Belt and Road won't solve Africa's problems, but will ease other more serious issues
 While African economic growth has been slowing, there is ample evidence to show there are countervailing forces - mostly from China - that are working to reverse these unfortunate trends and re-accelerate development once again.
After growing five per cent from 2010 to 2014 and declining to 3.2 per cent in 2015, Sub-Saharan Africa’s GDP growth fell to 1.3 per cent last year, its lowest level in two decades.
Yet two forces, says experts, are likely to propel Africa's economic forces heading north once again. One is the role of private equity, says Proshare, Nigeria’s “premier financial, business and economic information hub”. The other, the greater one, is China's "Belt and Road" initiative, according to Kenyan government officials.
One reason Kenyans are so keen is because Belt and Road, alternately called "One Belt One Road" or OBOR for short, makes Kenya the entrepot to the African continent.
Kenya stands to gain first, if not the most, from China’s US$148 billion budget for the OBOR, also called the "Silk Road", some of which will be spent on infrastructure projects.
The hopes of Kenya were raised when Chinese President Xi Jinping announced that his country put together a sum sufficiently large to meet the financial demands of the world’s most ambitious infrastructure project.
By the time the project is complete, it is expected that an outlay of $4 trillion will be spent to revive the ancient Silk Road that linked Asia and Europe is expected.
Free market forces are expected to play a role too. Private equity activity in Africa will inject billions of sustainable investment over the next five years with deals growing from a low base equivalent to 0.18 per cent of Africa’s GDP in 2016, says Nigeria's Proshare, a financial research house.
According to the research, every 0.01 per cent increase will mean $200 million more investment and could easily reach $1.1 billion over the next five years. The report also reveals a number of trends about investment in Africa.
Private equity investors in Africa tend to be distinct from other parts of the world, said the paper, entitled "A growth engine: Trends and outcomes of private equity in Africa".
African PE tends to hold investments for longer than in developed markets and using less debt and improve corporate strategy and governance. Furthermore, it invests more in growth and job-creation, often scaling small businesses to a size viable for trade buyers.
But the big spenders are in the public sector, and analysts say China's Belt and Road’s impact could be sizable in Kenya and all over East Africa, where the focus on a supporting Maritime Silk Road that touches the Indian Ocean region is spurring investment from Beijing to facilitate East-West trade.
Such activities will complement strong Chinese trade ties with Nigeria, Angola and South Africa. As long ago as 2009, China surpassed the US as Africa’s biggest trading partner. Chinese companies are already active on the continent, where over a million Chinese workers and immigrants live. State-related entities and businesses from China have financed and built infrastructure projects for various African nations, including railways, ports, roads, dams and telecom networks.
“Belt and Road is something that’s already happening in Africa,” says David Dollar, a senior fellow at the Washington, DC-based Brookings Institution. A former World Bank official, he says China finances US$10 billion a year in infrastructure investment in Africa, “about a third of all external financing for infrastructure projects in Africa”.
The Chinese initiative's maritime scheme will benefit Africa the most when shipping routes from the South China Sea and the Indian Ocean are factored in. “There’s a need for maritime infrastructure all along these routes and East Africa is definitely part of that,” Mr Dollar said.
Chinese diplomats are beating the Belt and Road drum where ever they are posted.
Said Sun Baohong, China's ambassador to Ghana: "Achieving connectivity and industrialisation in Africa is the necessity and the only route to realise the Africa Dream. China and Africa have always been the community of common destiny and common interest."
Ms Sun said eastern and southern Africa were historical and natural extensions of ancient maritime silk road.
"Participating in the Belt and Road Initiative will benefit Africa from China's rapid economic development and inject new impetus in its social and economic development," she said.
The global economy has been sluggish for years and talk of protectionism has brought challenges to Africa.
"China, as the world's second largest economy, is trying to achieve economic restructuring. China's stimulating effect on the development of Africa's economy has been widely recognised," she said.
Already there are 3,300 Chinese companies doing business in Africa, representing an investment of $5.38 billion. China has constructed 20 economic and trade zones in 15 African countries, attracting 435 enterprises to move in with a cumulative output value of $19.35 billion.
According to the China-Kenya Economic Forum: Win-win 2017 organised by the Standard Charted in Nairobi, Chinese enterprises create more jobs on this continent than any other country," she said.
Participating in the Belt and Road is the inherent need for implementing the 2063 Agenda of the African Union, which will promote the process of African integration, industrialisation and agricultural modernisation, and lift African people out of poverty.
The Belt and Road Initiative is highly consistent with the 2063 Agenda of African Union, and the China Dream of the Great Rejuvenation of the Chinese Nation shares in common with the Africa Dream of poverty alleviation and social development.
An Ernst & Young (EY) study dampens these hopes with a reminder that there are still obstacles to overcome, including trade barriers erected between African countries themselves. Intra-African trade has seen a resurgence as a topic, and the pan-continental African Union has set a target to increase intra-African trade from 12 per cent in 2013 to approximately 50 per cent by 2045.
This is to be mainly facilitated through the Continental Free Trade Area (CFTA), a single African market for goods and services, due to be established this year.
According to the UN Economic Commission for Africa (UNECA), the CFTA could increase intra-African trade by US$35 billion, or 52 per cent above the baseline, by 2022.
Another barrier preventing existing trade agreements from working properly, is the lack of enabling infrastructure to connect countries. Because of the absence of adequate road and rail infrastructure, trade within Africa continues to be greatly impaired.
Some countries have identified and documented their infrastructure development needs, in line with their long-term economic development goals; but are struggling to close the funding gap for these projects.
With most of these projects still at feasibility stage, it is challenging for the private sector to participate. This fact alone is a bar against the private sector involvement because their investment mandates put projects at the feasibility stage, largely out of bounds.
But participating in the Belt and Road Initiative appears to alleviate a lot of these problems and offer important opportunities to African countries if only they can and will implement outcomes of the Johannesburg Summit of Forum on China-Africa Cooperation (FOCAC).
In December 2015, the Johannesburg Summit of FOCAC adopted the China-Africa Ten Major Cooperation Plans with US$60 billion funding pledged by the Chinese government. New achievements of China and Africa cooperation have been scored in the past two years.
Addis Ababa-Djibouti Railway, Mombasa-Nairobi Railway, and Port of Djibouti are some exemplary projects, contributing significantly to the transport network and integration of East Africa.
Connectivity has created conducive conditions for the construction of industrial parks along the way, and attract more Chinese and other foreign enterprises to invest.
Africa's participating in the Belt and Road Initiative will certainly further accelerate the delivery of tangible benefits to the African people.
While connectivity will not solve all problems in a continent which is rich is problems, will be go a long way to alleviating a core bottleneck which will make it far easier to address the other troubles that afflict Africa. |
