A New Scramble for Africa: US and Chinese Engagements in the Region
As of March 13, 2021, the total number of Covid-19 cases in the United States topped 30 million. On the other side of the Pacific, the number of cases in China has yet to reach 100,000 (1). While many states have not opened up public schools and are struggling to agree on basic health measures, life in Wuhan, China — the ground-zero of the pandemic — has essentially returned to some degree of normality (2). Even as the United States rebounds from a somber year with a robust vaccination program and falling unemployment, the Chinese economy is forecasted to eclipse that of the United States by 2028— a full seven years earlier than expected, according to the Japan Center for Economic Research. To prepare for this transition in economic hegemony, the Chinese government and state-owned enterprises are looking to increase their engagements around the globe, particularly in Africa. Seeing the need to bolster relations with the resource-rich continent, China has begun to usurp the role of Africa’s largest foreign investor from the West.
China - Enter Stage Right
According to the Center for Strategic and International Studies, a Washington D.C.-based think tank, Sub-Saharan Africa is considered to be the world’s “fastest urbanizing region”. Its population is forecasted to double to more than 2 billion by 2050, much of this coinciding with rising incomes and a growing consumer class (3). China, keen to play a larger role in the urbanization and development of the continent, has become the continent’s largest trading partner, with bilateral trade growing by 20% year-over-year since 2000. The continent is also seen as the last stop on China’s massive Belt and Road Initiative, an extensive network of infrastructure projects to connect Chinese exports and external investment to more than 60 nations across Afro-Eurasia.
There are currently 10,000 Chinese firms operating on the continent, ranging from import-export shops to large construction companies that partner with governments to build transportation infrastructure (4). Chinese state-owned enterprises are helping build some of Africa’s largest infrastructure projects, including $4.5 billion and $12 billion railroads in Ethiopia and Nigeria respectively, and a $1 billion container port in the Ivory Coast. Over the last decade, China has become the largest funder of projects on the continent, supplying 40% of all foreign investment into infrastructure projects (5). While China increases 5 its engagements in the region, the United States and Europe are withdrawing: once accounting for 44% and 24% of infrastructure funding in 2011; these figures are a far cry from the 34% and 6.7% they make up respectively today.
A Growing Debt Crisis
As global consumer spending and commodity prices have cratered amidst the pandemic, African economies are feeling the pinch of the slowdown in global trade. Unable to rely on robust commodity exports to cover a massive $11 billion external debt, the Zambian government became the first nation on the continent to default on its debts during the health crisis. Similar countries are also feeling the crunch, including the oil-rich nations of the Republic of the Congo and Angola, both mired in large external debts as a result of expensive infrastructure projects. Unlike in Zambia, contracts for Chinese funding in these two countries offer the usage of commodities as collateral in case of default, but falling oil prices have made repayment difficult (6).
The process of debt-refinancing has grown increasingly complex as multilateral bailout programs, often spearheaded by the West, require debt appraisal from bodies such as the International Monetary Fund. As the number of Chinese lenders to the continent grows, the growing diversity in funding sources comes with increased difficulty in determining which parties should be at the drawing desk of repayment programs. Furthermore, bond-holders from Western nations are less likely to engage in debt refinancing, believing that money that would’ve gone towards repayment would instead be used to pay back Chinese loans (7). The status of Zambia’s debt repayment agreement and that of many regional neighbors is ongoing and only time will tell if their debts will be entirely relieved. Recent difficulties in servicing external debt may serve as a wake-up call for other countries looking to partner with Chinese state-affiliated firms to build up infrastructure on the continent.
Re-enter the United States
In the face of China’s growing presence in Sub-Saharan Africa, the United States is becoming increasingly committed to investing in the continent. Just two years ago, the passage of the BUILD Act saw the creation of the International Development Finance Corporation (DFC). The organization, which consolidated USAID, the Overseas Private Investment Corporation (OIPC), and the Development Credit Authority (DCA), was created, according to the Act, to counter “state-directed investments by authoritarian governments”— an overt reference to Chinese investment in developing nations (8). The DFC is equipped with a massive $60 billion budget to facilitate the financing of eight infrastructure projects and lend to businesses in the developing world. So far, the agency has already invested $8 billion in 300 projects across the region (9).
Aside from increasing its economic engagements, the United States is expanding its military presence across the continent, most notably working with the French military in countering extremists in the Sahel. As the United States shifts its gaze away from the Middle East, it is entering into another long-term engagement: a Cold War-esque expansion of cultural, military, and economic power on the African continent. Though only speculation, the region may become the next battleground for a great power-struggle between China and the United States— where the hearts, minds, and wallets of billions are at stake.
Sources
- https://www.worldometers.info/coronavirus/
- https://www.dw.com/en/life-in-wuhan-back-to-normal-amid-covid-precautions/a-55892909
- https://www.cfr.org/blog/africa-fastest-urbanizing-place-planet
- https://www.mckinsey.com/featured-insights/middle-east-and-africa/the-closest-look-yet-at-chinese-economic-engagement-in-africa
- https://www.forbes.com/sites/wadeshepard/2019/10/03/what-china-is-really-up-to-in-africa/?sh=156cb3275930
- https://www.cnbc.com/2021/02/17/africas-reliance-on-chinese-loans-has-experts-concerned-about-more-debt-defaults.html
- https://www.economist.com/international/2021/03/04/poor-countries-struggling-with-debt-fight-to-get-help
- https://fas.org/sgp/crs/misc/R45461.pdf
- https://www.voanews.com/africa/us-private-investment-initiatives-pump-billions-africa#:~:text=JOHANNESBURG%20%2D%20How%20big%20is%20the%20U.S.%20commitment%20to%20Africa%3F&text=Since%20its%20launch%20at%20the,%2410%20billion%20worth%20of%20deals.
