Promoting Economic Diversification in Africa Through Commercial Investment

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Towards the end of 2021, China offered insights into the future of its position on the African continent, illustrating significant shifts in its planned activities in agricultural assistance, climate initiatives, health services, peace and security incentives, trade promotion, and, most notably, infrastructure investment. Having reduced the number of committed projects from 50 in 2018 to 10 by 2021 – representing an 80% decrease – the shift from infrastructural development represents one of the most significant changes in China’s engagement with Africa in the last decade.

Beijing, however, has been notably vocal with regards to the immense trade deficit in Africa, and has sought to increase trade with the continent, with aims to increase imports from Africa to $300 billion over the next three years.

“China looks at Africa based on three-year plans,” stated Robert Besseling, Founder and Chief Executive at specialist intelligence company, Pangea-Risk in Cape Town, South Africa on 11 March. “China has its own economy developed around long-term plans and its relationship with Africa is the same. Previously, it was always based on $60 billion for every three years in infrastructure in exchange for debt, and that has created the world’s largest trading relationship – at $20 billion worth of trade.”

With China moving away from infrastructure-centric investments towards a renewed focus on trade promotion, the facilitation of African exports to China has been crucial to the Asian country’s long-term strategy to promote economic, value-added diversification in Africa.

“China has played a very critical role in assisting Africa in terms of offering alternative sources of financing and a lot of money went to sovereign nations that might not have had access to the traditional methods of financing,” said Sekete Mokgehle, Head of Export Credit Finance at South African financial services group, Nedbank, noting, however, that, “We are aware that Africa needs infrastructure quite badly, particularly if it aims to achieve its aspiration of intra-African trade.”

The shift in China’s approach to investing in Africa has come as a result of Africa having experienced various challenges in terms of debt traps, which is evident through loan repayment issues that have occurred in recent years, as well as China’s own economic slowdown as a result of the COVID-19 pandemic.

“What is fundamentally unsustainable is that when we talk about infrastructure financing in Africa, China always comes up. It cannot be sustainable that there is such a dependence, that infrastructure on the continent has to be driven by a particular country, which exposes the extent of weaknesses for Africa to achieve investment goals on its own,” said Monale Ratsoma, Director General of the Africa Regional Center for the multilateral bank, New Development Bank.

This divestment of financing regarding African infrastructural developments, in conjunction with economic sanctions being placed on Russia as a result of its invasion of Ukraine, however, does offer an opportunity for other geopolitical players to fill the gap. Turkey, for example, has sought to expand its influence on the continent, while President Biden has sought to revamp the U.S.’s Prosper Africa Initiative. Additionally, a post-Brexit UK has indicated its intention to ramp up trade and investment opportunities across Africa in the coming years.

“There is an opportunity, of course, because there is going to be a displacement of economic activity out of Russia. That investment will need to find new homes, with evidence suggesting that some of that could take place in southern Africa,” concluded Rt Hon. Jim Murphy, Managing Director at strategic advisory and communications firm, Arden Strategies.

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Matthew Goosen

Matthew Goosen

Matthew Goosen is a Video Editor and Content Writer at Energy Capital & Power. He holds an Honours Degree in Film and Media Studies at the University of Cape Town and is currently undergoing his Masters Degree. Born in Pretoria and raised internationally, he has been living in Cape Town since 2013.

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