The Ripple Effects of Sino-African Relations on African Economies

“50,7 billion dollars in financing for Africa over the next three years” is the promise made by Chinese President Xi Jinping to African Heads of State and Government at the 2024 Forum on China-Africa Cooperation (FOCAC) in Beijing. This envelope will be dedicated to infrastructure development and job creation in Africa, through a series of infrastructure projects across the continent. The three-year program will address electricity shortages through clean energy projects and cooperation in nuclear technology. While this development aid represents a boost to the realization of many structural projects, it is important to note that half of the sum of money constitutes a debt to be borne by future generations. This truth calls into question the scope of Sino-African relations, whose commercial, socio-economic and cultural stakes and repercussions also raise major concerns among African populations.

Sino-African cooperation dates back to the 7th century. It was interrupted after the death of Admiral Zheng He in 1533, but resumed in 1949 with the founding of the People’s Republic of China. Since then, China and Africa have developed a close relationship, characterized by economic, cultural and political exchanges. In 2000, the Forum on China-Africa Cooperation (FOCAC) was established with the main aim of structuring and intensifying ties between China and African countries in various fields, including infrastructure, agriculture, health and education. This relationship has evolved considerably over the years, making China today a major player in Africa, investing heavily in infrastructure, mining and energy, and a key trading partner, importing raw materials and exporting products.

The main spin-off of this cooperation is investment in infrastructure which are essential for the effective implementation of the African Continental Free Trade Area (AfCFTA), the world’s largest area with 1.3 billion people from the continent with 55 African nations involved. China has invested $155 billion in Africa in 2021 and 2022. These investments are mainly focused on expanding and modernizing rail networks, particularly in East Africa; improving road infrastructure to facilitate transportation and trade; and developing power plants, including renewable energy projects such as solar and wind farms. It should be noted, however, that most of these investments are made by Chinese companies, which are often accused by local populations of not respecting local standards and working conditions. While leaders see such financing as a great opportunity for infrastructure development in Africa, it must be recognized that excessive reliance on Chinese investment has the peculiarity of hindering the process of economic diversification and leaving local economies vulnerable to fluctuations in bilateral relations. Indeed, local companies face increased competition from Chinese firms, which often benefit from substantial subsidies and financial support and flood African markets with their products at unbeatable prices. In the first half of 2024, bilateral trade between China and Africa amounted to $167.8 billion (€151.8 billion), making China Africa’s biggest trading partner, implying a huge loss of earnings for local businesses.

During the 9th China-Africa Summit, held in Beijing from September 4-6, several major African companies, including the Dangote Group (Nigeria), MTN Group (South Africa), OCP Group (Morocco), Safaricom (Kenya), Sonatrach (Algeria), Ethiopian Airlines (Ethiopia) to name but a few, participated in discussions aimed at strengthening economic partnerships, exploring new investment opportunities and supporting sustainable development initiatives in Africa. However, these companies are mostly under-positioned compared to their Chinese counterparts, as they face enormous challenges, particularly in accessing large-scale financing for specific investment projects.  However, these companies must compete with well-established Chinese companies that are often better financed, and their African products sometimes struggle to penetrate value-added Chinese markets.  African companies must navigate complex regulatory environments that are sometimes incompatible with Chinese standards.  Quality and certification requirements can be additional barriers. Cultural and linguistic differences also pose challenges to negotiation and cooperation between China and Africa, hindering the establishment of fair and sustainable partnerships and resulting in a loss of competitiveness for African companies.

In addition to the declining competitiveness of African companies as a result of the intensification of Sino-African relations, China’s financial support to African countries constitutes a debt. China is supporting infrastructure development in Africa, but there is growing concern about the long-term sustainability of the resulting debt, particularly in small, economically fragile African states. To ensure that the burden of this debt does not fall on future generations, African leaders must ensure that the sums they receive as part of this cooperation are used to achieve their development agendas and are more beneficial to African countries, with significant local benefits. In other words, Chinese investment in Africa must be aligned with local development priorities, without which it will not be possible to take full advantage of China’s helping hand.

To mitigate the debt risks associated with Chinese investment in Africa, the following measures could be taken by African public decision-makers, including heads of state and government:

• African countries facing a complex situation of high debt, increased development spending needs in a context of budget deficits and unfavorable exchange rate constraints need to renegotiate their debt with China without prior notice before benefiting from additional debt. Such renegotiation would undoubtedly make it possible to obtain more favorable repayment terms, such as reduced interest rates or extended grace periods. Effective debt management also requires the establishment of training and technical assistance programs within debt management ministries to improve governments’ capacity to manage their debt more effectively. By working in this way, African countries would improve the transparency of their public finances and loan agreements, ultimately leading to better monitoring and more responsible debt management.

• It is crucial for Africa to diversify its sources of financing. Policy and decision makers should constantly analyze the advantages and disadvantages of their relations with their other partners, in particular the European Union, which provides about 50% of its official development assistance to the continent; the United States, which has significant trade and investment relations with African countries in various sectors; India, which is strengthening its economic relations with Africa, particularly in the energy, IT, and agricultural sectors; and not forgetting France and Turkey, whose investments in Africa are mainly in the construction and agricultural sectors.

• African countries will also benefit from cooperation with China by shifting their export base from raw materials to value-added goods and services. This involves reducing their dependence on fossil fuels and promoting sustainable energy sources such as wind and solar farms. African nations would therefore benefit from Chinese training programs and scholarships, and from cultivating local knowledge in fields such as environmental management, engineering and technology. The transfer of sustainable practices and green technologies from China can help reduce environmental impact and modernize African industries. This transfer can also lead to the implementation of cooperative climate change projects to address environmental challenges and promote sustainable development, the strengthening of governance frameworks to ensure transparency and accountability of investments, and the promotion of public-private partnerships to ensure they meet local needs and standards.

• Africa must use its participation in the G20 to strengthen its institutional and economic capacities, as well as its cooperation with China. This cooperation should therefore be focused on sustainable development projects through multilateral dialogue. The G20 is also a platform for Africa to mobilize further international financial resources to accelerate its energy transition and finance its development projects, especially those related to transport and digitalization, which are crucial for the successful implementation of the AfCFTA.