Wednesday, August 27, 2008

Chinafrica (20) Watching for PRC Influence in Africa

Emerging financiers increase African investment

(The take home point worth noting is that what we have is a near perfect match... huge mineral reserves, demand, and means to exploit... "World Bank lead economist and coauthor of the report Vivien Foster says, "The growing cooperation amongst developing economies is driven by strong economic comple- mentarities between China and Africa. China's growing demand for natural resources is matched by Africa's significant and often underdeveloped oil and mineral reserves. Africa's urgent need for infrastructure is matched by China's globally competitive construction industry." So far, however nearly two thirds of Chinese investments are concentrated in Angola, Nigeria, Ethiopia and the Sudan.)


Emerging financiers increase African investment
Published: 15 Aug 08 - 0:00

Emerging financiers China, India and a few Middle Eastern Gulf nations' investment commitments, funding infrastructure projects in Africa, jumped from less than $1-billion a year before 2004 to $8-billion a year in 2006, and $5-billion a year in 2007. This signals a growing trend in cooperation among developing economies, says a new World Bank report.

The report, 'Building Bridges: China's Growing Role as Infrastructure Financier for Sub-Saharan Africa', shows how new infrastructure partnerships are emerging, driven by strong economic growth in the region, an improved business-friendly climate, and rising demand for petroleum and other commodities from China and India.

World Bank vice-president for the Africa region Obiageli Katryn Ezekwesili says, "China's success story in reducing poverty through rapid and sustained growth is remarkable. Massive invest- ment in infrastructure is a key factor. China's growing infra- structure commitments in Africa are helping to address the huge infrastructure deficit of the continent. There are, of course, challenges, which will need to be addressed by African nations and China, coupled with the support of development partners. By working together, win-win partnerships can be created."

Africa faces daunting challenges in improving its infrastructure, the report states. Development experts agree that ageing infrastructure is cutting the growth rate of African economies by as much as one percentage point every year. One in four Africans do not have access to electricity. Travel times on African roads and export routes are two to three times higher than in Asia, increasing the prices of traded goods. Power generation capacity is about one-half the levels achieved in South Asia.

The report notes that the investment being made by emerging financiers are unprecedented in scale and focus on large infrastructure projects. In a changing world, with new actors and financing modalities coming into play, there is a learning process for investors and recipients. This will place new demands on national capacity to negotiate complex and innovative deals, and apply appropriate environmental and social standards needed for the long-term success of such partnerships.

Sub-Saharan Africa's natural resource exports to China have grown exponentially, from just over $3-billion in 2001, to $22-billion in 2006. Petroleum dominates, accounting for 80% of total exports to China. Nevertheless, the bulk of Africa's oil exports still go to the US and Europe, which together receive 57% of the total, compared with only 14% going to China. Other important African export commodities are iron-ore and timber, followed by manganese, cobalt, copper and chromium.

World Bank lead economist and coauthor of the report Vivien Foster says, "The growing cooperation amongst developing economies is driven by strong economic comple- mentarities between China and Africa. China's growing demand for natural resources is matched by Africa's significant and often underdeveloped oil and mineral reserves. Africa's urgent need for infrastructure is matched by China's globally competitive construction industry."

The World Bank is working closely with African countries, China and other development partners, sharing experiences so that the investments have the best development impact.

China is not the only emerging financier playing a major role in Africa. In recent years, India has increased its investments, committing $2,6-billion since 2003. The bulk of Indian investments were in Nigeria. Oil-rich Gulf states and Arab donors are also playing a substantial role in African infra- structure, committing on average $500-million every year over the last seven years.
Report coauthor Chuan Chen says, "While more cooperation amongst developing economies backed by strong infrastruc-ture investments marks a positive trend, the key challenge is to maintain the momentum for lasting development results."

Detailed findings of the report include the sizeable investment commitments made by the nontraditional financiers to sub-Saharan Africa's infrastructure in helping to fill annual needs, estimated at $22-billion by the Commission for Africa. China's financing investments in Africa started from a low base, less than $1-billion a year before 2004, but rose to over $7-billion a year in 2006, and dipped to $4,5-billion a year in 2007.

China has also committed $3,3-billion for ten projects that could potentially boost sub- Saharan Africa's hydropower generation by 30%, or 6 000 MW of installed capacity. The Far East country is financing the rehabilitation of 1 350 km of railway and constructing 1 600 km of new railway lines across the region, an important contribution to the continent's existing 50 000-km rail network. Nearly 70% of Chinese investments are concentrated in Angola, Nigeria, Ethiopia and the Sudan.

Financing terms vary by country, but typically involve a grant element of 33%, close to the benchmark level for concessional finance. About 35 African countries have received Chinese infrastructure finance. Many projects are less than $50-million each. There have also been a handful of trans-actions worth more than $1- billion, showing China's ability to provide large sums of money for specific infrastructure projects.

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