China now Africa's largest financier of new infrastructure projects

By Richard High11 July 2008

China is now the largest financier of infrastructure projects in Africa, according to the World Bank's latest report, Building Bridges: China's Growing Role as Infrastructure Financier for Sub-Saharan Africa.

The report estimates China's funding for roads, railways and power projects peaked at US$ 7 billion in 2006 from US$ 1 billion a year between 2001 and 2003.

But the World Bank said China was not the only emerging economic power financing infrastructure projects in Africa. India's Ex-Im Bank and Arab development funds are doing the same although China is by far the largest, it said.

Combined investment by all three regions peaked at US$ 8 billion in 2006, before falling to US$ 5 billion in 2007, said the report. The bulk of those commitments were to Nigeria, Angola, Sudan and Ethiopia, all of which are rich in natural resources.

Sub-Saharan Africa's natural resource exports to China have grown exponentially, from just over US$ 3 billion in 2001 to US$ 22 billion in 2006. Exports of petroleum dominate, accounting for 80% of total exports to China.

However, the bulk of Africa's oil exports still go to the US and Europe, which together receive 57% of the total, compared with China's 14%. Other important African export commodities are iron ore and timber, followed by manganese, cobalt, copper and chromium.

China's imports of natural resources from Africa hit US$ 22 billion in 2006, with oil alone accounting for 80% of the trade. As a result, China now depends on Africa for around 30% of its oil imports, 80% of its cobalt imports and 40% of its manganese imports.

Detailed findings of the report

  • Non-traditional financiers are making sizeable investment commitments in Sub-Saharan Africa's infrastructure, helping to fill annual needs estimated at US$ 22 billion by the Commission for Africa
  • China's financing investments in Africa started from a low base (less than US$ 1 billion per year before 2004) but rose to over US$ 7 billion in 2006, and dipped to US$ 4.5 billion in 2007
  • China has committed US$ 3.3 billion for 10 projects, which could potentially boost Sub-Saharan Africa's hydropower generation by +30% or 6000 MW of installed capacity
  • China is financing the rehabilitation of 1350 km of railway and constructing 1600 km of new railway lines across the region, an important contribution to the continent's existing 50000 km rail network
  • Nearly 70% of Chinese investments are concentrated in Angola, Nigeria, Ethiopia, and Sudan
  • Financing terms vary by country but typically involve a grant element of 33%, close to the benchmark level for concessional finance
  • Some 35 African countries have received Chinese infrastructure finance. Many projects are less than US$ 50 million each
  • There have also been a handful of transactions worth more than $1 billion, showing China's ability to provide large sums of money for specific infrastructure projects.

The report was funded by the Public-Private Infrastructure Advisory Facility (PPIAF), a multi-donor technical assistance facility focused on improving infrastructure services.

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