VENTURES AFRICA – Chinese investment has significantly increased in various sectors in the East African community (EAC), Uganda, Kenya, Tanzania, Burundi and Rwanda, in the most recent past; with official data confirming that Chinese foreign direct investment (FDI) into the EAC has averaged $3.8 billion per year since 2004. The FDI flows are as a result of recent economic trends that suggest trade synergies and economic complimentaries between EAC and China.
The backdrop of this economic relationship began in the early 1980s with China’s strong growth trajectory; during this time GDP growth rates averaged 9 percent for 25 years up until 2010, at which stage China was ranked the world’s second largest economy after USA. With high economic growth, came rapid industrialization and a boom in the manufacturing economy. This fuelled high demand for petroleum, various commodities and industrial raw materials to a point where the demand was very rapidly outstripping China’s supply of resources. During this growth period, China was able to develop one of the world’s largest and most competitive construction industries, with particular expertise in civil works critical for infrastructure development.
To meet China’s fast growing demand for resources and excess supply of consumer goods, a solution has been to partner with and strengthen trade relations with economic blocks like the EAC; so as to explore and discover new markets to offer services, technology and goods – with this off course being done in return for various commodities and resources.
EAC countries have experienced GDP growth rates averaging 5 percent since 2003 and during this period infrastructure (broadly speaking, power, telecoms and roads) is estimated to have contributed to 1 percent point to growth in the region. The World Bank estimates that if infrastructure is upgraded to the level of the best performing country in Africa (Mauritius), it has the potential to contribute up to 6 percent more to the current GDP per capita growth in the region, with power having the largest impact on growth.
Further, World Bank’s statistics confirm that infrastructure in East Africa performs below that of South African Development Community (SADC) and the Economic Community of Western African States (ECOWAS) on a range of indicators; paved roads, mobile telephone density, power generation capacity/electricity, regional rail networks and ports sector.
Given this backdrop of infrastructure development need, coupled with recent discoveries of oil and gas in Uganda, Kenya as well as Tanzania, this has made the region very attractive for trade and investment with China. Especially as these recent oil and gas discoveries are predicted to be the tip of the iceberg, given that in comparison to West and North Africa, only a very small percentage of exploration and drilling has taken place so far in East Africa. This has been referred to as ‘the cusp of an oil boom’, an ideal time for the EAC to partner with nations with deep pockets, so as to direct the funding into developing infrastructure and other underdeveloped sectors.
As China has expertise in infrastructure development and EAC potentially sitting on a wealth of mineral resources, therein lies the economic complimentary and China therefore stands out as a convenient strategic partner for development.
Examples of China’s aggressive pledge to fund infrastructure in East Africa
Uganda National Roads Authority has confirmed that construction of a toll road, linking Entebbe International Airport to Kampala, is scheduled to start in January 2013 with completion expected in 36 months. This 50km, 6 lane dual carriage way, will be partly funded by Export- Import Bank of China, who have confirmed funding of $350 million and constructed by Chinese consulting firm. This much anticipated new highway is welcomed by locals to give much needed benefit of reduced congestion.
China is also a leading contender, in lobbying for Kenya’s flagship $20billion LAPSSET Project (Lamu Port South Sudan-Ethiopia Transport Corridor). This project includes an 800km highway (which will stretch from Lamu, Kenya connecting Ethiopia, and Juba, South Sudan) a railway line, an oil pipeline, oil refinery, a new Port and airport in the coastal town of Lamu. Dubbed as one of Africa’s largest infrastructure projects, this would be a strategic development of mutual benefit to a number of African countries, with the aim of increasing trade, interconnection and integration. There are also clear benefits to China and her eastern counterparts; as this will be an efficient means to get oil out of landlocked South Sudan to the port ready for export.
Meanwhile in Tanzania, plans are underway to construct a 300-megawatt power plant, which includes a 1,100km power transmission line and to be built a Mnanzi bay, south Tanzania. This $684 million gas fired power plant is to assist with energy shortages, minimize historic rolling blackouts. Tanzania has concluded funding for this project from China’s Exim bank
Some positive comments from locals in Nairobi working with Chinese engineering consultants, has been that ‘The Chinese come with skilled workmanship, timeous execution of projects and general dedication.’
On the other hand there has also been recent criticism of Chinese investment with regard to environmental, social and labour practice related policies, with the concerns mainly being expressed by the USA. While the concerns appear to be valid, China has also been credited for openly making her intentions known, where unlike the USA, China is clear that she is in search of natural resources without hiding behind the veil of the promotion of human rights and democracy.