CHINA AND AFRICA JOINTLY CONSTRUCT BELT AND ROAD:PROGRESS, RISKS AND PROSPECTS

YAO GUIMEI

Research Fellow and Director, Center for South African Studies,Institute of West-Asian and African Studies, Chinese Academy of Social Sciences

Africa is both a historical and natural extension and an important participating party of the Belt and Road Initiative. The 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) emphasized on supporting African countries in participating in joint construction of the Belt and Road and avowing to strengthen all round interfacing with Africa, which received enthusiastically responses from African countries. It attracts the world’s attention for China and Africa to build the Belt and Road together.

Beijing Summit Promotes Further Escalation of China-Africa Joint Belt and Road Construction

The Belt and Road Initiative was launched in 2013, whose core content it is to build connectivity in five key areas,namely policy, infrastructure, trade, financial and people-to-people connectivity (five-area-connectivity for short). Established in 2000, the Forum on China-Africa Cooperation, with a history of 18 years, follows the principle of “sincerity,real results, affinity and good faith” and has achieved remarkable results in realizing China-Africa five-area-connectivity as the FOCAC mechanisms stress on action and set store by real results, China’s influence on Africa being on the rise. In fact, Africa has played a piloting role of“testing ground” for the Belt and Road construction.

Since the Belt and Road Initiative was launched, China has adopted a gradual advance and promotion approach for the Belt and Road construction in Africa. Besides Egypt and South Africa,China also selected Ethiopia, Kenya and Tanzania with relative political stability and of higher growth and integration rate and Congo-B in Central Africa for piloting and testing purpose in production capacity cooperation. By the end of August 2018, nine African countries including Egypt, South Africa,Sudan, Madagascar, Morocco, Tunisia,Libya, Senegal and Rwanda had signed memoranda of understanding on joint Belt and Road construction with China.Thirteen African countries that include Egypt, Algeria, Sudan, Ethiopia, Kenya,Tanzania, South Africa, Mozambique,Congo-B, Angola, Nigeria, Ghana and Cameroon had entered into framework agreements with China for international cooperation on production capacity.In almost all of the 19 countries above,there are cooperative projects built with investment by Chinese companies that have achieved fine interim results with shared economic interest generated by cooperation.

I. Exploring to Achieve Five-Area-Connectivity by Systemic Investment on Roads, Ports, Power Plants and Mines/ Industrial Parks

African countries have a vast development demand on infrastructure. At present, the African Union, African regional organizations and African countries all give development priority to developing and upgrading infrastructural facilities. Relying on their strong competitiveness on project funding, key technology, construction teams, organization and management, Chinese companies have become a main force for infrastructural construction in Africa.

Chinese companies have contributed to road construction. The Chinese-built Addis Ababa-Djibouti Railway in Ethiopia, the Mombasa-Nairobi Railway in Kenya,the Abuja-Kaduna Railway in Nigeria and the Benguela Railway in Angola have all been in operation. The picture shows a passenger train standing at the platform of the Mombasa West Railway Station of the Mombasa-Nairobi Railway Kenya, ready for its journey to the capital city of Nairobi.

In regard to road construction,Chinese companies have built Addis Ababa—Djibouti Railway in Ethiopia,Mombasa—Nairobi Railway in Kenya,Abuja-Kaduna Railway in Nigeria and Benguela railway in Angola, for the former two of which Chinese companies also have acquired right to operation.For hosting countries in Africa, not only does the model of construction-operation integration help resolve bottleneck issues of funding and technology and avoid many problems arising from separation of construction and operation of the project, it also promotes economic development along the railway and maximizes economic and social effects of the project.

In regard to port construction, Chinese companies have constructed Port of Bagamoyo in Tanzania, No. 19 berth of Port of Mombasa and three berths of Port of Lamu in Kenya, New Port of Pointe-Noire in Congo-B, Lekki Deep Seaport in Nigeria, Kribi Deep Seaport in Cameroon and Port of Tamatave in Madagascar. They have contracted to build on Port of Luanda in Angola and have built and operated Port of Cherchell in Algeria. All the important ports above either have access to major road connection or sit near the sites of industrial parks, having significant bearings on economic development of the coastal countries of Africa.

