green
design to align them with Africa's priority of balancing conservation
and development, Xu said.
With expansion of infrastructure triggering increased debt for
African countries, there are concerns about whether African countries
will be able to repay their debt, considering the weak economic growth
of Africa's major economies. South Africa, Nigeria and Angola have been
hit hard by the commodity market slump, and an upswing in global
interest rates has increased fears of a repeat of the debt crises of the
1980s, 1990s and 2000s.
The environment for development finance in Africa is considered to be
changing, however, with the entry of financiers such as China, new
financing tools such as the Asian Infrastructure Investment Bank, the
New Development Bank, the Silk Road Fund and the South-South Cooperation
Fund, and a robust public-private partnership on development finance.
Africa is meanwhile exploring creative approaches to internal
financing and improving the capability of self-financing, aiming to
decrease foreign dependence and increase African ownership.
The continent has boosted its self-financing mechanism and is the
major financier for mega infrastructure projects. According to data from
the United Nations Economic Commission for Africa, external funding has
remained 1 percent of Africa's development finance.
Africa's risky image has made it lose its luster with international financiers, says one expert.
"The continent continues to be characterized by a low saving culture
and a large informal sector that is yet to be netted into the tax
systems," says Kapil Kapoor, the director for strategy and operational
policies and acting vice-president of the African Development Bank.
He says Africa is still unable to attract financing from assets held
by the world's 10 largest pension funds, amounting to $2 trillion; from
the largest insurance companies, amounting to $4.5 trillion; $5 trillion
held by the largest sovereign wealth funds; and $100 trillion by global
"The world needs intelligent development finance that goes well
beyond filling financing gaps and can be used strategically to unlock,
leverage and catalyze private flows and domestic resources," says
Nigeria, Africa's most populous economy, is facing serious challenges in meeting development finance needs.
"Nigeria has recently relied on debt, from both domestic and
international markets, to finance budget deficits and specific
infrastructure projects," says Chukwuka Onyekwena, executive director of
the Center for the Study of the Economies of Africa, based in Nigeria.
"The high domestic debt holdings are partly due to an attractive maximum
permitted rate at 14 percent and a recent shift to restructure debt
toward more foreign borrowing."
While conceding that concessionary finance will remain crucial for
Nigeria, as well as for other countries vulnerable to shocks, conflicts
and disasters, and those having large refugee and displaced populations,
Onyekwena warns that rising external debt has serious implications for
the financial health of African countries
The situation is also creating concerns in China, where it have been
noted that further lending may hold back Sino-African development goals.
The burgeoning debt is stretched by the costs of the
mega-infrastructure projects that take a long time to complete.
"This is very expensive. But the huge stock deficit and booming
population has seen the demand for these projects outstripping supply,
and there is urgent need for capital," said Li Tieli, a scholar from
Guangdong University of Foreign Studies, during a one-day meeting in
Nairobi discussing the Mombasa-Nairobi Standard Gauge Railway.
With limited capital, Africa will therefore be forced to seek
alternative strategies for mobilizing funds, Li said. This gives play to
public-private partnership and build-operate-transfer models that would
boost private participation and inject the required capital and skill
In addition, "The Silk Road Fund will also boost financing to African countries and stimulate development," said Li.
Ali Issa Abdi, executive director of the Horn Economic and Social
Policy Institute based in Ethiopia, says: "Ensuring debt sustainability -
that is very important. Despite the urgent need to bridge the
infrastructure gap, especially transportation, the continent will need
trillions of dollars in new investment."
He says that since infrastructure continues to feature prominently in
China-Africa talks, discussions should focus on developing interborder
transportation corridors that would speed up the integration process and
link markets of the African Continental Free Trade Area. They should
also consider the ability to mitigate financing of these projects and
avoid disruptions and instability, not replicating the mistakes of the
past in technology transfer that saw projects laid to waste once foreign
Lemma Senbet, executive director of the African Economic Research
Consortium, a think tank based in Kenya, says that although
infrastructure such as the Mombasa-Nairobi railway and the
Djibouti-Ethiopia Standard Gauge Railway are demand-driven, the buildup
of debt is a looming crisis.
"There is a need to come up with strategies to address this at the
FOCAC Beijing summit. I also think China should partner with Africa in
developing domestic mobilization strategies to plug the deficit," he
Chen Shaofeng, from the School of International Studies at Peking
University, says, "Unfortunately, countries that are highly unstable
have high demands for infrastructure, while those that are reasonably
stable are not eager to shore up their infrastructure.
"Governments therefore need to design tailor-made approaches to
specific countries and projects that are at different economic stages,"
Chen says. "There is a need to avoid a policy of one knife cuts all."