The year 2015 was quite eventful for China-Africa diplomacy. Several high-level officials from both sides visited in each direction; the African Union (AU) and China signed a memorandum of understanding; China concluded an agreement to build a base in Djibouti; and China signed a host of bilateral agreements with African countries.
What did we learn about China-Africa relations from this meeting?
Ties between China and Africa get more and more high level
FOCAC’s launch was a collaboration among China and several African delegations to convene a triennial meeting that would chart out cooperation projects and discuss China-Africa relations multilaterally. At most of these meetings, ministers are the ones discussing policies and plans. When the Forum is called a summit, as this one was, presidents and heads of states are invited.
While this seems like boring bureaucratic terminology, it’s actually significant. Of the previous six FOCAC meetings, the only ones called a summit were in Beijing in 2006 and in Johannesburg. Indeed, this was the first summit-level to be held on the African continent. Its success definitely earned South Africa bonus points, both among its African peers and also globally, as it showed that it can attract many heads of states and skillfully coordinate a summit.
China’s President Xi Jinping pledged $60 billion to African states. What does that mean exactly?
This isn’t aid in the traditional sense. Most of the announced $60 billion will come in loans and export credits. Only $5 billion is to arrive as grants and interest-free loans.
Right now, outsiders know very little about just how that committed $55 billion will be spent. China has announced the general outline of its commitments. For instance, $35 billion will go towards preferential loans, export credits, and concessional loans. Another $5 billion will go to the China-Africa Development Fund, a private equity and venture capital investment arm of the China Development Bank that has a lot of problems finding bankable projects.There’s $5 billion for the Special Loan for the Development of African SMEs, another financial vehicle implemented by the China Development Bank that operates on a commercial basis. Finally, $10 billion will create and offer the initial capital for the China-Africa production capacity cooperation fund, which might be an entirely new project — but we are not completely sure.
Announcements at FOCAC summits usually outline three years’ worth of money—but no dates were announced. Large figures like $60 billion require cautious analysis. It might not all be new capital. Often, the figure includes projects already initiated.
Finally, FOCAC’s financial goals are often reached well before the end of three years — or conversely, it may take longer than three years to allocate all the funding.
So China is investing a lot in Africa?
Not really. Most of these large China-Africa deals are carried out via loans financed by Chinese policy banks. They are not foreign direct investment (FDI), in which a company or entity from one country invests in another country’s company or entity, and has the foreign investor owning at least “10% of the voting power of the direct investment enterprise.” Unlike other investments, such as portfolio investments, FDI includes investors actively looking to influence how the enterprises are managed.
China recently announced that its cumulative Foreign Direct Investment (FDI) into Africa from 2000 to 2014 is $30 billion. As of 2012, China has been investing a little more than $2 billion annually into Africa.
That may be a lot — but it’s less than the U.S.’s annual investments in Africa. Furthermore, last year’s 40 percent drop in official Chinese investment in the first half of the year is not that significant because the base amount is low.
However, not all FDI is registered and catalogued with their respective government. For these unofficial flows, China is investing $6 billion in Africa compared to $8 billion from the U.S. These figures are tough to parse. Ministry of Commerce (MOCOM) actually does try to release accurate data, but not every Chinese enterprise will register with MOFCOM.
It’s not clear whether China’s official accounting includes investments from Hong Kong and Macau, which have some autonomy from Beijing but often serve to channel both official and unofficial Chinese finance back into mainland China to take advantage of tax benefits, a process called round tripping. China invests less than 5 percent of its FDI stock, which is the cumulative level of FDI at any given time, in Africa, and exact figures are hard to pin down.
Does aid make it possible for China to secure these deals?
It depends on how one defines aid – essentially most Chinese money in Africa is in the form of loans – but there is no real correlation between aid and other resources. OECD-defined Chinese aid into Africa is a little over $2 billion a year, while U.S. aid is around $8 billion. President Xi announced $156 million in emergency food aid in his speech at FOCAC, and before that at the United Nations he pledged $100 million in military aid to the African Union, but those sums are far less than the billions in project financing offered by Chinese policy banks.
Who gets what?
We don’t know. Although the FOCAC action plans outline cooperation projects multilaterally – that is, among China and several African states – China delivers on the projects bilaterally. This means that FOCAC summit announcements do not actually detail who gets what.
For instance, we know in general that Xi announced that “China will train 200,000 technical personnel,” but we do not know which countries will get these training opportunities. China also announced partnerships between 10 Chinese and 10 African agricultural institutes, aimed at modernizing African agriculture.
But wait, there’s more. In fact, there were a lot of announcements. However the action plan does not actually specify which countries will be in the partnerships or receive one of the “100 programs on clean energy, wildlife protection, environmentally friendly agriculture and smart city construction.”
In the end, the allocations will very much depend on bilateral relations between China and individual African countries. China will ultimately decide.
That means African state leaders and other stakeholders will be competing for these sums of money. The African countries that are most experienced with risk assessment, project management, and how to best engage with Chinese finance will be most likely to reach FOCAC’s announced development goals.
To be sure, China-Africa trade reached 220 billion in 2014 and is estimated to be about $300 billion in 2015. The majority of African nations run large trade deficits with China despite the latter routinely forgiving debts for the least developed nations.
Winslow Robertson is the founder and managing member of Cowries and Rice, a China-Africa strategic consultancy.
Lina Benabdallah is a Ph.D. candidate in political science at the University of Florida. Her dissertation examines Beijing’s investments in vocational training programs in Africa.