In regard to power generation projects, China has built or contracted to build hydropower plants or upgrade and transform key water control projects or power grids in Ghana, Sudan and Egypt, with considerable socioeconomic benefit. For instance, the first phase of upgrading and transforming Egyptian EETC 500KV transmission lines project was completed by Chinese companies in 2016. When the whole project is operational, the transmission capacity of gas power plants in the Nile Delta will be immensely improved, enhancing the overall framework security of Egyptian national power grids and promoting rational utilization of power resources.At the same time, the completion of the upgrading and transformation of power grids will promote development of upstream and downstream industries in energy, electrical equipment and raw materials and semi-products production in Egypt and the Middle East region at large, providing 7000 jobs for Egypt.

In regard to mines/industrial parks construction, by October 2016, China Gold Group commissioned its Soremi project in Congo-B, with a designed mining capacity of 1500 tons per day and smeltering capacity of 20000 tons of copper cathode per year, becoming the first metal mining, dressing and smelting project in Congo-B and filling in the blank in the area for the country.In 2015, Sinoma International Engineering Co., Ltd of China signed a contract valuing US$4.34 billion with Mr. Aliko Dangote, the richest man of Nigeria, to build cement plants in African countries, which will add an annual cement production capacity of 25 million tons in total to cement plants in Cameroon,Ethiopia, Kenya, Mali, Niger, Nigeria,Senegal and Zambia.

At the outset of the 21st century,China began to build industrial parks in African countries. At the 2016 FOCAC Beijing Summit, China announced “to build 3 to 5 overseas zones of economic and trade cooperation in African countries as conditions permitted and to further increase investment in Africa”,boosting construction of industrial parks in the continent. By the end of 2016,China had set up 20 industrial parks in 15 African countries, with an accumulated investment of US$5.38 billion, attracting 435 enterprises therein with an accumulated output value of US$19.35 billion that contributed US$1.62 billion to the revenue of hosting countries in taxes and fees and created 33534 jobs,bringing about industrial clustering effects in pertinent areas. By building industrial parks in Africa, China has made significant contributions to the hosting countries in attracting direct foreign investment, promoting industrialization process, increasing revenue, creating jobs, improving living standard and spurring socioeconomic development.However, comparing to the gigantic effects of infrastructural construction, it is necessary to greatly enhance the efforts in industrial park construction aiming to increase China’s direct investment to Africa and to promote industrialization of the continent.

II. FOCAC Beijing Summit Adds New Dynamics to China-Africa Joint Belt and Road Construction

The FOCAC Beijing Summit held at the beginning of September 2018 stressed on interfacing the Belt and Road Initiative with the African Union’s Agenda 2063, the United Nation’s Sustainable Development Agenda 2030 and development strategies of various African countries, leading to a new wave of African countries joining up the Belt and Road construction. During the Summit, 28 African countries and the African Union signed documents for cooperation on joint Belt and Road construction, expanding the number of African countries in the big Belt and Road family to 37.

In addition, Chinese companies were awarded several major contracts during the Summit. In the area of infrastructure construction, China Railway 16th Bureau Group signed the contract for the core section of Sudan-Chad Railway, known as “one of the most important strategic planning projects in the African continent”, the section between Port Sudan and Adré via Nyala that is 2407 kilometers in total length.China State Construction Engineering Corporation signed construction contracts with Egypt at a value of US$9.6 billion, including the general contract of US$3.5 billion on the project of phase 2 construction of the CBD of the country’s new capital and the general commercial contract of US$6.1 billion on the construction of Suez refinery and petrochemical complex. China Merchants Group signed an MOU on upgrading and expanding the old port in the downtown of Djibouti City, attempting to promote socioeconomic development of Djibouti by the model of “port-district-city”. China Railway International Group signed a framework agreement for expanding FHB international airport in Abidjan, capital of Ivory Coast. In energy field, China Railway Construction Corporation signed a cooperative framework document for building a pumped-storage hydroelectricity station in the Ataka region in Egypt whereas Dongfang Electric was awarded a general contract on establishing a 6×1,100-megawatt “clean coal”-fired power plant in Hamrawein of the country. In maritime domain, China State Shipbuilding Corporation was awarded a project agreement with Guinea on package cooperation. The signing and implementation of the above projects will enhance capacity for sustained socioeconomic development of the African countries while accelerating and upgrading China-Africa economic and trade cooperation.

