To kickstart the Amplifying African Voices (AAV) dialogue series in 2025 African think tanks addressed the evolution of the of China’s engagement with African countries, particularly with regard to Africa’s debt challenges, China’s role in debt restructurings, and balancing other investment approaches than lending, such as FDI, trade, and industrial development.
There are now negative net capital outflows from African countries to China, and therefore the key question for dialogue was how China-Africa relations can adapt, particularly given recent uncertainty of development support from the United States, declining ODA used in low-income countries, and global headwinds.
Professor Tang Xiaoyang, Chair and Professor of International Relations at Tsinghua University spoke to the general global financing conditions, including high U.S. interest rates following the COVID-19 pandemic, which exacerbates capital outflows from emerging markets. Contrasting with the 2010s, there is a prolonged period of low commodity prices and significantly constrained fiscal space.
The decline of risk appetite by international investors leads to higher premiums and lower volumes for African countries, as well as reduced bilateral and multilateral sources, there is a changing nature of bilateral lending from emerging lenders such as China and India, which are not members of the Paris Club. Those new lending flows are different, and in the current context, it is likely that bilateral lenders remain cautious due to uncertainty, whether from the interest rate environment or increasing restructuring risks. At the same time, the appetite to invest in Africa is still strong: Commitments at FOCAC were of RMB350 billion, or about $50 billion, but whether those would come under new investment or lending remains a question.
The international environment – and the role of multilaterals such as the IMF and the World Bank, will remain central. They can help in channeling investment towards regional initiatives.
The second speaker, Hannah Ryder, CEO of Development Reimagined, emphasized the dynamics of supply and demand for investment: too much emphasis is put on supply factors on Chinese side and not enough on African dynamics. The $50 billion USD commitment from FOCAC takes into consideration not only evolving Chinese strategy but also African agency and governments’ intentions.
She highlighted five trends that reflect the evolving China-Africa relationship. Firstly, large flagship projects will still exist but will be more selective and y oriented towards regional and cross-border integration. Second, FDI projects, deemed “small but beautiful”, will target strategic impact and will diversify Chinese stakeholders. Third, Chinese institutions will seek to engage with multilateral agencies, through more efficient allocation of funds. Fourth, the type of contracting will change: African governments continue to self-finance a lot of projects, and Chinese companies will continue to be important players for those procurements. But investment will also come under PPP forms, in particular with Build-Operate-Transfer contracts. Fifth, in the context of ODA slowdown and the freeze in USAID assistance, China will not replace existing ODA but may think about a localization agenda as part of its evolving engagement. While China has been able to substitute for US funding in some context (especially through the UN system), this is the exception more than the rule.
The concept of coevolutionary pragmatism was also discussed in calling upon a convergence of approaches across multiple sectors such as agriculture, infrastructure and environment. Coordinating mechanisms on the ground in one sector may have positive spillover impacts or alleviate constraints for other sectors.
In the discussion, participants raised questions about new modes of engagement of Chinese actors in development finance: new actors will need to emerge, and main actors such as ExIm Bank and CDB are likely to evolve and focus more on a smaller set of projects. Panda bonds are seen as instruments with strong potential, although Chinese investors worry about default risks. Another avenue would be to further use collaboration with multilateral funds.
The discussion allowed five themes to emerge as avenues for future research for African institutes:
- How regional connectivity projects can have greater impact while mitigating usual risks of exposure to one single country.
- Which FDI projects have worked, especially to allow complementarity between infrastructure and industrial projects
- Lessons from successful projects, and how they might be used in different contexts The role
- Role of Chinese support in the context of regional institutions, such as the African Development Fund
- How institutional investors in Africa are channeling investments, how could they do so more effectively for the continent.
- Opportunities for engagement from Africa
The discussion concluded on the energies for new approaches between African and Chinese actors, and the room for new research to highlight how African countries can exercise agency in defining and implementing productive investments in a changing world.
0 Comments