Author: Michael Tiboris
Affiliated Organization: Chicago Council on Global Affairs (CCGA)
Publication Type: Report
Date of publication: May 2019
Link for the original document
China is now the largest trading partner for the African continent, and China’s Export-Import Bank aims to invest more than $1 trillion in the continent by 2025. In addition, China has now surpassed the United States government in total agriculture R&D funding. China has increased its presence in African development a trend that will persist because its model is extremely attractive to both China and many African nations.
The market opportunities on the African continent are enormous. Consumer expenditure is expected to reach $2.1 trillion by 2025 and $2.5 trillion by 2030. The World Bank estimates that the African food market alone could be worth $1 trillion by 2030, more than tripling the current $300 million market.
China’s ability to directly finance and construct infrastructure projects with fewer conditions is unique and has raised worries in some quarters about the expropriation of natural resources, environmental hazards, labor displacement, unstable debt burdens, and land grabs.
In addition, China’s investment strategy leaves notable gaps that the United States, leaning on its expertise, can fill. The most direct and sustainable mechanism for moving people out of poverty is investment in agriculture in particular, smallholder agriculture. US leadership on global water, food, and nutrition security is essential to catalyze the innovations and development necessary to achieve US foreign policy and development goals on the continent.
To maintain its global leadership in this strategically important continent, the United States should consider prioritizing technical assistance for water sustainability and thereby support sanitation and agricultural growth.
Specifically, China’s foreign investment has increased significantly in the past two decades, rising to prominence and beginning to fundamentally reshape the physical and political landscape of the continent.
China’s increased presence in Africa arose and will persist because it is extremely attractive to both China and many African nations. For some nations, a partnership with China is irresistible because of the significant and urgent need for infrastructure, which China is willing to finance. Many nations also believe China-supplied money for projects is more readily accessible and less conditional than Western loans.
As African nations develop, they become potentially substantial economic partners for the United States. African consumer expenditure is expected to reach $2.1 trillion by 2025 and $2.5 trillion by 2030. The World Bank estimates that the African food market alone could be worth $1 trillion by 2030, more than tripling the current $300 million market.
African development needs are enormous. The African Development Bank (ADB) believes the continent requires between $130 billion and $170 billion a year in new infrastructure to meet
its development needs, given the 12 million young Africans entering the job market every year.
Closing this gap requires $67.6 billion to $107.5 billion in funding, even after considering all donor financing commitments. Without attracting more private capital or development assistance to close the gap, urgent needs cannot be met. Specifically, unreliable water access, sanitation, and health (WASH) and agricultural production are consistently identified as limiting factors in African economic productivity and as contributing factors in violent conflict.
It is a challenging environment, characterized by increased but potentially unsustainable investment from China and growing African needs that must be met to ensure the continent is secure and reaches its economic potential. The best way forward for the United States is to demonstrate the strength and value of its development assistance model and deepen its relationships with partners across the region.
The market opportunities on the African continent are enormous. Consumer expenditure is expected to reach $2.1 trillion by 2025 and $2.5 trillion by 2030. The World Bank estimates that the African food market alone could be worth $1 trillion by 2030, more than tripling the current $300 million market
Countries that invest in Africa in this time of growth would build a favorable trade network for goods and ensure future food and resource security.
By 2020, more than 520 million Chinese people will be considered upper-middle class and will control 60 percent of the nation’s accumulated wealth. Higher incomes and a growing middle class have created rapidly rising demand for higher-value-in particular for meat.
Water scarcity is also one of China’s greatest challenges. Climate change, intensive use of current resources, and inefficient irrigation have put food and energy production at risk in China’s most productive agricultural regions. Since the 1980s, increasingly severe water shortages have directly threatened China’s sustained growth. By 2050, the country’s total water deficit could be as high as 80 percent of its annual capacity.
China’s investment in Africa primarily takes the form of loans that tend to be narrowly focused on the construction of individual infrastructure projects rather than broad-based development support. China’s state-owned banks sometimes directly pay its state-owned construction firms to complete the projects. Chinese state-owned enterprises receive more than 95 percent of total China’s foreign direct investment.
In general, China’s development efforts in Africa have a different character from Western aid efforts. All nations’ aid and development efforts are necessarily tied to their strategic foreign policy objectives. But China’s striking ability to directly finance projects that are then built by state-owned firms means its investment is a clearer expression of China’s foreign policy objectives.
China’s government interprets mutual benefit to mean that it should invest chiefly in individual projects of interest to foreign governments that promote its overseas economic and foreign policy objectives.
These arrangements, while successful in some places, have also ultimately proved to be too complicated for China to complete in politically unstable places. China does not have a foreign aid or development agency that corresponds with, for instance, USAID. All of its funding and development policy is carried out by its Ministry of Foreign Affairs, Ministry of Commerce, and policy development banks (such as its Export- Import Bank and the China Development Bank).
African governments’ demand for development assistance is high and rising
And the needs in Africa are much broader than those which can be shown to have direct returns for China. However, unsurprisingly, African governments see some particular advantages in loans from China, which frequently have fewer conditions than loans from Western sources.
The high need for financing coupled with the easier availability of funding from China can create tough choices for African governments. In the meantime, the pace of China’s lending and its lack of transparency have created concerns among some US government officials that the debt burden from China’s loans is unmanageable for African countries.
The stakes of global leadership through foreign policy and diplomatic relationships are high. Both democracy and authoritarianism are increasingly prevalent on the African continent.
The United States has historically made efforts to support the growth of democratic governance in Africa. Some have expressed concern that China’s nonintervention principle allows it to support authoritarian regimes and encourages corruption. Therefore, without continued US engagement, it is possible that the advancement of democracy on the continent is at risk.
