Africa and the One Belt One Road Initiative
The “One Belt One Road” approach by China is aimed at strategically positioning it as one of the world’s strongest economic powers.
China hopes to lead the world by pushing its comparative advantage in cutting edge technology, Made in China 2025; and Bio-technology.
Infrastructure Development from high-tech engineering designs, consultancy, and contractors to financing is at the core of this strategy and has taken Africa by storm. Chinese state owned enterprises like CCECC, Power China and others are criss crossing the continent looking for infrastructure projects.
It is therefore imperative for African governments, private sector, bankers and others to understand the modus operandi of the main Chinese owned companies.
A few things to note include the following:
- EPC exclusivity that means that the Chinese take the lead for project development including principal contractor, feasibility studies (on a selective basis) and financing assistance;
- Governments are required to provide sovereign guarantee and counter part funding of at least 15% of the project cost;
- Chinese financing is both concessional from China EXIM and commercial from financial institutions like the ICBC and the China Construction Bank;
- Different Chinese companies focus on different sectors but most in energy and transport. They also tend to work in joint ventures with smaller Chinese companies normally subsidiaries to the parent company.
Many African governments have focused on infrastructure development as a priority and some are setting up support mechanisms as is the case in Nigeria that announced a stand-alone infrastructure fund of USD 25 billion in 2014. Others like Zimbabwe have taken a more pragmatic approach by including a budget line item for project development within the general budget so as to ensure that the financing of feasibility studies for key projects is sustainable.
Africa must rise to the occasion and seize the opportunity provided by the One Belt One Road initiative by improving its state of readiness. Many of our ministries of transport, energy/power, and aviation are weak and poorly organised. Greater coordination between line ministries and agencies is critical so as to enable effective negotiation with the Chinese state owned companies.
There are enough African engineers, economists, accountants, lawyers and other professionals to call upon to support local project development and get viable and bankable infrastructure developments done. Some argue that it is not the lack of Finance but rather the lack of coordination and good financial and technical proposals that hold back infrastructure development.
Our own institutions like the Africa Finance Corporation and the African Development Bank are making a difference in this area. However stronger partnerships and flexibility with member countries will achieve greater heights.
Africa Rising! This should become a reality…
Image Credit: Amajambere Iwacu Community Camp