Recently, Africa has become a major hub for international investments. Countries like the United States, European Union, and China have invested billions of dollars in the continent. These investments are often praised for helping Africa’s growth and future. However, some investments, especially those from China, have sparked controversy. While Chinese investments have built billion-dollar infrastructure projects and funded new businesses in Africa, they also come with certain costs. To understand the issues around Chinese investments, let’s first explore what China has been buying and investing in Africa.
Chinese Investments in African Corporations
One of the most significant and well-known deals involves Standard Bank, one of Africa’s largest banks. Standard Bank claims to be the leading private bank in Africa and is valued at over $21 billion USD, making it the third most valuable company in South Africa, where it is based. Interestingly, the largest shareholder of Standard Bank is not the South African government or its people, but a Chinese company.
In March 2008, the Industrial and Commercial Bank of China (ICBC) bought a 20% stake in Standard Bank for 36.7 billion South African Rand (about 33.8 billion renminbi). This made ICBC the largest shareholder in one of Africa’s key banks. The situation is more complex because ICBC is owned by the Chinese government, not a private Chinese company. This means the Chinese government has significant influence over one of Africa’s most important financial institutions.
Chinese Investments in Infrastructure
Another major area of Chinese investment in Africa is infrastructure development. Infrastructure is crucial for any country as it supports economic growth, improves living standards, and enhances connections within the country and with the global market. Infrastructure projects include roads, railways, ports, airports, power plants, and telecommunications networks, all essential for industrial growth, trade, and overall socio-economic progress.
Supporters argue that Chinese investments in infrastructure are beneficial for Africa. Let’s look at some of the largest projects:
Nova Cidade de Kilamba in Angola
Angola, one of Africa’s largest countries, has seen one of the most controversial infrastructure projects: Nova Cidade de Kilamba. Located about 30 kilometers from Angola’s capital, Luanda, this new mixed residential area includes 750 eight-story apartment buildings, numerous schools, and over 100 retail units. Designed to house up to half a million people, the $3.5 billion project was built by the China International Trust and Investment Corporation (CITIC), a Chinese state-owned company. Covering over 5,000 hectares, it is one of the largest construction projects in Africa.
While Chinese media praised the project as a milestone, many Western media outlets have called it a “ghost town.” Despite heavy promotion, nearly a year after the first 2,800 apartments were sold, only 220 had been purchased.
Mombasa-Nairobi Standard Gauge Railway in Kenya
Another notable project is the Mombasa-Nairobi Standard Gauge Railway (SGR) in Kenya. This major railway connects Mombasa, East Africa’s largest port, with Nairobi, the capital city. The railway spans over 480 kilometers and has reduced passenger travel time from more than ten hours to just over four hours. The primary contractor for this project is the China Road and Bridge Corporation (CRBC).
The Mombasa-Nairobi project cost about $3.8 billion USD, with 90% of the funding provided by China Exim Bank and 10% by the Kenyan government. Although it is a significant and ambitious project, the leading contractor is a Chinese company, and the debt must be repaid to a Chinese bank.
These projects have contributed to Kenya’s heavy debt to China. A BBC report from late 2023 highlighted that Kenyans are increasingly worried about how debt repayments are affecting the country’s economy. By June 2022, China was Kenya’s third-largest external creditor, holding 19.4% of the country’s debt.
Chinese Investments in Africa’s Mining Industry
While infrastructure and corporate investments are important, one of China’s most concentrated investments in Africa is in the mining industry. China owns some of the largest mines across Africa, worth billions of dollars. Much of the mined resources are exported back to China.
In 2023, Chinese mining and battery companies invested $4.5 billion USD in lithium mines over the past two years. These investments have been significant in Namibia, Zimbabwe, and Mali. Projections suggest that by 2025, China could control one-third of the global lithium mining capacity.
Importance of Lithium Mining
Lithium mining is crucial for the global supply chain of electric vehicle (EV) batteries and renewable energy storage systems. As the world moves towards cleaner energy solutions, the demand for lithium has soared, earning it the nickname “white gold” because of its essential role in powering the EV revolution.
Notable Mining Deals
One of the most surprising deals in the mining sector was when the Chinese company JCHX Mining Management acquired Zambia’s Lubambe copper mine. The deal involved JCHX Mining Management purchasing an 80% stake in the mine, while the Zambian government, through ZCCM Investments Holdings, retained a 20% stake. Shockingly, the Chinese company acquired the mine for just $2 USD but took on the mine’s $857 million USD debt. While this removed the debt from its previous holders, it also meant that the mine was now majority-owned by a Chinese company.
Another significant transaction is by MMG, a company backed by the state-owned China Minmetals Corporation. MMG purchased the Khoemacau copper mine in Botswana for approximately $1.9 billion USD from Cuprous Capital. The Khoemacau mine has over 6 million tonnes of copper reserves and spans 4,000 square kilometers, making it one of the largest investments in Botswana.
Chinese companies are also heavily invested in the Democratic Republic of Congo (DRC), the world’s largest cobalt producer and a major copper supplier. Additionally, Zimbabwe has become an important source of lithium, another vital metal for lithium-ion batteries. China also has significant investments in iron ore projects across Guinea, Cameroon, Sierra Leone, and Algeria.
A study by the Carnegie Endowment for International Peace highlights Africa’s growing role in supplying minerals to China, with exports increasing from $15 billion USD in 2010 to nearly $50 billion USD in 2021. China’s involvement now goes beyond extraction to include refining and processing minerals within Africa.
Chinese Debt in Africa
An independent study found that from 2012 to 2018, Africa secured more than $10 billion USD annually from China, largely driven by President Xi Jinping’s Belt and Road Initiative (BRI). Additionally, China has become the top bilateral lender for several African nations, including Ethiopia. Between 2000 and 2023, China lent a total of $182.28 billion USD to the continent, focusing on energy, transport, and ICT sectors.
Consequences of Large Debts and Investments
There are significant concerns about the large debts and investments from China. One major issue is the potential for a debt trap, where African countries become heavily indebted to China, making it difficult for them to repay loans and potentially leading to economic instability. Some media and analysts consider this one of Africa’s biggest future challenges.
Another concern is the potential loss of sovereignty and control over critical national assets. In some cases, when African countries cannot meet their loan repayments, China has been accused of seizing or demanding control over strategic assets like ports, railways, or mines.
Despite these concerns, many African nations continue to borrow money from China and accept Chinese investments. They often do not view these investments as problematic, unlike some Western countries. However, the long-term impacts of these debts and investments remain a topic of debate.
Conclusion
Chinese investments in Africa have brought significant infrastructure development and corporate growth, contributing to the continent’s economic progress. However, these investments also come with challenges, including heavy debt burdens and potential loss of control over key assets. As Africa continues to engage with Chinese investors, it is crucial to balance the benefits with the risks to ensure sustainable and equitable growth for the continent.