BEIJING — In 2015 Chinese President Xi Jinping announced that China would offer Africa an aid package of 60 billion dollars. This sudden development left many wondering: why such high Chinese investment in Africa?
China’s motivations for increased investment in Africa stem from three main components: a need for natural resources, desire to gain access to the growing African markets, and to increase China’s political power and reach. Contrary to what many may believe, however, Chinese investment in Africa is beneficial to both the Chinese and African nations.
To completely understand whether Chinese investment in Africa has positive results on developing African nations or solely stands to benefit the Chinese, we must first understand the precise methods China plans to use to give developing African nations 60 billion dollars.
Of the 60 billion dollars that were promised to Africa, only five billion in funds will be given in the form of grants and interest-free loans. According to Forbes magazine, of the remaining 55 billion in funds, 35 billion will be given in the form of preferential loans, export credits, and concessional loans. 10 billion will be split between two funds used by the China Development Bank to target specific projects, and the remaining 10 billion will go to a China-Africa production capacity cooperation fund. This means that while China is investing a lot in Africa, it is mainly not coming in the form of foreign aid.
The long-term benefits China is set to receive as an emerging market economy will prove to be a strong contributing force to the country’s continued development. China is one of the world’s largest and fastest growing emerging market nations in the world, and it has a rapidly increasing need for natural resources, which Africa as an abundance of.
Roughly one-third of the total Chinese investment in Africa is directed specifically towards mining efforts, with the goal of attaining resources such as oil, iron, copper, and zinc. These resources are necessary for China if it hopes to continue the growth in its manufacturing sector.
Chinese investment in African mining is also helpful to African nations, which have new infrastructure projects responsible for the construction of roads, railways, and telecommunication systems. This has also worked to improve Africa’s manufacturing sector, allowing countries to focus state investment on other essential needs, such as improved education systems and healthcare.
In addition to the natural resources, China benefits by using Africa’s gradual growth to supplement the recently slowing growth in China. In terms of emerging market investments, the main markets to be targeted include Asian markets, Latin American markets and South American markets. China acts as the primary player in the Asian emerging market realm and African frontier markets have exhibited growth in the most recent decade. It makes sense for China to invest in the space the promises the highest return for the lowest input.
African nations see great benefit from Chinese investment and welcome it. According to Steven Kue, the Africa Analyst at global risk consultancy Control Risks in Forbes, Africa suffers from an estimated 900 billion dollar infrastructure deficit. Through Chinese investment, nations can continue to develop the infrastructure necessary to facilitate business, such as all-weather roads, reliable power and communications systems.
Lastly, China intends to use its investment in Africa to form relations with political leaders in the continent. As Chinese influence continues to grow in the world, it is only natural that China tries to extend its political ties. Due to a tense Chinese-Indian relationship, as India is another growing market in the region, it is only natural China look elsewhere for political alliances. By doing so, China can continue to increase its political profile and assert its relevance to Western nations.
The trade relationship between China and Africa is quite complicated in nature, with every country involved hoping to get something of benefit from its counterpart. However, the economic opportunity presented to African nations from Chinese investment can be substantial towards economic development and will see both parties involved reap greater rewards over time.
– Garrett Keyes