Post-Covid, China is back in Africa and doubling down on minerals

China's flagship economic cooperation program is bouncing back after a lull during the global pandemic, with a primary focus on Africa, according to a Reuters analysis of lending, investment and trade data.

Chinese leaders cite billions of dollars allocated for new construction projects and record two-way trade as evidence of their commitment to helping modernize the continent and promoting “win-win” cooperation.

But the data reveal a more complex relationship, one that remains largely extractive and has so far failed to live up to some of Beijing's rhetoric about the Belt and Road Initiative, President Xi Jinping's strategy to build an infrastructure network connecting China to the world.

While new Chinese investments in Africa increased by 114 percent last year, according to the Griffith Asia Institute at Australia's Griffith University, they have largely focused on minerals essential to the global energy transition and China's plans to revive its faltering economy.

These minerals and oil also dominated trade. As efforts to boost other imports from Africa, including agricultural products and manufactured goods, have faltered, the continent's trade deficit with China has ballooned.

Chinese sovereign lending, once the main source of infrastructure financing in Africa, is at its lowest levels in two decades. Public-private partnerships, which China is promoting as the world's new preferred investment vehicle, have yet to gain traction in Africa.

The result is a more one-sided relationship than China says it wants, one dominated by imports of African raw materials, which some analysts say contains echoes of economic relations between Europe and the continent in the colonial era.

“This is something that Britain in the late 19th century would recognize,” said Eric Olander, co-founder of the China and the Global South Project website and podcast.

China rejects such assertions.

“Africa has the right, ability and wisdom to develop its foreign relations and choose its partners,” the Chinese Foreign Ministry wrote in response to Reuters’ questions.

“China's practical support for Africa's modernization path consistent with its own characteristics has been welcomed by an increasing number of African countries.”

China's engagement in Africa, the focus of the Belt and Road Initiative, had grown rapidly in the two decades before the COVID-19 pandemic. Chinese companies have built ports, hydroelectric power plants and railways across the continent, mainly financed by sovereign loans. Annual lending commitments peaked at $28.4 billion in 2016, according to the Global China Initiative at Boston University.

But many projects proved unprofitable. While some governments struggled to repay loans, China reduced lending. Then Covid-19 forced it to turn inward, and Chinese construction projects in Africa declined.

A recovery in sovereign lending is not expected.

Instead, policymakers in Beijing have been pressuring Chinese companies to take equity stakes and operate the infrastructure they build for foreign governments. Chinese analysts say the goal is to help companies win higher-value contracts and, by giving them a leg in the game, ensure the projects are economically viable.

Lending for special purpose vehicles, perhaps the most common means of investing in infrastructure between the public and private sectors, is growing as a proportion of China's external loans, according to figures seen exclusively by Reuters from the Aid Data Research Center at the University of William & Mary.

The $668 million Nairobi Expressway, a public-private partnership built and managed by the state-owned China Road and Bridge Corporation (CRBC), could be a proof of concept model in Africa.

Since its opening in August 2022, the toll road has allowed commuters to speed over the Kenyan capital's notorious traffic jams, exceeding revenue and usage targets.

Average daily use in March was already 57,000 cars, exceeding the 2049 target of about 55,000 cars set by CRBC in a 2019 presentation on the economic viability of the project seen by Reuters.

But few companies are following CRBC's example in Africa. While about 45% of Chinese non-emergency lending globally was to special purpose companies in the period from 2018 to 2021, the last year for which aid data are available, the figure was only 27% for Africa.

Analysts point to a number of possible reasons, including the lack of legal frameworks for PPPs in many African countries, and the prevailing view among some Chinese companies – many of which are relative newcomers to PPPs – that African markets full of dangers.

The Chinese Foreign Ministry did not directly respond to a request for comment on the decline in SPV numbers for Africa. But she said the government was encouraging Chinese companies to “actively develop new forms of cooperation” such as public-private partnerships to bring more private investment to Africa.

The Griffith Asia Institute estimated China's total engagement in Africa – a mix of construction contracts and investment commitments – at $21.7 billion last year, making it the largest regional recipient.

Data from the American Enterprise Institute, a Washington-based think tank, showed investments at nearly $11 billion in 2023, the highest level since it began tracking Chinese economic activity in Africa in 2005.

About $7.8 billion of that went into mining, such as the Khoimakau copper mine in Botswana, which China's MMG Ltd. bought for $1.9 billion, and cobalt and lithium mines in countries such as Namibia, Zambia and Zimbabwe.

The search for important minerals is also the motivation behind building infrastructure. In January, for example, Chinese companies pledged up to $7 billion in infrastructure investment under a review of the copper and cobalt joint venture agreement with the Democratic Republic of the Congo.

Western and Gulf powers are also racing to lead the world's energy transition, with the United States and European governments supporting the Lobito Corridor project, a railway to bring minerals from Zambia and Congo to Africa's Atlantic coast.

However, African leaders have struggled to raise funding for some other priority projects.

Despite the success of the Nairobi Expressway, for example, work on many Kenyan roads stopped when the government ran out of money to pay Chinese construction companies.

During a visit to Beijing last October, President William Ruto requested a $1 billion loan to complete the projects.

Chinese Foreign Ministry spokesman Wang Wenbin said discussions on the request are continuing. The Kenyan Ministry of Finance did not respond to a request for comment.

The final leg of the railway intended to cross Kenya from its main port to the border with Uganda has been in a similar state of limbo since Chinese funding dried up in 2019. Uganda canceled the contract for its section of the line in 2022, after Chinese backers withdrew. Outside.

When asked about the decline in lending for African infrastructure, Chinese officials pointed to an axis of trade and investment, claiming that the trade generated by the Belt and Road Initiative is enhancing Africa's wealth and development.

The volume of bilateral trade reached a record high of $282 billion last year, according to Chinese customs data. But at the same time, the value of Africa's exports to China fell by 7 percent, mainly due to lower oil prices, and its trade deficit widened by 46 percent.

Chinese officials are seeking to allay the concerns of some African leaders.

At a summit in Johannesburg last August, Xi said Beijing would launch initiatives to support industrialization and agricultural modernization on the continent, sectors that African policymakers consider key to closing trade gaps, diversifying their economies and creating jobs.

China also pledged to increase agricultural imports from Africa.

Such efforts, at present, have not achieved their goals.

With one of Africa's largest trade deficits with China, Kenya is seeking increased access to the world's second-largest consumer market, recently gained for avocados and seafood. But burdensome health and hygiene regulations mean Chinese consumers remain out of reach of many producers.

“The Chinese market is a new market,” said Ernest Muthumi, CEO of the Kenya Avocado Association. “It was a challenge because you have to install fumigation equipment.”

Of the 20 billion shillings ($150.94 million) of avocados exported last year, only 10 percent went to China.

Overall, Kenyan exports to China fell more than 15 percent to $228 million, as lower titanium production led to lower shipments of the metal, a major export to China, Chinese customs data showed.

But Chinese manufactured goods kept coming.

This is not sustainable, said Francis Mangini, an advisor at the African Continental Free Trade Area Secretariat.

He said that unless African countries can add value to their exports through increased processing and manufacturing, “we will only be exporting raw minerals to feed their economies.”