China to provide Africa with US$1 trillion financing

China to provide Africa with US$1 trillion financing
Funds over next 12 years will come in the form of investments and loans, with most of them for building infrastructure, says mainland analyst

Toh Han Shih
South China Morning Post

The central government, including state-owned banks, will provide US$1 trillion of financing to Africa in the years to 2025, says Zhao Changhui, the chief country risk analyst at Export-Import Bank of China (Eximbank).

Eximbank, a leading lender to overseas Chinese projects, will account for 70 to 80 per cent of that US$1 trillion, which will include direct investments, soft loans and commercial loans, Zhao said at the recent Africa Investment Summit in Hong Kong.

“We have plenty of money to spend,” he said. “We have the budget for major projects. China has US$3.5 trillion of reserves, which cannot just buy US treasuries. We need to use part of them in overseas investments.

“Africa for the next 20 years will be the single-most important business destination for many Chinese mega corporations.”

The US$1 trillion of future financing was a big increase from China’s previous financing of Africa, Zhao said without giving exact numbers. Last year, Eximbank provided tens of billions of dollars to Africa.

Zhao said Eximbank was looking to participate in infrastructure projects in Africa, including transnational highways, railways and airports. He estimated it would cost US$500 billion to build a continental rail network.

“Africa is infrastructure-light right now. There is intense need for electrification,” said Jeff Gable, the managing principal of Africa non-equity research at Barclays.

Eximbank was in negotiations with the government of the Democratic Republic of Congo to finance air corridors in the country, which might possibly include leasing or purchase of aircraft, Zhao said.

Congo’s road network is inadequate, so air travel was needed as an alternative transport mode, he said.

Another promising sector is agriculture, according to Zhao. “Africa has vast fertile land. If China and Africa can work together in agriculture, hunger [in Africa] can be alleviated in 10 to 15 years,” he said.

Africa has the potential to be the world’s next breadbasket, with the continent’s agriculture poised to grow from a US$280 billion industry to an US$880 billion industry in the next two decades, Gable said.

One major risk was a lack of co-ordination among African nations in building a continental transport infrastructure, Zhao said. For example, small neighbouring states would build airports, which would duplicate infrastructure, he said.

Last month, state-owned China Machinery Engineering Corp signed a US$127 million contract to build and expand power grids in six cities in Equatorial Guinea, and a US$199 million contract to build a highway power supply system in the nation, the Hong Kong-listed firm announced.

In July, CMEC won contracts to build two power plants in Nigeria for US$621 million.

In March, the South China Morning Post reported that state-owned China Development Bank had overtaken the World Bank and Asian Development Bank as the world’s largest financial institution for overseas loans.
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