China’s flagship economic cooperation programme is bouncing back after a lull during the global pandemic, with Africa a primary focus, according to a Reuters analysis of lending, investment and trade data.
Chinese leaders have been citing the billions of dollars committed to new construction projects and record two-way trade as evidence of their commitment to assist with the continent’s modernisation and foster “win-win” cooperation.
But the data reveals a more complex relationship, one that is still largely extractive and has so far failed to live up to some of Beijing’s rhetoric about the Belt and Road Initiative, President Xi Jinping’s strategy to build an infrastructure network connecting China to the world.
While new Chinese investment in Africa increased 114 percent last year, according to the Griffith Asia Institute at Australia’s Griffith University, it was heavily focused on minerals essential to the global energy transition and China’s plans to revive its own flagging economy.
Those minerals and oil also dominated trade. As efforts falter to boost other imports from Africa, including agricultural products and manufactured goods, the continent’s trade deficit with China has ballooned.
Read: How Africa can deal with global rush for its minerals
Chinese sovereign lending, once the main source of financing for Africa’s infrastructure, is at its lowest level in two decades. And public-private partnerships (PPPs), which China has touted as its new preferred investment vehicle globally, have yet to gain traction in Africa.
The result is a more one-sided relationship than China says it wants, one that is dominated by imports of Africa’s raw materials and that some analysts argue contains echoes of colonial-era Europe’s economic relations with the continent.
“This is something late-19th century Britain would recognise,” said Eric Olander, co-founder of the China-Global South Project website and podcast.
China rejects such assertions.
“Africa has the right, capacity and wisdom to develop its external relations and choose its partners,” China’s foreign ministry wrote in response to Reuters’ questions.
“China’s practical support for Africa’s path of modernisation in accordance with its own characteristics has been welcomed by an increasing number of African countries.”
The Prospect Lithium mine and processing plant in Goromonzi, Zimbabwe on July 5, 2023. REUTERS
Unprofitable projects
China’s engagement in Africa, a focus of the Belt and Road Initiative (BRI), grew rapidly in the two decades before the Covid-19 pandemic. Chinese companies built ports, hydropower plants and railways across the continent, financed mainly through sovereign loans. Annual lending commitments peaked at $28.4 billion in 2016, according to the Global China Initiative at Boston University.
But many projects proved unprofitable. As some governments struggled to repay loans, China cut lending. Covid-19 then pushed it to turn inward, and Chinese construction projects in Africa fell.
A rebound in sovereign lending is not expected.
Policymakers in Beijing have instead been pushing Chinese companies to take equity stakes and operate infrastructure they build for foreign governments. The aim, China analysts say, is to help companies win higher-value contracts and, by giving them skin in the game, ensure the projects are economically viable.
Lending to Special Purpose Vehicles (SPVs), perhaps the most common means of PPP infrastructure investment, has been growing as a proportion of China’s overseas loans, according to figures shared exclusively with Reuters by AidData, a research centre at U.S. university William & Mary.
Read: China: The ‘other player’ in 2024 Afcon tournament
The $668-million Nairobi Expressway, a public-private partnership built and run by the state-owned China Road and Bridge Corporation (CRBC), could be proof of concept for the model in Africa.
Since it opened in August 2022, the toll road has been allowing commuters to speed above the Kenyan capital’s notorious traffic snarls, beating revenue and usage targets.
The view of the cityscape on the Nairobi Expressway undertaken by the China Road and Bridge Corporation (CRBC) on a public-private partnership (PPP) basis, along Uhuru highway in Nairobi, Kenya on May 7, 2023. REUTERS
Daily average use in March was already 57,000 vehicles, exceeding a 2049 target of around 55,000 set by CRBC in a 2019 presentation on the project’s economic viability seen by Reuters.
But few companies are following CRBC’s example in Africa. While globally some 45 per cent of Chinese non-emergency lending was to SPVs from 2018 to 2021, the most recent year for which AidData figures are available, the figure was only 27 per cent for Africa.
Analysts point to a number of likely reasons, including a lack of legal frameworks for PPPs in many African countries and the view among some Chinese companies – many of them relative newcomers to PPPs – that African markets are risky.
China’s foreign ministry did not directly address a request for comment on the lower SPV figures for Africa. But it said the government encourages Chinese companies to “actively develop new modes of cooperation” such as PPPs to bring more private investment to Africa.
Growing engagement
The Griffith Asia Institute put China’s total engagement in Africa – a combination of construction contracts and investment commitments – at $21.7 billion last year, making it the largest regional recipient.
Data from the American Enterprise Institute, a Washington-based think tank, showed investments hitting nearly $11 billion in 2023, the highest level since it began tracking Chinese economic activity in Africa in 2005.
Some $7.8 billion of that went to mining, like Botswana’s Khoemacau copper mine, which China’s MMG Ltd bought for $1.9 billion, and cobalt and lithium mines in countries including Namibia, Zambia and Zimbabwe.
The hunt for critical minerals is driving infrastructure construction as well. In January, for example, Chinese companies pledged up to $7 billion in infrastructure investment under a revision of their copper and cobalt joint venture agreement with Democratic Republic of Congo.
