China reengages with Africa, intensifying focus on minerals

Following a slowdown during the global pandemic, China's primary economic cooperation initiatives have regained momentum, with a significant emphasis on Africa. Analysis of lending, investment, and trade data by Reuters indicates that Africa remains a key focus for China's renewed efforts.

President of China Xi Jinping and South African President Cyril Ramaphosa attend the China-Africa Leaders' Roundtable Dialogue on the last day of the BRICS Summit, in Johannesburg, South Africa, August 24, 2023. REUTERS Photo

Chinese leaders are highlighting substantial investments in new construction projects and unprecedented levels of trade to underscore their dedication to the continent’s modernization and the promotion of "win-win" cooperation. However, the data paints a nuanced picture, revealing a predominantly extractive relationship that has not fully matched the ambitious promises of the Belt and Road Initiative (BRI) — President Xi Jinping's strategy for creating a global infrastructure network.

While new Chinese investments in Africa surged by 114% last year, according to Australia's Griffith Asia Institute, these investments were predominantly directed towards minerals critical for the global energy transition and China's own economic revival. Trade has been similarly focused on minerals and oil, contributing to a growing trade deficit for Africa as efforts to diversify imports, such as agricultural products and manufactured goods, have faltered.

Chinese sovereign lending, once the cornerstone of African infrastructure financing, has dwindled to its lowest level in two decades. Public-private partnerships (PPPs), which China now prefers as an investment model, have yet to gain significant traction in Africa.

This dynamic results in a more unbalanced relationship than China professes to seek, characterized by the import of raw materials from Africa. Some analysts draw parallels to the colonial-era economic interactions Europe had with Africa. Eric Olander, co-founder of the China-Global South Project, remarks, "This is something late-19th century Britain would recognize." China, however, refutes such comparisons, asserting that Africa has the autonomy and capacity to choose its development partners and paths.

Potential for a New Approach?

China’s engagement in Africa, a focal point of the BRI, expanded rapidly in the two decades preceding the COVID-19 pandemic, with Chinese companies building crucial infrastructure across the continent, primarily funded by sovereign loans. Peak lending reached $28.4 billion in 2016, according to the Global China Initiative at Boston University. However, the profitability of many projects fell short, leading China to reduce its lending, further impacted by the pandemic.

A resurgence in sovereign lending is unlikely. Instead, Beijing policymakers are encouraging Chinese companies to take equity stakes and manage infrastructure projects they develop for foreign governments, aiming to secure higher-value contracts and ensure economic viability. Lending to Special Purpose Vehicles (SPVs) — a common PPP method — has increased, though its application in Africa remains limited.

The $668-million Nairobi Expressway, managed by the state-owned China Road and Bridge Corporation (CRBC), exemplifies this PPP model's potential. Since its opening in August 2022, the toll road has exceeded usage and revenue targets, indicating a successful model. Despite this, few Chinese companies are replicating CRBC’s approach in Africa due to concerns over legal frameworks and perceived market risks.

Expanding Engagement

The Griffith Asia Institute reported China’s total engagement in Africa, combining construction contracts and investment commitments, at $21.7 billion last year, making it the largest regional recipient. The American Enterprise Institute recorded nearly $11 billion in Chinese investments in Africa in 2023, the highest since tracking began in 2005. A significant portion of these investments, $7.8 billion, went into mining operations, including copper, cobalt, and lithium mines in Botswana, Namibia, Zambia, and Zimbabwe.

This quest for critical minerals is also driving infrastructure projects. For instance, Chinese companies pledged up to $7 billion in infrastructure investment in the Democratic Republic of Congo to support a copper and cobalt joint venture.

Despite China’s significant investments, African leaders face challenges in securing funding for other critical projects. The stalled construction of several Kenyan roads and the halted railway project linking Kenya to Uganda illustrate the difficulties in sustaining infrastructure development without continuous Chinese funding.

Chinese officials argue that a shift towards trade and investment will boost Africa's development. Two-way trade hit a record $282 billion last year, though the value of Africa's exports to China fell by 7%, exacerbating the trade deficit. Xi Jinping has promised initiatives to support Africa’s manufacturing and agricultural modernization, vital for closing trade gaps and creating jobs. However, these efforts are still falling short, with stringent Chinese import regulations posing significant hurdles.

For African countries to sustainably benefit from their relationship with China, adding value to their exports through increased processing and manufacturing is essential. Without this, the dynamic remains one of exporting raw minerals to fuel China's economy, as noted by Francis Mangeni, an advisor at the Secretariat of the African Continental Free Trade Area.