The main talking point about Sino-African relations in the COVID-19 experience has been the extent to which China will take part in the G20 initiative to defer sovereign debt repayments. This came up in a webinar on ‘China-Africa Policy in the Age of COVID: A New Normal?’ but more revealing was the discussion on the direction of Chinese investment. The event was organized by a prominent London-based business platform for the continent.
The consensus was that aggregate Chinese investment in Africa will decline in the straitened circumstances globally and take a new direction. The mega-infrastructure projects such as the Addis-Djibouti railway belong to the past. Tejinder Singh, noted a move in financing away from the sovereign obligor structure over the past 18 months (and so pre-COVID). African governments had become increasingly reluctant to issue guarantees.
Without such cover, projects must be bankable and stand on their own feet. Chinese investors/builders, whether public or private sector, are looking for more infrastructure financing in local currency to match any receivables. They are also looking at the possibility of public-private partnerships (PPP) for roads and airports, which have a chequered record in Africa and elsewhere. Attendees felt that all parties had come to expect too much from Sinosure (China export and credit insurance corporation).
Fred Wen, Vice President of the South African China Economic and Trade Association, saw a much larger role for Chinese venture capital. The industry body for Africa has estimated that the Chinese share of venture capital exposure to the continent is just 2 per cent. On a sectoral basis, the consensus was that Chinese investment in manufacturing will rise in the years ahead.
A study by McKinsey last year put annual industrial production in Africa at US$500bn and estimated the share of the Chinese private sector at 12 per cent. Singh indicated that just 40 per cent of these companies made use of local supply chains. Twyford Ceramics works with such chains. This Chinese company was founded in Kenya, set up operations in other East African markets and has this year opened a plant in Senegal. Its products are a core input for housing projects. Africa is short of housing and China has made a name for itself in the affordable segment with a large project completed in Angola.
Attendees were asked how African governments would position themselves in the conflict between the Chinese telecoms firm Huawei and Western states. Wen urged the protagonists to calm down and Adebola Omololu, director for corporate development at KaiOS Technologies in China, felt that Africa would stay outside the dispute. This will be difficult in our view since both sides to the dispute will be applying pressure. Huawei and China in general have created a niche for themselves in Africa by offering affordable products to a young population. The protagonists will just have to co-exist.
Finally, we learnt from Omololu about African investment in China. The stock could be as high as US$25bn according to sources in Beijing. The most successful play has been the purchase by Naspers of South Africa of an interest in Tencent, a Chinese social media and gaming operation. African governments have together sunk US$700m into the Shanghai headquarters of the Asian Infrastructure Investment Bank. About 800 African companies have invested in China, and we should not forget the renminbi holdings in the reserves of the Nigerian and other central banks.
Article by Gregory Kronsten, Head, Macroeconomic and Fixed Income Research at FBNQuest