Concessionary loans from China provide much of the precious infrastructure fuel that is driving Africa’s economic growth, but issues are emerging, says Alnoor Amlani
This article was first published in the January 2019 International edition of Accounting and Business magazine.
The Africa Rising narrative, as it has come to be known by some sceptics, has its basis in the impressive average growth rates in Africa’s GDP over the 10 or so years to 2015. From 3.1% in 2015, though, growth fell to a low of 1.7% in 2016, but moved back up to 3.0% in 2017 and now stands at 3.5% – higher than the 3.0% global average. According to the UN’s Department of Economic and Social Affairs’ 2018 World Economic Situation and Prospects report last April, the continent’s growth rate is expected to hit 3.7% in 2019.
It’s a welcome improvement, however this rate is only marginally higher than the current estimated population growth across the continent of 2.5%. For most Africans, life has barely changed. The World Bank’s Poverty in a Rising Africa report sums it up succinctly: ‘While poverty in Africa has declined, the number of poor has increased.’
At the other end of the scale is China, where GDP growth has averaged an astonishing 10% year on year between 1975 and 2015 – 30 consecutive years. Today GDP per capita in China stands at more than US$7,000 (compared with US$1,550 for Africa). During this period China has lifted more than 800 million people out of poverty, an unprecedented feat in global history.
With China’s help, Africa may be able to reverse the rising trend in the numbers of poor people. Already infrastructure projects such as roads, railways and ports have been developed with China’s support. The Belt and Road initiative is part of China’s global strategy, and will link to Africa via the Maritime Silk Road and ambitious plans for a digital Silk Road.
Chinese investment has already financed a US$4bn railway connecting landlocked Ethiopia with the port of Djibouti, where the first phase is under way of a US$3.5bn project to create Africa’s largest free-trade zone. In Zambia it is financing a US$548m cement plant, and in Kenya it has funded the largest infrastructure project since independence – a US$3.2bn railway between Nairobi and the Indian Ocean port of Mombasa.
As interactions grow, the potential for a long-term Africa-Asia relationship is being felt. However, China’s apparent lack of due diligence on funding and project design presents a risk that investments that cannot be paid off will have to be handed over to China. Last year US senators expressed concern that China is set to take over the strategic port of Djibouti. And a recent report by ratings agency Moody’s highlights the heavy indebtedness of Zambia (US$5bn), Angola, Congo and Kenya to the Chinese. The Asian giant’s influence in Africa is likely to remain significant, but it seems clear that economic development driven by China’s infrastructure investments comes at a price.
The maxim of ‘buyer beware’ applies here. Accountants, bankers, lawyers and other professionals in Africa need to raise their standards of analysis, negotiation and interaction to protect their people, prospects and national assets – and maintain a relationship that does not place the continent in peril.
Alnoor Amlani FCCA is a director with the CFOO Centre in Nairobi, Kenya.
"It seems clear that economic development driven by China’s infrastructure investments comes at a price"