Africa’s infrastructure-connectivity means business

By Bryonie Guthrie

When it comes to infrastructure development in Africa, the continent and China have a symbiotic relationship – the former is in need of it and the latter is in need of a market for its steel and construction industries. While this is an over-simplification of the situation on the ground it does provide a backdrop to the billions of dollars being invested in African infrastructure, of which significant portion is sourced from China¹. 

An old map of Africa’s railways tells the story of how a continent was used to supply and export precious raw materials to the colonial powers. Little was done to develop links intra-continentally, rather, all the focus was on getting the goods to the coast and getting them out.  Plans have been underway for decades to change this, as per this image courtesy of EIRNS, 1980:

Figure 1 shows existing and proposed African railroads. [Source: Schiller Institute]

China features prominently in infrastructure investment across the continent. It was recalled that at FOCAC in 2015, China committed a further USD 60 billion² to infrastructure projects in Africa. One small African country capitalising on this symbiotic relationship is Ghana, which is quickly developing into a regional powerhouse despite its small size. Ghana is currently building an 84 kilometre railway line from Tema to Akosombo³ at a cost of USD 388 million, the project – like multiple others on the continent – is funded by China’s Exim Bank.

Already Ghana’s largest trading partner, investment in Ghana from China reached USD 323⁴ million by 2016 with 36 investment projects underway. In June of 2017, the Vice-President of Ghana, Mahamudu Bawumia, visited China and signed Memoranda of Understanding with the Chinese government to develop manufacturing, telecommunications, and transport infrastructure. These sectors are also the primary focus of Acorus Capital’s investment strategy in Ghana as well as other Belt and Road countries, where it is playing a key role in facilitating and boosting African company partnerships with their Chinese counterparts

The deals China is striking in Ghana, and elsewhere in Africa, are mutually beneficial. As per McKinsry’s 2017 report ‘Dance of the Lions and Dragons’⁵, 89% of employees at Chinese companies in Africa are African and there are estimated to be over 10,000 such firms, indicating the significant role China plays in skills development and employment in Africa. For Ghana, the June visit by Vice President Bawumia resulted in USD $19 billion in commitments⁶, leveraging 5% of Ghana’s bauxite deposits. The deals cover transport, energy, services and infrastructure investments. Key to Ghana’s development is the One District One Factory programme, aiming to bring manufacturing to each of Ghana’s 216 districts. The China National Building Materials and Equipment Import and Export Corporation (CNBM) will provide USD 2 billion in financing for this project. China Railway International Group Limited signed a Memorandum of Understanding to provide $10 billion to support mining, industrial and rail infrastructure. This infrastructure is to include construction of the Eastern, and Central Rail Lines, the Boankra, Buipe Inland Ports and Paga inland terminal, 910 km of road network, four new interchanges and ten industrial parks in 10 regions. In addition, the funds will develop Ghana’s aluminium industry⁷, according to Ghana’s Minister of Finance, Ken Ofori-Atta, this will enable Ghana to be a major player in the international aluminium industry as they are able to invest in processing bauxite instead of exporting it as a raw material. Given the International Aluminium Institute’s prediction that by 2020 global primary aluminium production will exceed 70 million tonnes per annum and more than 60% of that is expected to be consumed in China, this provides further basis for cooperation between the two partners.

Although Ghana does not lie on the Belt and Road Initiative route directly, China’s close ties with the nation are in line with the BRI’s view that Chinese prosperity relies on the prosperity of its global partners. As a result, the Association of Ghana Industries (AGI) has opened an office in Qingdao, China, in November 2017, with support from the Belt Road Collaborative Innovative Centre (BRCIC). This office will drive trade and capital flows between China and Ghana, as well as other regional developing countries. Ghana will use the office to seek further investment for the One District One Factory programme, to showcase Ghanaian products, and connect with Chinese businesses.

This is a reflection of the BRI having positive ripple effects across the continent and not just in the countries geographically located along the route. It is indicative of China’s genuine commitment to developing the continent – not to be seen as an altruistic gesture but one based on sound business acumen. China is reaping the benefits of backing Africa in a big way. The Chinese have realised that investment in large-scale infrastructure projects in Africa has ripple effects⁸ – it facilitates export of Chinese equipment, technology, management philosophy, technological standards, entrepreneurs etc. to Africa. By positioning themselves as an end-to-end investor – involved in the planning, financing, design, sourcing, execution and management of a project, they are able to line up Chinese companies as primary suppliers and to benefit from the industries that will be generated surrounding these massive projects in industries ranging from telecommunications, IT, and procurement to tourism.

