Tag Archives: Africa development

Unparalleled Generosity: How China Won the Hearts and Minds of Africa

When  it comes to building big things in Africa, China is unrivalled. Beijing-backed firms have redrawn the continent’s transport map. Thanks to China’s engineers and bankers you can hop on a train in Lagos to beat the traffic to Ibadan, drive across parts of eastern Congo in hours rather than days or fly into any one of dozens of recently spruced-up airports from Zanzibar to Zambia. Throw in everything else from skyscrapers and bridges to dams and three dozen-odd ports and it all adds up to rather a lot of mortar.

It was not always so. In 1990 American and European companies scooped up more than 85% of construction contracts on the continent. Chinese firms did not even get a mention. Now Western firms are struggling to win business in a fast-growing market. (The World Bank predicts that demand for infrastructure spending alone will be more than $300bn a year by 2040.) Africa’s population is growing faster than that of any other continent, and Africans are moving to cities faster than people elsewhere. Both these trends will drive demand. The dragon’s share will be built by Chinese firms, which in 2020 were responsible for 31% of all infrastructure projects in Africa with a value of $50m or more, according to Deloitte, a consultancy. That was up from 12% in 2013. Western firms were directly responsible for just 12% or so (compared with 37% in 2013)…

Chinese lenders are pluckier than their Western rivals. Sometimes this borders on recklessness. When Uhuru Kenyatta, Kenya’s president, wanted $4.7bn to build a new railway which the World Bank warned would never turn a profit, Chinese lenders backed it. The railway has since lost more than $200m. Often, Chinese firms are tough negotiators. Several have struck resources-for-roads deals, such as those worth more than $1.1bn in Ghana and Guinea, where the loans are backed by bauxite… 

In 2021,  China said it would stump up its own cash to build smart new foreign ministries in Congo and Kenya. It has also picked up the tab for numerous other official buildings, from parliament complexes in Sierra Leone and Zimbabwe to presidential palaces in Burundi, Guinea-Bissau and Togo. Given such generosity, it is hardly surprising that some African governments are predisposed to favor Chinese firms…. 

Perhaps as important is that China is unwittingly crowding in Western money by stoking the geopolitical anxieties of Western leaders. Britain’s government recently said its development arm would invest $1bn in Kenyan infrastructure and that a British firm would build a new rail hub in central Nairobi. The G7 group of countries last year launched the Build Back Better World initiative, a shameless copy of China’s Belt and Road Initiative (BRI). All this should mean more opportunities for construction firms of all nationalities, whether Western, Chinese or, with a bit of luck, African, too.

Excerpts from Chasing the dragon: How Chinese firms have dominated African infrastructure, Economist,  Feb. 19, 2022

Mini-Green Grids

A forested village in Jharkhand state, eastern India, Narotoli is home mainly to adherents of Sarna, a nature-worshipping tribal religion. In more ways than one, it has long been off-grid… In 2018, it became one of the last in India to benefit from a push by Narendra Modi, the prime minister, to supply electricity to all the country’s villages. But the national power lines are so “reliably unreliable”, says an Indian executive, that they might as well be washing lines.

In 2016, before the national grid arrived, however, Mlinda, a social enterprise, had set up a “mini-grid”, a bank of batteries charged by solar panels and hooked up to homes, to guarantee round-the-clock power independent of the national network.  The power generated by the plant is expensive (though it costs less than villagers often pay for alternatives such as kerosene for lighting and diesel for irrigation pumps). The worry is that demand for electricity may not be enough to justify the installation cost. …But Mlinda and other mini-grid installers see them as more than a way to satisfy existing demand for electricity: they are a way to catalyse development. The installers advise villagers on irrigation, farming and marketing to help them develop businesses that require reliable electricity, which in turn justifies the expense of installation.

Vijay Bhaskar of Mlinda says a big mistake in development has been to assume that, once people are hooked up to electricity, businesses will automatically flourish. People have to be taught how to make the most of power, he says. “Bringing energy is the easy part. The hard part is finding productive ways to make use of it.”  According to one British expert, “mini-grid operators are not sellers of kilowatt-hours; they are stimulators of rural development.” Jaideep Mukherjee, the boss of Smart Power India, an NGO supported by the Rockefeller Foundation, says their job is to “demonstrate the benefits, train and then propagate”.

An independent study for Mlinda found that GDP per person in eight villages with mini-grids rose by 10.6% on average over the first 13 months, compared with 4.6% in a group of similar villages without them.  Mini-grids are being set up at the rate of just 100 or so a year, from Myanmar to Mozambique. But the International Energy Agency (IEA), a forecaster, says hundreds of thousands of them could connect 440m people by 2030, with the right policies and about $300bn of investment.

African countries used to focus almost exclusively on expanding national electricity networks. Now some, including Nigeria and Togo, have started to prioritise mini-grids. ..

Most mini-grids are green, unlike diesel, kerosene and coal- and gas-fired electricity. That is a welcome feature, though not the main aim, since the contribution of places like Narotoli to global warming is minuscule.

Excerpts from Mini-girds and development: Empowering Villages, Economist, July 14, 2018, at 61

The Biggest Flaw of Africa

Investors are yanking their cash from African assets, until recently a popular play for the adventurous, as a toxic confluence of factors overhangs the continent.Crashing commodity prices, a Chinese slowdown and a string of policy failures are forcing investors to reassess the risk of investing in Africa after years of optimism about its growth prospects.Stock markets and currencies have been selling off across the continent, especially in commodity-dependent economies. Nigeria, the continent’s largest economy and longtime investor darling, has one of the world’s worst-performing stock indexes this year, down by 14% since the start of 2016. The S&P Zambia Index has fared even worse over the past year, plunging 45% as the country’s copper exports tumbled on softening Chinese demand. President Edgar Lungu last September called for a day of national prayer to petition God to shore up Zambia’s currency, the kwacha. At the time, the kwacha had lost 45% of its value against the dollar in 2015.  The declines mean African equities are performing worse than any other frontier markets. The MSCI Africa index tumbled 19% last year, significantly more than the overall MSCI Frontier Markets index….The upshot is that frontier investors are moving their money from Africa to Asian countries like Pakistan, Bangladesh and Vietnam; net energy and commodity importers which have shown more commitment to industrialization….

The shift has also pushed up the costs of sovereign borrowing, even as African countries slow down their issuance of bonds in international capital markets. In 2014, African sovereigns issued $12 billion worth of bonds in international capital markets; last year it was half that, according to Deutsche Bank.Ghana, mired in an economic crisis, issued the most expensive African Eurobond in history late last year, paying a whopping 10.75% for $1 billion; far higher than the single-digit interest rates the government had become accustomed to paying for international bonds in recent years….

[T]here are important exceptions to the rule: Kenya, which has a more diversified economy, and Ivory Coast, the world’s top producer of cocoa, are still attracting frontier investors…..

“One of the biggest flaws when investors look at Africa is that they think of it as a country and not a continent composed of very unique countries and companies,” says Laura Geritz, who runs U.S.-based Wasatch Frontier Emerging Small Countries with $1.1 billion under management.

Excerpts from  Africa Bruised by Investor Exodus, Wall Street Journal, Feb. 26, 2016