How Your Company Can Benefit From China’s Belt and Road Initiative Part 2A: Africa

This is the second of a series of posts regarding the effect of China’s Belt and Road Initiative on the global economy. (To read the initial post, click here.) The goal of this and future connected blog posts is to help U.S. and international companies understand what China is doing in target international markets so as to be able to benefit from Chinese-funded or Chinese-built infrastructure as a springboard to their own growth. This and other posts will focus on general enabling environments, including legal frameworks for doing business in these countries. This post is presented in a Q&A format with David Baxter, my longtime friend and PPP (Public Private Partnerships) expert, who is based in Washington, D.C.

You have spent a large portion of your life in Africa, which has historically been exploited by colonial powers. How do today’s Africans view themselves, their countries, and their continent with respect to the rest of the world? In other words, what is Africa’s current “social consciousness”?

When I was in Uganda recently, I heard pragmatism among Africans, about their past, current, and potential future problems. But I routinely hear enthusiasm among Africans who are becoming more educated and skilled. They believe that they can make this century “Africa’s century.” To me it seems like the more they have been poorly treated, the more determined they have become to build Africa with African objectives for a strong African future. Africans want relevant, sustainable growth for Africa. Mostly when I talk about Africa, I am referring to sub-Saharan Africa., not Arab North Africa which forms part of the MENA (Middle East, North Africa) Region. The enthusiasm that I am referring to is regional in nature: West Africa (e.g. Ivory Coast, Ghana, and Nigeria); East Africa (e.g. Tanzania, Uganda, Rwanda, and Kenya); and Southern Africa (e.g. South Africa, Namibia, Botswana, Mozambique, Zambia, and Zimbabwe). Each region has different opinions and approaches to its development path. East Africans are probably the most enthusiastic and pragmatic about development strategies because they have less resources than their counterparts in other regions. They believe they must do a lot with little. West Africans, particularly Nigerians, know their country is such a juggernaut, so they feel that they can accomplish almost anything. However, they know they face corruption related to oil revenues: weak governance and bad investment decisions. They stoically recognize their missteps, and they’re trying to fix them. I am from South Africa, where some South Africans are unfortunately stuck in a post-Apartheid political paradigm that has stalled forward progress. Fortunately, most of the younger post-apartheid generation are focused on looking forward, not backwards and are embracing economic innovations that will help lift Southern Africans out of their current challenges. Africa has some dysfunctional countries like the Democratic Republic of Congo and the Central African Republic, which are prone to misadventures when it comes to development. Because they are desperate for investment in development projects, they are more prone to exploitive “good deal” that is not in their national interest.  In many cases, the leadership of these countries have mortgaged their future for ill-conceived projects that have poor long-term prospects.  However, Southern Africans, Western Africans, and Eastern Africans are becoming more discerning about how they engage with investors. They better understand the types of projects they need, and what should be the long-term objectives of realistic strategies (usually tied to sustainable development goals). Landlocked countries are particularly tied to the fates of their coastal neighbors, and this is driving regional integration efforts. This can be both advantageous and disadvantageous for those landlocked countries, depending on their neighbor’s willingness to develop common development objectives.

What do you see as Africa’s greatest opportunities, either for African companies or foreign companies looking to do business with Africa?

Africa is beginning to shine in leapfrogging technology: cellular networks, renewable/sustainable energy, and telecommunications have all flourished because countries did not have to invest in outdated infrastructure for these new technologies. Renewable energy (i.e. photo-voltaic power generation) does not require big power grids, for example. They can utilize small, off-grid systems. Solar and hydro are being developed throughout Africa, and geothermal specifically in East Africa. I see a lot of PPP/infrastructure projects emerging in those sectors. South Africa and Rwanda are becoming service-focused economies with call centers and technology centers. They have the expertise, which helps their neighbors, as well. There has always been a political focus on pan-African projects to connect and integrate Africa: trans-Africa highway projects (the Cape to Cairo road has been a dream for hundreds of years; also, east-to-west access routes for trade). These transnational connections that will integrate economies and allow them to share resources is becoming a greater focus of governments. Air transportation is still a challenge in Africa. In some regions people must fly via Europe to reach their neighbors. The biggest growth is in developing railway networks and transnational highways. Big rivers like the Congo River and Niger River are being revisited as routes to trade goods and access raw materials. Ironically, these rivers, which were first used in the colonial era, saw their ferry and river transport infrastructure fall into disuse. Now Africans are beginning to realize that river transportation can be an infrastructure backbone for countries like the Democratic Republic of Congo if their supporting infrastructure is revitalized through investment.

How is Africa reacting to China’s increasing presence through its Belt and Road Initiative?

It is a mixed bag. East Africa has two big projects that have been teetering on failure. In a transnational railway project that was supposed to connect Kenya, Uganda, and Rwanda, things stalled after their governments said the project was too expensive. When they said that they could not afford the debt burden, Chinese investors pulled out, citing project risk. The project is half finished, and now it is called the “railway to nowhere.” The new Addis Abba, Ethiopia to Djibouti railway to the Red Sea was completed. It was built and financed by the Chinese, but the Ethiopian government now faces excessive debt because it paid more for the debt that these projects incurred than they should have. Africans are beginning to realize that these types of procurements are not transparent or competitive. Many governments are now questioning how these types of projects bind these countries to foreign economic interests, not domestic development interests. Generally, Africans are a little more apprehensive about enthusiastically agreeing to proposed terms from unsolicited infrastructure deals. However, irrespective of this, China is increasingly making inroads Africa. China is beginning to recognize it needs to offer better deals, especially in countries with more vibrant African democracies. Where governance has changed hands through the ballot boxes rather than coup d’états, these new governments are stronger. But countries that lean more toward authoritarian leaders, like the Central African Republic and the Democratic Republic of Congo, grabs onto a Belt and Road project as a short-term way to show their country’s citizens economic growth without explaining the long-term future implications. These short-term vies are resulting in the “sale” of national resources to the Chinese investors with dire consequences if they default on their loans. This “debt trap” is a big discussion in Africa. There are also concerns that Chinese businesses will squash local businesses where Africans are not as well skilled, trained, educated, or experienced in the craft of competitively doing business. In some African countries, goods that are cheap, made in China, and sold by Chinese businessmen are suffocating local businessmen. Consequently, U.S. and other foreign countries with strong social corporate responsibility practices will find Africa an inviting market. It is an enormous market that will grow exponentially in the next 20-30 years. The demographic momentum is there. Even with zero marketing, companies will find that there is already a great demand for durable goods.

In our future posts we will look at additional world regions and zoom in on promising markets with strong enabling environments and rule of law, providing businesses with a base level of certainty to move forward in developing relationships in those countries.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.