New laws are being implemented in jurisdictions across Africa to facilitate the sourcing of alternative infrastructure funding, which is needed to kickstart sorely needed infrastructure projects.
Infrastructure development is key to the growth of African economies that want to make the most of their opportunities and streamline cross-border trade, delegates at the World Economic Forum (WEF) for Africa conference have heard.
Currently taking place in Cape Town, the conference’s theme focuses on shaping inclusive growth and shared futures in the Fourth Industrial Revolution (4IR).
According to a statement issued by law firm Baker McKenzie on Wednesday, China has played a key role in providing alternative sources of financing to African countries that have not been able to access funding in more traditional ways.
While the benefits are said to be numerous, the law firm pointed out that African countries were also concerned about their growing dependence on China.
To put it into perspective, the statement refers to research published by Baker McKenzie and IJGlobal in 2018, that showed that the value of loans from Chinese financing of energy and infrastructure projects in Africa had almost trebled between 2016 and 2017, from $3-billion to $8.8-billion.
“As China’s Belt and Road Initiative (BRI), a multibillion-dollar plan to link Asia, Europe and Africa, is actively being implemented, we expect this amount will increase even further,” Baker McKenzie banking and finance head Wildu du Plessis said.
As one of South Africa’s largest trading partners, China plays an important role in infrastructure investment in this country too. At the Brazil, Russia, India, China and South Africa (Brics) Energy Summit in 2018, China pledged to invest $14.7-billion in South Africa and to grant loans to State-owned enterprises Eskom and Transnet.
However, Du Plessis noted that even though the South African infrastructure funding gap was not as large as that of other countries in Africa, there was still difficulty in mobilising funds for infrastructure development and related projects owing to traditional funders taking their time to decide on whether to get involved.
Adding to this, Baker McKenzie Beijing office partner Shirley Wang noted that, as part of the mobilisation of different sources of funding to fill the infrastructure gap, there was “a big bucket of Chinese funding that could be used for infrastructure projects in Africa".
The increasing appetite from China to fund infrastructure projects as part of its BRI means that country is keen to partner with local development finance institutions and other international funders. Wang added that China’s investment in BRI countries and regions would continue in the future.
“A key attraction of the BRI for both African governments and project sponsors is that it assists the speed of project implementation,” Wang said, noting that project stakeholders had previously advised that the whole process was a lot quicker than other options.
However, Du Plessis said there was also a rising concern among African sovereigns who were worried about the long-term effects of their dependence on China, even though China has reiterated that it wants to be considered a responsible investor in Africa.
While it remains to be seen whether this concern has an impact on Chinese involvement in the funding of infrastructure projects in future years, Du Plessis explained that African countries had also begun building capacity to correct the imbalance between borrowers and lenders in the negotiation phase so that more balanced agreements could be reached.
When it comes to assessing the BRI’s impact on North African countries, Baker McKenzie Casablanca head and partner Kamal Nasrollah said that, traditionally, the North African markets had been closely correlated with the European and US markets, as well as some Asian markets.
The BRI has meant recipient countries no longer need to depend on traditional investors and benefit from China's growth.
“Though limited for now, Chinese influence in North Africa may grow remarkably in the coming years, although some are concerned that the American and European relationships with the region will suffer as a result,” Nasrollah commented.
While all North African nations are part of the BRI project, the benefits received from this initiative vary, he added, noting that, in some countries, such as Tunisia, the BRI is still in study phase, while in others, primarily Algeria and Morocco, some infrastructure projects have already been implemented.
According to Nasrollah, Algeria has perhaps the closest ties to China in the region.
One of the key infrastructure projects to be signed in Algeria recently was the $6-billion project for the exploitation of phosphate in the eastern region of Algeria.
In Morocco, Chinese companies financed and have been building the multibillion-dollar Noor 2 and Noor 3 solar parks near Ouarzazate, which is 100 km south-east of Marrakesh.
Other initiatives include a $10-billion Chinese-funded industrial city in Tangier, which is intended to give Beijing access to a tech hub next to one of Africa’s most dynamic ports.