Major Risks Facing China-Africa Joint Belt and Road Construction

As more and more African countries joining the big Belt and Road family,opportunities for China-Africa cooperation markedly increase. However, they are also accompanied by various risks and challenges.

First are the risks of turbulence in political situation. The experience of international cooperation indicates that the amount of inward investment of a country is correlated with its investment environment and investment policy. It is precisely here that some of the African countries have a poor record either in political stability or policy continuity.For instance, Chinese companies suffered heavy losses in the Libyan civil war whereas nationalization policy of Zimbabwe discouraged foreign investors. At present, Nigeria and Ethiopia run a high risk in political situation,liable to be affected by social turmoil,crying for close attention.

Second are risks of devaluation of local currency. Most of the African countries are in dire shortage of foreign currency, which is particularly true when foreign currency market is under the pressure of increase on interest rate of the US dollar and decrease on commodity prices, leading to serious devaluation of currencies of major African economies. In November 2016,Egypt gave up fixed exchange rate system for free floating according to demand and supply of the market. Since then, the Egyptian pound has been on the fast track of devaluation, inflation rate increasing from 10.3% in 2015/2016 to 23.3% in 2016/2017. The South African currency rand has been on short-term fluctuation against the US dollar, with a devaluation of nearly 20% between January 2016 and July 2017. Devaluation of local currency in Africa significantly affects Chinese companies in importing raw materials, production operation and proceeds, directly answerable to exchange losses on financial balance sheet.

The essence of the “principle of pursuing the greater good and shared interests” is “for China to complement Africa’s development through its own growth and for both China and Africa to pursue win-win cooperation and common development”. In order to help Africa achieves development, China Harbour Engineering Company (CHEC) has filled 400,000 square meters of artificial peninsula in Walvis Bay, Namibia to build a new container terminal. Once completed, the annual container throughput of Walvis Bay will increase from the current 300,000 TEU to 750,000 TEU. The picture shows four shore bridges at the container terminal of Walvis Bay Port in Namibia.

Third are risks of debt default. In recent years, against the backdrop of declining commodity prices, signs of African debt crisis have reappeared. According to the African Development Bank, the sum of African foreign debts increased from US$580.3 billion in 2015 to US$640.8 billion in 2016 and, proportion wise, from 25.3% against GDP in 2015 to 27.8% in 2016. At the same time,debt servicing increased slightly from 16.1% against export income to 16.9%.The World Bank pointed out in its latest Global Economic Prospects report that the mean debt rate of sub-Sahara African countries increased from 48% in 2016 to 53% in 2017. Country wise, those that undergo sizable projects of production capacity cooperation with China including Mozambique, Ethiopia, Nigeria, Angola and Zambia see an increase on their debt burden, and furthermore they will have to repay the bulk of their debts between 2020 and 2025 with increasing risks on debt sustainability.

Fourth are risks of terrorism and security. Risks of terrorist attack loom large in North Africa and West Africa.In Egypt, a harmful terrorist organization is the Islamic State of Iraq and the Levant — Sinai Province (ISIL-SP), which since the end of 2016 has launched several major terrorist attacks on Coptic Christians of the country, resulting in hundreds of casualties. In Nigeria,there are security challenges such as the religious extremist group Boko Haram in the North, Biafran separatists in the Southeast and violent conflicts between herders and farmers in the central states. In South Africa, there are frequent incidences of crimes, demonstrations and actions against foreign immigrants, of which murders and robberies are on the increase. Not only do the serious terrorist and security issues pose a threat to security and lives of property and employees of Chinese companies,they will also constrain the qualitative improvement and upgrading of China-Africa cooperation.

