China’s investment in Africa will return as pandemic effects ease
- China’s lending to Africa has slowed during the pandemic, with the ‘zero-Covid’ policy and travel restrictions limiting the ability to seal new deals
- Given China’s long-standing relationship with Africa, though, the effects of the pandemic should be a short-term issue that eases with time
The Centre for Global Development recently found that throughout Africa’s infrastructure projects, China’s policy and development banks’ lending reached about US$23 billion between 2007 and 2020.
They are moving away from their previous high-volume, high-risk paradigm and shifting into lending practices that are smaller and more manageable. This means there are fewer deals being signed between Africa and China as funding, especially in the infrastructure and energy space, comes nearly to a halt.
However, there is reason to believe this won’t be an ongoing trend but rather will be short-lived. While on the surface, shifting Chinese lending patterns are a problem for Africa, these factors should not be cause for immediate concern as the bottlenecks in investment are short-term shocks and Africa also has the ability to bring back capital inflows.
Less risk and more focus will mark Belt and Road Initiative 2.0
Chinese lenders are often risk-adverse. Africa must instil a level of confidence through good governance and stability, and we have already seen that Africa is making long and fast strides to gain investor trust.
As trade and lending pick back up for African countries with debt relief and restructuring discussions, China – like other lenders including Eurobond holders, Western banks and development financial institutions – needs to focus on existing projects under construction rather than on new greenfield projects.
Because of the ongoing relationship between China and Africa over the past few decades, there is a huge number of incentives for China to continue its involvement in the continent.
In the grand scheme of things, Covid-19 is a short- to medium-term problem which is still being felt heavily in China. As borders continue to open, however, the negative impact the pandemic has had in the past couple of years is likely to subside and African investment is expected to recover to pre-pandemic levels.
Kai Zhu is head of the China-Africa Corridor at Absa Corporate and Investment Bank