/ 21 July 2011

China to increase role in Africa’s building sector

One of the most important areas where China is set to play a bigger role is in the construction and infrastructure sectors in Africa, according to Jeremy Stevens, Standard Bank Group’s Beijing-based economist.

The nature and driver of construction will change as highly-skilled Chinese companies will increasingly capitalise on their ability to provide cost-effective infrastructure solutions, he says.

The cost of upgrading and maintaining Africa’s infrastructure is in the region of $100-billion per year. China is already a critical partner, funding around two thirds of Africa’s new infrastructure spending since 2007. Furthermore, China’s infrastructure involvement in Africa creates additional opportunities for auxiliary needs — from banking services to accommodation and education.

Stevens notes that China’s successes in Africa have changed the continent in many ways already, and Chinese investments are laying the tracks for Africa’s future progress, building schools, roads, and railways.

“China has helped the continent unlock its commodity potential and its products are finding markets in Africa. Today, Africa is virtually unrecognisable from Africa of a decade ago. However, the changes have only just begun and so has China-Africa commercial ties,” says Stevens.

In addition, more and more entrepreneurs can invest in productive assets like power generators and vehicles which often originate from China. As financial markets deepen, and credibility of governments increases, their ability to raise debt, along the yield curve, is also enhanced, meaning that governments can partner with Chinese financiers to invest in joint ventures. Similarly, as equity markets develop, companies are able to raise funds to invest in productivity enhancing assets.

Stevens points out that, over the next 30 years, the share of Africans living in cities will nearly double to around 60%; and the number of African cities with a population of more than one million will also double to 60 in the next decade. Africa’s pending mass urbanisation is heavily dependent on meaningful upgrades to its infrastructure, and without infrastructure development it will be very difficult for Africa to genuinely connect to global markets.

The deficit is already enormous (even relative to low-income countries) and is having growth-penalising effects on the continent. Africa will need help in meeting the infrastructure demands placed on it by an urbanising population and increased industrialisation.

Stevens also estimates that China-Africa trade is on track to surpass $300-billion by 2015 as incomes in Africa will increase by 30% and move closer to $4 000 per year in the next five years, offering Chinese exporters, who have been flourishing in recent years, additional opportunities on the continent. Last year, China exported nearly $50-billion worth of goods to Africa, targeting primarily South Africa, Nigeria, and Egypt among others. In comparison, the US only exported half of that amount to Africa. Even now, most of China’s exports to Africa (and its key markets) are made up of manufactured goods. Considering that demand from advanced economies will be sluggish for some time, African markets’ importance to China is increasing.

While China will remain the largest importer of African resources going forward, China’s emerging position in green technology will present unique opportunities for collaboration with Africa in the areas of hydro and solar power.

Furthermore, Africa’s meaningful agricultural potential solidifies future partnership. Currently, more than 60% of the planet’s available uncultivated cropland is in sub-Saharan Africa, but only 3% of is prepared for irrigation, compared with 40% in Asia. — I-Net Bridge