Fifth are risks of international competition. At present, major countries are divided in their Africa policies, which are all focused on China-Africa cooperation. It is because of that China not only has become the principal promoter of independent sustained development of Africa but also is becoming the leader of international cooperation in Africa,facing fierce and squeezing competition. The United States underscores commercial engagement with African countries, vying with China. Imitating China, Japan has enhanced its economic relations with Africa to counterweigh China’s influence. India has strengthened its cooperation with Africa, closely watching China’s footsteps and following suit. It is worth noting that Japan and India have joined hands in producing the Asian-African Growth Corridor Initiative to check and balance China’s Belt and Road Initiative, which makes East African countries on the west coast of the Indian Ocean a main battleground of competition.

Prospects of China-Africa Joint Belt and Road Construction

Looking ahead, China-Africa joint Belt and Road construction has broad vistas. China-Africa joint Belt and Road construction will provide more resources and means for Africa’s development and extend more spacious market for China. With an increasing role of Africa in the Belt and Road construction, “the dragon and the lion dance together”and join hands in a strong move for co-rejuvenation. Guided by Beijing Declaration--Toward an Even Stronger China-Africa Community with a Shared Future and The FOCAC Beijing Action Plan (2019-2021), both sides of China and Africa will be committed to enhancing Africa’s capacity for independent development, setting greater store by improving living standard and employment in Africa and achieving better results for win-win cooperation and common development. In the future, both sides will strengthen their cooperation on industrial development, infrastructure construction, trade and investment,development of energy and resources,agriculture and environmental protection, which means huge opportunities for trade and investment. However, to seize the opportunities and to realize shared results, it is necessary first of all to take up the responsibility together and make up for the shortfall together in risk control and management.

First, it is necessary for China to enter into or renew agreements on bilateral investment protection with African countries so as to safeguard interest of Chinese companies in Africa. In view of the obvious shortcomings in the existing bilateral investment protection agreements between China and African countries, it is necessary for China to quicken the pace of making and renewing investment protection agreements with African countries and to avoid by legal means political and commercial risks that may arise from investment in African countries.

Second, it is necessary to enhance China-Africa security cooperation, facilitating the entry of Chinese overseas security forces into Africa to escort China-Africa cooperation. In order to implement one of the eight major initiatives of the FOCAC Beijing Summit,namely peace and security initiative, it is necessary to proceed from the plane of national strategy and conduct toplevel design for China’s security system in Africa. It is necessary to set up a special agency for coordinating security affairs on multi-tiers with the United Nations, the African Union, African regional organizations and African countries. As it is not easy for Chinese military, armed police and police forces to go to Africa, it is necessary to go all out to support private security enterprises to go to Africa and get bigger and stronger, becoming an important force in protecting China’s interest in Africa.

Third, it is necessary to accelerate the internationalization of the RMB and prevent exchange rate risks. On the one hand, it is necessary to seize the opportunity of Africa’s growing demand for development banking against the background of global economic recovery by actively promoting overseas RMB loans and by encouraging Chinese companies to make direct RMB investment in the forms of transnational merger and establishing zones of economic and trade cooperation or industrial parks in African countries and in the areas production capacity cooperation and market expansion. On the other hand, it is necessary to expand the scope of direct use of the RMB in African countries,promoting currency swap and crossborder RMB settlement, improving and constructing cross-border RMB clearing system, and enhancing servicing capacity of Chinese companies in Africa.

Fourth, it is necessary to innovate on investment and banking models and reduce debt default risks. As direct investment will not increase debt burden of hosting countries, it is necessary to increase direct investment to Africa through innovating on cooperation models. It is necessary to adopt the approach of combining assistance with investment so as to reduce dependence of African countries on foreign assistance.To combine assistance with investment is to bind assistance with direct investment projects of high compatibility to national development strategy and to convert China’s foreign assistance assets to strategic assets with investment and holding by Chinese companies so as to increase the capacity of assistance for sustainable development.

Fifth, it is necessary to keep focus,give play to advantage and resolve competition risks by international cooperation. Although international cooperation on Africa is filled with strong atmosphere of competition, it is necessary for China to maintain strategic focus.On the one hand, it is necessary to uphold its competitive advantage, to stress on cooperation modes, contents and projects in China-Africa cooperation that are compatible to requirements for African development and to strengthen communication with African political elite, media, think tanks and NGOs to resolve negative effects. On the other, it is necessary for China to explore ways and means of trilateral cooperation/multilateral cooperation while firmly keeping the initiative.