Africa as an Investment Opportunity: China vs. the U.S.
By Jessica Bakas
Africa is an investment opportunity. The continent is a developing region: according to official 2021 HDI scores all but 2 African countries, Somalia and the Republic of Congo, are developing. Meanwhile the continent has been increasingly engaged in international affairs, holding currently 3 non-permanent seats on the UN Security Council and representing the largest and most unified bloc on the UN General Assembly. The African population is also set to reach 2 billion by 2050 with an increasingly globally connected population through modern technology. These facts point to an investment opportunity for the U.S.--and also for other strategic competitors like China. While the U.S. has pivoted towards Asia and has mainly neglected to see Africa as a major region of investment, China has undergone major investment in the region which has implications for the U.S. in its strategic competition with China.
Since the assent of President Xi Jinping in 2013--with his vision of an internationally engaged China--China has adopted development-focused diplomacy with the Belt and Road Initiative (BRI) at the forefront. China’s foriegn aid, in the form of long-term repayable loans, to Africa grew from USD 210 million in 2000 to USD 20 billion in 2015 and is expected to reach USD 1 trillion by 2025, with annual concessional loans at about USD 5 billion and Chinese government lending accounting for 20% of total African external debt. The loans Chinese banks give to African countries are long-term repayable loans which are used for, most significantly, infrastructure, energy, and transportation projects which have garnered positive effects for African economic development and employment. In terms of the BRI, According to the Center for Strategic & International Studies, “Many of China’s infrastructure projects in Africa address a desperate need for roads, railways, ports, and energy. This includes a 2,600 MW hydropower scheme in Nigeria, $3 billion in telecom equipment to Ethiopia, Sudan, and Ghana, and major railroad projects in Nigeria, Gabon, and Mauritania.” China currently lists 39 African countries as partners in its BRI and has plans to further connect Africa to its 21st Century Maritime Silk Road and establish more overland economic corridors throughout the continent.
Because China has provided aid where other abled countries largely have not--at least not to the extent China has--the African continent is largely sympathetic to China. This can be illustrated by the 2018 Forum on China-Africa Cooperation in Beijing where Rwandan President, Paul Kagame, stated that the Chinese aid and investment strategy in Africa has been a source of “deep transformation” for Africa and has been a win-win situation. Chinese soft loans have also enabled many African governments to avoid the quid pro quo of Western-led international institutions--largely the IMF and World Bank--which African countries do not believe always serve their best interest. This has been accompanied by the general sentiment that China is respectful of African cultures and is not trying to impose their ideals onto them--furthering African sympathy for China. Overall, according to the RAND Corporation, China is looked at favorably among the African countries and the skeptics, while existent, are mostly kept at bay as various African leaders have asserted in official statements that Chinese debt-trapping is not an issue of China, but an issue of African work and responsibility.
In reality, Chinese aid, however, is not void of self-interest and this has economic implications for U.S. strategic competition with the nation. The BRI has largely been an answer to recent Chinese economic stagnation. First of all, Chinese state-owned enterprises have been overproduced--with not enough demand to profit from production. The expansion of relations with the African continent has expanded the markets for these state-owned enterprises and infrastructure project contracts have enabled the massive excess in enterprises such as steel, cement, and construction companies to be put to productive use. Second, a large motivator for providing aid to Africa has also been Chinese access to natural resources. Following the “Angola Model,” China has frequently given low-interest loans to African Countries who have difficulty receiving loans from the international financial market so they put up access to oil blocks and mineral resources as collateral. In fact, between 2004 and 2011, China used the “Angola Model” to reach unprecedented deals--securing access to oil blocks and/or resource reserves--with at least 7 resource-rich African countries, which totals about USD 14 billion.
The strengthened Sino-African relation through Chinese aid strengthens trade relations between the two, which is arguably to the detriment of the U.S. as China fills the role that the U.S. and its allies could have filled in terms of trade. Overall, if successful the BRI could reorient a large part of the world economy towards Beijing, enabling China to call the shots on global economics and global trade--which does not bode well for U.S. economic interests as China is already a major economic competitor. Africa becoming increasingly engaged in the world economy and having increasing international decision-making power, makes it thus an especially important region in which the U.S. cannot afford to concede to Chinese power. The development-focused diplomacy of China, as mentioned above, has also made African countries sympathetic towards China and Chinese policies--bolstering support for Xi Jinping and the Chinese Communist Party and their mode of economics. In the world of strategic competition between the U.S. and its progressive neoliberalism and China and its one-party hardline realism, a continent largely sympathetic to the CCP and China’s rather problematic policies certainly does not help the U.S.’s position in the world.
So what should the U.S. do in order to pursue the investment opportunity of African? First, the U.S. needs to recognize that Africa is a major investment opportunity and then treat it as such through conducting major in-person diplomacy, showing that the U.S. cares about the continent. Another major step in this would be for the U.S. to establish a forum like that of the Forum on China-Africa Cooperation. The U.S. should also provide its own development diplomacy which aids in infrastructure, energy, and transportation projects and promotes liberal and democratic values on the African continent. It is important to provide a second option--one that isn't China-- for African countries to gain support and aid from. The U.S., as the top contributor to the IMF and the member with the greatest voting power in the World Bank, should also support and lead the way on making IMF and World Bank reforms so that the economic reforms these institutions require of the recipient countries are in the best interest of specifically the African countries and tailored to their economies. Historically, there have been complaints on behalf of various developing countries that IMF reforms were not successful because they were not tailored to the individual economies and were too generalized. Making these reforms could make African countries rely less on Chinese loans--thus less sympathetic to China and the CCP--and make them more attracted to international institutional development funds where the U.S. has a large say, curbing the export of Chinese economics and power-play influence on the continent.