While China is willing to work with less stable, authoritarian regimes, the very fact that the regimes are less stable and authoritarian has severely limited China’s ability to achieve favorable outcomes in those countries.
By 2020, more than 520 million Chinese people will be considered upper-middle class and will control 60 percent of the nation’s accumulated wealth. Higher incomes and a growing middle class have created rapidly rising demand for higher-value-in particular for meat
In fact, the combination of China’s nonintervention attitudes and existing local corruption could lead to ineffective projects and a weakening of local political institutions. Differences between China and the United States in the development model of Africa’s water resources and agriculture offer some particularly illuminating views of China’s investment and highlights opportunities for American leadership.
This emphasis on hydropower seems to be driven by demand in Africa, combined with China’s unique capacity to quickly finance and build large- scale infrastructure. Hydropower development is expensive and technically complex, yet it is attractive to China, which has deep experience and technical capacity in dam building and power generation.
China has a comparative advantage in building large infrastructure. Africa’s broader needs for water and agricultural development, beyond solely hydropower construction, present an opportunity for the United States to use specialized expertise. However, Chinese state banks have made large loans to both Chinese agribusiness working in Africa and to African governments to establish large, state-owned farms in the Chinese model.
In addition to farmer exchanges, China has also increased its efforts to train Africans in agriculture and development policy by as many as 10,000 students a year. Currently, these programs (operated by prominent Chinese universities, state departments, and private companies in mainland China) are characterized by diverse development philosophies, with agriculture and natural-resource management as the top priorities.
The goal is building positive relationships between China’s government and potential future leaders of African policy, establishing China as the most familiar partner for development and policy advice. The United States was previously a leader in training promising young leaders from Africa at US land grant universities, but these programs have waned because of a lack of funding in recent years; they have been steadily replaced by Chinese training programs.
The US approach to food and water development across the globe, including in Africa, differs significantly from China’s. In 2017, the US government published their Global Water Strategy, defining all cross-agency development objectives in the water sector. These objectives included promoting WASH services, managing freshwater resources, resolving conflicts over shared water, and strengthening water measurement and governance.
Since 2010, annual aid disbursements from the United States toward global water-related activities have fluctuated, ranging from $600 million to $900 million. African countries have remained prominent recipients of both water- and food-related funds: in 2016, for example, roughly $300 million of the $700 million in water aid went to the continent. Furthermore, eight out of 12 Feed the Future target countries are in Africa.
Food insecurity a humanitarian imperative contributes to instability, violence, extreme poverty, illness, and migration. After 10 years of declining world hunger, the number of undernourished people has begun to increase again. As of 2017, globally, more than 151 million children under five (one in five) are affected by stunting, and 821 million people (one in nine) are undernourished.
The most direct and sustainable mechanism for moving people out of poverty is investment in agriculture particularly in smallholder agriculture.
The high need for financing coupled with the easier availability of funding from China can create tough choices for African governments
In turn, when incomes rise and hunger decreases, consumers in developing markets increasingly demand a wider variety of agricultural products as well as all kinds of value-added products, thus benefiting the US economy. Agricultural growth abroad increases the demand for farm inputs and machinery, as well as for digital technology and consumer packaged goods. As the United States remains a global leader in many of these agricultural industries, with a strong history of innovation and development, it is well positioned to continue addressing agriculture and food-systems development globally.
Significant mutual benefits to continued US support of smallholder agriculture include improved food security, reduced hunger, and opportunities to expand markets for American agricultural technology. China has not taken a strong interest in this sort of investment, despite its importance for building long- term stability and productive bilateral relationships with African nations. If China has a competitive advantage in building large-scale infrastructure, the United States has its own advantage in agribusiness and supporting agricultural productivity.
Moreover, little evidence supports the notion that increased investment from China weakens the effects of Western aid, giving credence to the possibility of parallel investments in African development aid. The differences in scale and intent of China and US aid mean that many projects are complementary rather than competitive.
The United States has been (and will continue to be) an important partner with African countries. The high levels of projected growth in Africa over the coming decades suggest an enormous opportunity for the United States to continue being an important partner with African countries and investing in African development, particularly in food and water.
This distinctive point in history must be understood in the context of China’s trajectory. China’s GDP was the sixth-largest in the world when they joined the World Trade Organization in 2001; today, it is the second- largest economy in the world, poised to overtake the United States as the largest. China has undertaken a deliberate plan to expand and enhance its role in global trade as part of this economic growth, with BRI as a prime example.
China’s growth in the African development space should not automatically be feared, but it must be understood. Its presence in international development, relatively new and fundamentally different in approach from the United States, is tied directly to its future economic growth and ability to finance foreign debt both of which are uncertain. China and the United States are competing for leadership and future market share in Africa, and appreciating this context is important to engage in a productive policy dialogue on US development.
China’s investment strategy leaves notable gaps that the United States, leaning on its expertise, can fill. US development must utilize the strength of US private-sector innovation and emphasize investments in small-scale distributed and sustainable infrastructure along with key large- scale water infrastructure projects all while building the markets and technical support needed to maximize gains.
Therefore, the United States must focus development efforts on areas of mutual advantage to grow African markets for US trade by using US comparative advantage and investments in smallholder agriculture and sustainable water development. The United States can and should support small-scale infrastructure projects, especially on capacity building, that are targeted to the needs of small farmers in countries of strategic interest.
The United States needs to insist that China becomes more transparent in its development efforts bilaterally and multilaterally. Transparency will illuminate development gaps, potential collaboration, and possible coordination particularly in those areas of significant investment to both China and the United States.
Evidence shows that when China invests as a member of a multilateral institution, its projects are more financially transparent and practice greater financial due diligence. China has expanded its development presence in Africa dramatically in the past two decades, swiftly catching up to or even surpassing Western investment.
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