In January Ghana began constructing a $1.5bn container terminal at the Tema Port and the new government has developed the Ghana Railway Master Plan that proposes a new railway network of 4,007.6km with an estimated investment of some US$21 billion, indicating that the country will continue to need reliable investment partners to facilitate their growth strategy. China has so far proved to be such a partner and is doing the same on the opposite end of the continent, in East Africa. 

In this photo taken Sunday, March 8, 2015, three trams that were recently brought to Ethiopia from China sit parked at the main hub for the Addis Ababa Light Rail Transit project, aimed at eliminating the lack of public transportation options, during a visit for media to the site in the capital Addis Ababa, Ethiopia. [Photo: AP]

China Exim Bank invested in a railway line from Addis Ababa, in Ethiopia, to the Red Sea port of Djibouti⁹ - a stretch of more than 750km costing USD $3.4 billion - completed in October 2016. This marked the first section of the East Africa Railway Masterplan (LAPSSET) being managed by the East Africa Community¹⁰ (EAC). One year later and the second instalment of the masterplan is nearly complete in Kenya. A USD 13 billion investment, has built a railway line from Nairobi to Naivasha. The railway was being built by the state-owned China Road and Bridge Corporation (CRBC) and 90% of the ongoing development of the Mombasa-Nairobi section is being financed by The Export-Import Bank of China. LAPSSET forms part of the continent-wide Nepad programme, the Presidential Infrastructure Champion Initiative (PICI). This particular arm of the project is championed by Kenyan President Uhuru Kenyatta and includes multiple projects aside from the railway lines, such as: a port at Manda Bay, Lamu; oil pipelines in Southern Sudan and Ethiopia and the building of three airports and three resort cities. LAPSSET is one of eight PICI – the scope of African infrastructure plans is ambitious and China stands ready to partner, and benefit, in this. 

Aside from industry, transport, and manufacturing, China is also actively supporting the development of telecommunications infrastructure. Chinese companies¹¹ provide significant portions of the equipment for African telecommunications infrastructure as well as the finance for its growth.  The three most active Chinese firms in this regard are the state-backed ZTE Corporation; Huawei, a private company; and the French-Chinese joint venture Alcatel Shanghai Bell. In Ethiopia and Ghana, this Chinese investment developed the national fibre optic backbone network and expanded mobile usage to rural areas. 

In summary, as the debates rage on about China’s motives in Africa, and whether it is a neo-colonial power or an equal partner, the fact remains that business is being done, at a rapid pace and to a massive scale. Africa has well thought out, if ambitious, infrastructure plans and needs. The African Union and the various Regional Economic Communities (RECs) are seeking serious investors to build out their nascent infrastructure needs. China has the financial capacity, the technology, the expertise, and the risk appetite to supply this demand. China and Africa have a perfectly symbiotic relationship – they help each other to get something in return, a more sustainable relationship than aid has proven to be.  

(Bryonie Guthrie is a former South African diplomat. Now she is an analyst with Acorus Capital, a Hong Kong-based consultancy with expertise in Africa.)

reference:

1 Based on CNN,  S. Morlin-Yron, “All aboard! The Chinese-funded railways linking East Africa” published 17 January 2017.

2 Based on Forbes, A. Jadesimi, “How China's $60 Billion For Africa Will Drive Global Prosperity”, published 14 March 2017. 

3 Based on MyJoyOnline, “Gov't to begin 84km Tema-Akosombo railway construction in October”, published 03 August 2017.

4 Based on Ghana News Agncy, E. Ofosu ,“Vice President to visit China to strengthen bilateral cooperation”, published 18 June 2017.

5 Based on McKinsey Report: Dance of the Lions and Dragons.

6 Based on Ghana Business News “Ghana signs $4b MoU with Chinese company”, published 13 July 2017.

7 Based on MyJoyOnline, “Bawumia outlines 20 projects from China's $15bn, published 04 July 2017.

8 Based on Brookings, Y. Sun, “China and the East Africa Railways: Beyond full industry chain export”, published 6 July 2017.

9 Based on BBC, “Ethiopia-Djibouti electric railway line opens”, published 5 October 2016.

10 Based on the website of the East African Community.

11 Based on "Africa’s ICT Infrastructure: Building on the Mobile Revolution" from the website of the World Bank.