Western and Gulf powers are also racing to lead the world’s energy transition, with the United States and European governments backing the Lobito Corridor, a rail link to bring metals from Zambia and Congo to Africa’s Atlantic coast.
African leaders have struggled, however, to raise financing for some other priority projects.
Despite the success of the Nairobi Expressway, for example, work on several Kenyan roads stalled when the government ran out of money to pay the Chinese construction firms.
During a visit to Beijing last October, President William Ruto asked for a $1 billion loan to complete the projects.
Read: US: Kenya pawn in China’s supremacy agenda
A Chinese foreign ministry spokesman, Wang Wenbin, said discussions about the request were ongoing. Kenya’s finance ministry did not respond to a request for comment.
The final phase of a railway line intended to traverse Kenya from its main port to the border with Uganda has been in similar limbo since Chinese financing dried up in 2019. Uganda cancelled the contract for its portion of the line in 2022, after Chinese backers pulled out.
When asked about the decline in lending for African infrastructure, Chinese officials point to a pivot to trade and investment, arguing that BRI-generated trade boosts Africa’s wealth and development.
Two-way trade reached a record $282 billion last year, according to Chinese customs data. But at the same time, the value of Africa’s exports to China fell 7 per cent, mainly due to a decline in oil prices, and its trade deficit widened 46 per cent.
Chinese officials have sought to assuage the concerns of some African leaders.
At a summit in Johannesburg last August, Xi said Beijing would launch initiatives to support the continent’s manufacturing and agricultural modernisation – sectors African policymakers consider key to closing trade gaps, diversifying their economies and creating jobs.
China has also pledged to increase agricultural imports from Africa.
Such efforts, for now, are coming up short.
Read: Why China is hesitant to finance Africa energy projects
With one of Africa’s largest trade deficits to China, Kenya has been pushing to increase access to the world’s second-largest consumer market, recently gaining it for avocados and seafood. But cumbersome health and hygiene regulations mean Chinese consumers remain out of reach for many producers.
“The Chinese market is a new one,” said Ernest Muthomi, CEO of the Avocado Society of Kenya. “It was a challenge because you have to install the equipment for fumigation.”
Of 20 billion shillings ($150.94 million) worth of avocados exported last year, just 10 per cent went to China.
Overall, Kenyan exports to China fell over 15 per cent to $228 million, Chinese customs data showed, as a decline in titanium production led to a drop in shipments of the metal – a key export to China.
But Chinese manufactured goods kept coming.
That’s not sustainable, said Francis Mangeni, an advisor at the Secretariat of the African Continental Free Trade Area.
Unless African nations can add value to their exports through increased processing and manufacturing, he said, “we are just exporting raw minerals to fuel their economy.”
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Britam half-year net profit hits Sh2bn on higher investment income
Insurer and financial services provider Britam posted a 22.5 percent jump in net earnings for the half-year ended June 2024, to Sh2 billion, buoyed by increased investment income.
The rise in half-year net profit from Sh1.64 billion posted in a similar period last year came on the back of net investment income rising 2.5 times to Sh13.27 billion from Sh5.3 billion.
“We are confident in the growth and performance trend that Britam has achieved, supported by its subsidiaries in Kenya and the region. Our business is expanding its revenue base while effectively managing costs,” Britam Chief Executive Officer Tom Gitogo said.
“Our customer-centric approach is fueling growth in our customer base and product uptake, particularly through micro-insurance, partnerships, and digital channels.”
The investment income growth was fueled by interest and dividend income rising 34 percent to Sh9.1 billion, which the insurer attributed to growth in revenue and the gains from the realignment of the group’s investment portfolio.
Britam also booked a Sh3.79 billion gain on financial assets at a fair value, compared with a Sh1.8 billion loss posted in a similar period last year.
The increased investment income helped offset the 12.7 percent decline in net insurance service result to Sh2.13 billion in the wake of claims paid out rising at a faster pace than that of premiums received.
Britam said insurance revenue, which is money from written premiums, increased to Sh17.8 billion from Sh16.6 billion, primarily driven by growth in the Kenya insurance business and regional general insurance businesses, which contributed 30 percent of the revenue.
The group has a presence in seven countries in Africa namely Kenya, Uganda, Tanzania, Rwanda, South Sudan, Mozambique, and Malawi.
Britam’s insurance service expense hit Sh13.6 billion from Sh11.3 billion, while net insurance finance expenses rose 2.6 times to Sh12.3 billion during the same period.
“Net insurance finance expenses increased mainly due to growth in interest cost for the deposit administration business driven by better investment performance. This has also been impacted by a decline in the yield curve, which has led to an increase in the insurance contract liabilities. The increase has been offset by a matching increase in fair value gain on assets,” said Britam.
Britam’s growth in profit is in line with that of other Nairobi Securities Exchange-listed insurers, which have seen a rise in profits.
Jubilee Holdings net profit in the six months increased by 22.7 percent to Sh2.5 billion on increased income from insurance, helping the insurer maintain Sh2 per share interim dividend.
CIC Insurance Group posted a 0.64 percent rise in net profit to Sh709.99 million in the same period as net earnings of Liberty Kenya nearly tripled to Sh632 million from Sh213 million, while Sanlam Kenya emerged from a loss to post a Sh282.2 million net profit.
