China’s investment largesse may dwarf EU in Africa

A man walks past the National Theatre of Ghana in Accra, built by China in 1992. [Nataly Reinch/Shutterstock]

When it comes to increasing investment in the African, Caribbean and Pacific countries covered by the Cotonou Agreement, the EU talks a good game. But it is facing stiff competition from China, armed with more cash and fewer concerns about democracy and the rule of law when it comes to investment.

The recently established Trust Fund for Africa and the soon-to-be-expanded European External Investment Plan are the EU’s latest Africa-focused investment vehicles. The EIP was launched in autumn 2016 and the Commission says it will generate more than €44 billion of investments by 2020.

The European Investment Bank is set to have a major role in coordinating the EU’s expanding investment remit. The EIB’s investment in projects in East Africa in 2017 totalled €400 million. That was a good year, said the bank’s bureau chief for the region, Catherine Collin.

“The Cotonou mandate has a very strong focus on private sector development. To have growth you need a port that functions, you need energy supply, so it is normal that we are still focusing on those traditional infrastructure projects,” Catherine Collin tells EURACTIV.

“On the other hand, we have been given a mandate and the instruments to develop the private sector…and in this region there is potential,” says Collin.

The scope of this mandate is broad enough to include access to local currency loans for small businesses; regional private equity funds – including funds investing in microfinance and local mid-cap enterprises; and subordinated bank capital to banks in the region.

Around half of the EIB-backed lending in Africa supports private sector investment by small and medium-sized businesses each year.

But the EU’s various investment vehicles all come with political agendas. The EIP and Trust Fund are focused on long-term migration control. Increasing energy capacity and agricultural industrialization are other key goals to the EU.

Those agendas are not going to disappear in a post-Cotonou agreement and, if anything, will be expanded. The European Commission’s negotiating mandate for the post-Cotonou talks seeks to increase the levels of conditionality and sanctions for governments with poor human rights records.

This would mean that no funds would be allocated to states violating human rights, with the repayment of funds to be demanded if a severe violation of human rights is established.

China’s investment offensive comes with different strings attached

China does not have the EU’s cash restraints or agendas, and the sums involved in Chinese investment on the African continent dwarfed those offered by Europe. At the start of a two-day China-Africa summit on Monday (3 September), President XI pledged $60 billion (€51.6 billion) in new development financing. The summit focused on the Belt and Road Initiative,  a major Chinese project which reaches into the African continent.

China may be investing lavishly, but its projects often come with strings attached, mostly in the form of loans from Chinese banks. China is already facing increasing criticism for its debt-heavy approach to investment. The likes of Zambia and Congo-Brazzaville have saddled themselves with soaring debt to GDP burdens, in large part because of taking on large Chinese-financed infrastructure projects.

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But the fact that China’s cash comes with no political conditions, compared to the financing from the EU, the IMF, World Bank and other development finance institutions, as well as the size of the sums involved, make it attractive to African governments.

Anxious not to be left behind, but without the taxpayer-funded resources to rival China’s largesse, several EU countries have launched their own initiatives.

Outlining its plans for a ‘Marshall Plan for Africa’ at the G20 last year, the German government called on European countries to ramp up public and private sector investment in the continent.

“We cannot leave Africa to the Chinese, Russians, and Turks,’ Development minister Gerd Müller said, pointing out that only about 1,000 German firms currently did business in Africa.

The UK is also stepping up its investment, quadrupling the funding of its African and Asian investment arm, the Commonwealth Development Corporation (CDC), from £1.5 billion (€1.7) to £6 billion (€7 billion), with a mandate to focus on the poorest, riskiest investment climates. The CDC is in the process of setting up shop in Nairobi, making it the latest addition to the network of European and international development finance institutions in the Kenyan capital.

But many in Africa feel like that they have heard it all before.

“Many nations have declared ‘years for Africa’ but at the end of the year it ends only with policies on paper”, says Shehu Sani, Chairman of Nigeria’s Senate Committee on Local & Foreign Debts.

Unless Europe is able to match its promises with hard cash, its leaders should not be surprised if African leaders continue their pivot towards China.

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