Africa is a promising continent. It’s home to four of the world’s fastest-growing economies: Cote d’Ivoire, Ethiopia, Ghana and Rwanda. Even though Africa’s largest economic powers — Nigeria, Angola and South Africa — currently show signs of weakness due to global economic uncertainties, high levels of debt and political and regulatory challenges, they and other countries of the region will likely see solid growth in the long term. According to McKinsey, Africa offers up to $5.6 trillion of new business opportunities over the next five years.
As projected by the African Development Bank Group, economic growth in Africa was expected to reach 4.1 per cent in 2020. The number will be less, however, as the projections were completed before the COVID-19 crisis. Despite the economic implications of the virus, there can be little doubt that, in the future, African economies will continue to grow at a relatively high speed.
The continent’s economic trends, to a large extent, are defined by robust demographics and urbanization. Africa’s urban population is projected to grow by 24 million annually for the next 25 years. Today, the continent’s share of the global economy is only three per cent. At the same time, Africa’s share of the world’s population is 17 per cent. The continent has the youngest population on the planet with an average age of just 19.7 years.
Globalization (that opened access to world commodity markets), urbanization and the young population provide grounds for further development in multiple sectors. Consumption, services, agriculture, historically important mining, as well as construction and infrastructure development are driving modern economic growth in Africa. The rapid economic development of the recent decade has uncovered the massive need for new infrastructure.
Development of Africa’s infrastructure was started by the colonial powers and was based on the needs of the natural resource exporters. Built by Europeans, the Nairobi-Mombasa and Addis Ababa-Djibouti railways connected major ports on the Indian Ocean with inland mining regions. Today, the structure of the continent’s economies is more diverse and less resource-dependent.
Over the last 10 years, China has taken a leading role in the development of the continent and has become Africa’s most important trading and development partner. Today, more than 10,000 Chinese companies operate in Africa (approximately 9 out of 10 are privately owned) and more than $500 billion-worth of the industrial output of the continent is controlled by Chinese entities.
China has become a major developer of African roads, railways, airports power plants.
According to the American Enterprise Institute (AEI), total Chinese investment in Sub-Saharan Africa amounted to approximately $132 billion between 2015 and 2019 and approximately $306 billion over the more encompassing time frame of 2005 to 2019. In both 2015 and 2018, the Chinese government announced $60 billion of financial aid for the continent. However, in recent years, the pace of Chinese investment in Africa has somewhat decelerated.
Among African nations, China’s two largest investment partners have been Nigeria and Angola. Between 2015 and 2019, those countries received around $26.3 billion and $7.6 billion of Chinese financing respectively. Those sums represented about a quarter of all Chinese investment in the region.
Energy and transportation projects have enjoyed special attention. For the last five years, Chinese investment in Nigeria amounted to $9.4 billion-worth of energy-related work and $14.9 billion-worth of transportation initiatives. In Angola, investments in the energy and transportation sectors amounted to $3.4 billion and $2.0 billion respectively. Angola has also received $2.1 billion from China for construction of power utilities.
Railroads have been among the largest Chinese infrastructure projects on the continent. Nigeria, Angola, Kenya, Ethiopia and Djibouti have all received financing for their railroad systems. At the end of 2019, the Nigerian government signed a contract with China Railway Construction Corporation for the laying of 440 kilometres of track that will connect the country’s capital, Abuja, with the port city of Warri.
In Angola, China invested in the $1.8 billion Benguela Railway project, with a total length of 1,344 kilometres. In early 2018, a $4 billion Addis Ababa-Djibouti freight railway, with a total length of 759 kilometres, started operations. Chinese financing and construction companies played an important role in that project as well.
A significant share of oil imported by China comes from Africa. Angola alone covers approximately 12 per cent of China’s oil demand. Not surprisingly, Chinese oil and gas companies have been active in construction of the continent’s refineries and oil and gas pipelines, as well as new onshore and offshore extraction facilities. Over the last five years, total Chinese investment in energy projects in Sub-Saharan Africa has reached $42 billion (according to AEI).
Africa has limited access to funding, and most of the infrastructure projects are capital intensive. Chinese financial organizations have been less conservative in their regional risk assessments than their Western counterparts. With higher risk tolerance, China has become the largest international investor in Africa. According to Deloitte Africa Construction Trends, China provided around 19 per cent of all funding for African infrastructure in 2018. The loans, according to Beijing, are internationally competitive in terms of interest rates and repayment conditions.
The ongoing long-term slowdown of economic growth in China is likely to result in lower demand for raw materials. This might hurt Chinese investment in Africa’s infrastructure. However, even with the less robust economic growth, China will remain a major owner, operator and developer of infrastructure projects on the continent.
