“Chinese private firms will increasingly be visible in Africa – this is not a bad thing,” says Vines from Chatham House. “The challenge is to ensure the Chinese SMEs that are popping up do not stifle African startups – if they do this could trigger social tensions longer term. We have already seen some signs of this,” he adds.
China’s $2bn pledge to the Chinese Africa Development Fund has also raised questions about whether China is seeking to shift its emphasis on direct bilateral projects to a greater focus on multilateral projects. There are signs that it is doing so: it has teamed up with Africa’s most important lender, the African Development Bank, to set up an investment project, the Africa Growing Together Fund.
The Fund will have resources of $2bn to fund projects in Africa. The investment offers scope for multilateral projects because other major countries, including the US, are also members of the African Development Bank. It will also give any company – and not just Chinese firms – the opportunity to apply for project bids.
“The multilateral collaborations conform to a broader trend in Chinese foreign investment, moving away from M&A, which gave maximum exposure to Chinese interests within the host country and sometimes served as a lightening rod for criticism, to a joint venture/equity shares model that minimises the public face and visibility China in the local economy,” says Professor Christopher Alden, an expert on China-Africa relations at the London School of Economics.
Ambitious failures
But it appears that China’s engagement with Africa is becoming more cautious, the result of the failure, or at least setback, of several large and high-profile projects, according to experts.
“Chinese firms are more cautious and are looking to the Chinese state to provide guarantees, such as soft loans,” says Vines. Alden, from the London School of Economics, takes a similar view. “Chinese firms are more cautious than they were in the past, partly due to complications related to mega-deals – DRC is prominent in this area but other examples include Gabon, Angola and Nigeria – and it may spell an end to what the World Bank coined as the ‘Angola mode’,” he says.
Among the mega-deals that have been disappointing for China is the ambitious and costly Belinga iron ore mine in Gabon. Gabon ended up scrapping its contract with China Machine Engineering Corp to get the mine into production in December 2013. The project had been valued at $3.5bn.
Moreover, plans for a major copper and cobalt mine in Democratic Republic of Congo (DRC) have suffered constant delays. It is now five years since a Chinese consortium took up majority stakes in the two largest mines in the country in exchange for $9bn worth of infrastructure developments.
Production has yet to start. Sinohydro completed a feasibility report on the project two years ago but has not moved on with things since. Furthermore, Exim Bank, which was supposed to finance the endeavour, has dropped out and DRC has extended its export ban to the end of 2014.
Meanwhile, in Uganda a project to build a multi-billion-dollar hydropower dam is faltering. Although Chinese company Sinohydro was given the tender for the project a year ago, it has not yet secured the $1.7bn of necessary funding. The firm has just successfully negotiated with the Ugandan government to get the state’s 15% contribution in advance.
China is also involved in a project to build a $5.2bn railway in Kenya, but the project is being delayed as a parliamentary committee investigates charges of corruption around it. Some have voiced criticisms over the lack of public bidding for the concession, which went to China Road and Bridge Corporation.
Another place where Chinese companies have learnt the hard way the risks of doing business in Africa is Libya. At the time of the Libyan uprising against President Gadaffi, Chinese projects under commission in the country enjoyed a rough value of $18.8bn. Chinese companies made extensive losses. “The crisis in Libya was a particular shock to Chinese companies and also the conflict in South Sudan – in both cases this was unexpected and has seriously impacted Chinese investment,” says Vines.
The cumulative impact of these experiences is a more cautious China. Chinese firms now seem to be eschewing ambitious but completely undeveloped projects and are now looking more towards potentially high-yielding and more-developed projects.