The Covid-19 pandemic is changing China’s playbook in Africa

Terms under construction.
Terms under construction.
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At the beginning of April this year, as Nigeria was scrambling to track coronavirus cases and dealing with tanking oil prices, a rare spot of good economic news made headlines: A deep sea port project under construction in Lagos, financed by the China Development Bank and African Development Bank, was to receive a $221 million equity investment injection from the China Harbour Engineering Company. The company is one of several shareholders in the project, along with the Nigerian Ports Authority.

For Yunnan Chen, a senior researcher in development and public finance at the Overseas Development Institute who specializes in China-Africa relations, the port is illustrative of the ways in which Africa’s relationship with China was changing prior to the coronavirus pandemic.

“The monolithic idea of the China-Africa relationship that arose in the 2000s is becoming more nuanced these days,” Chen says. “We’re seeing more long-term participation of Chinese companies in these infrastructure projects, rather than the previously more ‘turn-key, build it, turn it over to the government model’ that much of African infrastructure was previously constructed through.”

Some question whether China’s bets in Africa will ever pay off, particularly given the economic impact of the pandemic. The resulting pressures have surfaced persistent issues of debt financing, aid terms, and sovereignty between African states and China. And much will depend as well on how parties address ongoing charges of racism by Chinese towards Africans. Quartz Africa spoke with Chen about shifts in the relationship that may emerge as a result of this moment. The conversation has been edited and condensed for clarity.

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The coronavirus pandemic has prompted many countries to try to become more self-reliant and build more resilient supply chains. That’s given impetus to the call from African countries to focus more on internal trade and boost consumption. To what extent is that possible now?

Even before the pandemic happened, this was a growing discussion: how African countries can develop by integrating both into global supply chains, to the export-oriented model, like in Ethiopia or Rwanda which was sort of mirroring the East Asian experience, but also to foster greater interconnectivity within the continent and to create supply chains within the continent.

I definitely think that the pandemic is going to be another additional pressure to pursue that kind of strategy, particularly as globalization and trade going forward are going to slow for the short- to medium-term, or at least will be increasingly challenging for African countries to integrate into.

Where does China play into that?

Internal trade and internal integration were something that Chinese development and infrastructure finance were strongly contributing to in the preceding ten years or so. There was this wonderful confluence between a rise of Chinese infrastructure finance and existing African ambitions for creating regional road networks, creating corridors across East Africa, standard gauge railways, etc. China’s policy banks and Chinese contractors were very, very happy to fund and to construct these infrastructure ambitions.

With the Covid-19 pandemic, there will be a narrowing of options in terms of finance. This model of debt finance that African governments have relied on—not only from China but also from the private sector, from international capital markets—was already proving unsustainable even before the pandemic. With this crisis, the fiscal space for African governments has become even more limited, because of the existing debt repayments that they have to service.

The pandemic has amplified the narrative, picked up the US government, that China is engaging in “debt-trap diplomacy” in Africa. Do you see China responding and using this moment to shift things in Africa?

The debt trap, I think, is an overblown meme. This idea of predatory lending does not really hold up in light of evidence of actual debt practices around the world. What we do see is generally a fair amount of flexibility from Chinese lenders in terms of when the debt can be repaid—in some cases, limited amounts of debt relief or suspension of debt repayments.

China joining the G20 in its debt suspension initiative is consistent with its previous behavior of this kind of flexibility. But it’s notable that it’s the first time that China has really joined in a very concerted multilateral initiative of its kind. It’s also very limited in scope. It’s only to low-income countries. And most of Chinese lending in Africa has been to middle-income, lower-middle-income countries and at commercial interest rates. [It’s] not foreign aid [or] loans that China will just wipe the slate clean and forgive. How China deals with these loans is something that I think all of us want to keep an eye on in the future. [Read more about whether China’s debt diplomacy is likely to survive the Covid-19 era.]

Rhetorically, the government has been emphatic in its support of African governments in dealing through the crisis. So it is possible, I think, that there will be similar calls for future debt rescheduling and debt renegotiation, potentially rewriting of some of the terms of some of these loans. But I think much of this will be on a very ad hoc and discretionary basis.

What impact do you see from the sociopolitical issues that are playing out right now, specifically the anger sparked by the recent racist treatment of Africans in Guangzhou province?

It’s an interesting area where African countries have taken a united stand to force China to acknowledge and address the scandalous issue. This is uncommon and quite remarkable to see. But it’s not certain that this kind of united stand will also translate into other areas, for example debt relief. It’s a timely exposure that while China’s high-level rhetoric is all about partnership and cooperation with African countries, racism in Chinese culture is deep-seated and just as malignant as it is in the US and elsewhere.

Does Africa need China in order to move away from China? By which I mean, is China’s investment and support critical in order for countries to become more self-sufficient and to diversify their economic ties?

Certainly the resources, the capital, the technology and expertise that the Chinese development finance and investment have brought have been leveraged by some African economies with a very strategic aim in mind. Ethiopia is the top model for that.

Rwanda and other large economies like Kenya and Tanzania have also tried to leverage these streams of Chinese investments and finance infrastructure to try get to a stage where they can restructure their economies and engender structural transformation towards a more high-value economic base and… in a way to follow the East Asian experience. You move your population into industrial jobs, create employment, raise incomes, and then at the same time move your economy towards producing more high-value goods that you can sell internationally.

Obviously, with the dent of Covid-19, a lot of that is going to be disrupted. But on diversification, I think some countries like Ethiopia have been canny in that they haven’t just relied solely on China for these strategies. They were able to get “champion investors” into the Hawassa industrial zone. A US textiles company, PVH, took a prime investment.

Similarly, in infrastructure, Ethiopia also has turned to other sources of capital to build railways, to build roads. In doing so, it’s able to get better terms for itself as well, and to create a bit more of a competitive environment between its international partners. Not all African countries have pursued this to the same degree or have pursued it to the same degree of success.

What are the consequences for the global economy if economic relations between China and Africa were to shift significantly in the wake of this moment? Why should it matter to the broader economic context that these relationships might change?

A hugely important aspect of the China-Africa relationship of the last decade is the economic and developmental potential that it brings to African economies and societies after some half-century of various shifts in World Bank ideologies, policy, structural adjustment programs. The attitude of the Western consciousness and particular in the international development architecture, was to treat sub-Saharan Africa as sort of problematic in development.

I think one important impact of this growing China-Africa relationship, nuances aside, it’s really brought Africa much more into the foreground as a potential site of growth, of opportunity, of investment and business and commercial opportunities in particular. The demonstration effect that China has brought in Africa has crowded in interest from other areas.

Particularly for Europe, there’s been this increasing recognition that economic development in Africa is also a security issue and one of global and social stability. We need prosperity and economic and social opportunities in large African economies across sub-Saharan Africa.

China has provided resources and, in its own development experience, a potential model for how that might occur. But ultimately, this is very, very contingent and very context-specific to African countries. And much will hinge on how they’re able to cope with this pandemic now and how they’re able to cope with the ensuing depression or recession.

Something else to note is there is a huge opportunity for cooperation globally in working in the health sector in Africa.  This is something that China has already been participating in through health diplomacy.  [ODI has tracked donations of 1.1 million testing kits, 6 million face masks, and 60,000 protective suits and face shields to African countries from Jack Ma and the Alibaba Foundation alone.]

In the wake of rising geopolitical tensions between the US and China, working on the impacts of the pandemic, and mitigating some of the social disruptions and economic fallouts that it’s going to have in Africa, is a huge opportunity and a necessity for global cooperation.