LI KEQIANG is not the president of China. He’s the prime minister, but the presidential red carpet welcome accorded to him on his recent visit to Africa speaks volumes.
In Ethiopia, Li addressed African Union leaders; in Nigeria he delivered a keynote speech during the World Economic Forum and East African leaders converged in Nairobi to meet him.
As the chief operations officer of the world’s second largest economy, Li represents the hand that feeds most African economies and so, he deserved the red carpet.
“China has very deep pockets and can be a major game changer in Africa,” says Aly-Khan Satchu, a Kenyan investment expert.
And metaphorically speaking; Li kept his hands tucked inside those deep pockets. In the end, 60 deals were sealed (17 in Kenya) including the $3.6billion Nairobi-Mombasa standard gauge rail that left East Africans excited.
Therefore Satchu’s reference to China’s “deep pockets” is spot on. Evidence of this is to be seen in the four countries he visited—Ethiopia, Nigeria, Angola and Kenya.
Nigeria, Africa’s largest economy has seen its share of Chinese trade and investment top $13billion in 2013—thanks to investments by over 200 Chinese companies in the continent’s most populous nation.
In Ethiopia, trade volumes with China are expected to reach $3 billion by 2015, that is double the current figures.
Like Nigeria, Angola’s huge oil resources have made the country one of China’s most important trade partners and after two days there, Li had signed several lucrative deals in finance, manufacturing and infrastructure sectors.
“Angola is a credible partner hosting the biggest Chinese community and number of companies from China in Africa,” noted Li. The country also sells half of its monthly 1.5million oil output to China.
In 2013, Kenya, East Africa’s largest economy bagged $474million worth of direct Chinese investments out of $3.5billion invested by Chinese companies in Africa. During Li’s visit, the country sealed seventeen mega deals with President Kenyatta choosing to emphasize three of them, the Standard Gauge Railway; the protection of national heritage and maintaining the region’s peace and security.
Deals not for granted
It’s safe to say that while Angola, Nigeria, Ethiopia and Kenya are some of the largest recipients of Chinese investment on the continent, every African country so far has received a share of China’s economic boom and prosperous trade ties; including Rwanda whose own share reached $240m (Rwf164.4b) in 2013.
However, the excitement over China’s deep pockets is not without its own drawbacks. At the moment, two factors threaten the blossoming Chinese-Africa investment partnership. The first is what Premier Li underscored, instability.
A number of observers noted the shift in China’s policy on the continent when the Chinese premier announced some frank bilateral security related interventions in Kenya and Nigeria both countries struggling with terror attacks.
Hitherto, observers note that China has avoided direct interventions in matters that would appear to be internal. China’s long-standing foreign policy has been not to interfere and instead preferred multi-lateral approach under UN where it’s now the largest contributor of peace keeping resources to African missions.
“China can no longer be a by-stander on Africa’s security given its heavy investments,” said Julius Sunkuli, former Kenyan ambassador to China. He notes that China and Africa are too deep into each other for the former not to take keen interest when conflicts that could jeopardize multi-billion dollar investments erupt.
A good example is South Sudan where China has invested over $2billion in oil and infrastructure sectors. The desperation in Chinese officials’ voices couldn’t be missed as they urged warring parties to stop fighting.
One of the biggest reasons investors shun committing large and long term investments on the continent, despite its attractive growth potential, is the risk that instability poses on return to investment.
For China to continue being committed to Africa despite the political risk, African leaders such as Salva Kiir must get committed to peace and stability in their own countries. This will create the desired environment for China and others to invest more and help promote sustainable growth and development.
Woes at home
Statistics of China’s investments, grants and loans to Africa could easily lead someone into thinking that the country is not without its own problems at home and this is exactly what Premier Li underscored during an exclusive interview with CCTV-news Africa.
Li cautioned media commentators from over estimating China’s economic valor even dismissing speculations that it’ll soon overtake the USA as the largest economy. He noted that his country has major bottlenecks to overcome such as liberating over 200 million people from poverty.
On one hand, one could argue that for Chinese economy to grow even further, it would depend on how soon its long term investments in Africa can start paying off …but as already pointed out, this will require years of political stability to spur economic prosperity on the continent.
At home, China is bracing for what appears to be a period of slow growth, and the International Monetary Fund has warned Sub-Saharan Africa that they risk lower growth if China slows.
After easing to a 7.4 percent GDP growth in the first quarter of 2014 from 7.7 percent in the fourth quarter of 2013, experts are now yelling at the Chinese government to pump more liquidity in the economy to boost economic activity but mid this week, Chinese Central Bank told the media that such a move is unlikely for now with President Xi himself also reiterating that there was no need to press panic button-yet.
Over the years, an increasing size of bad loans taken out to fund long term government backed projects has placed Chinese banks under pressure as many of these loans have gone bad.
An analysis by Yukon Huang and Canyon Bosler of the Carnegie Endowment, a foreign policy think tank published by the Wall Street Journal last week noted that the total debt of Chinese households, firms and government has grown sharply since 2008 to around 210 percent of GDP in 2013.
The question for Africa is, what does a huge Chinese debt burden imply? No matter how deep China’s love for Africa is, it will never put its affairs before home affairs.
The only hope for Africa is to ensure a healthy environment for already existing Chinese investments in Africa so that they start paying off. Also, it’s time to take seriously, the lone call for African states to increase trade among themselves in order to build a buffer for African economies to guard against any external shocks emanating from China.
The bottom line is; while China provides fresh prospects for African economies, this can’t be taken for granted.