/ 25 November 2020

China’s resource-for-infrastructure deals

Cultural imperialism with Chinese characteristics
Soft power: A Senegalese man waves a Chinese flag in 2009 as he waits for China’s president to arrive. (Seyllou Diallo/AFP)


Through the use of resource-financed-infrastructure (RFI) agreements, China is playing an ever-greater role in financing industrial and trade-related infrastructure projects in Africa. The RFI model is a financing mechanism whereby a government promises future revenues from a resource extraction project to repay a loan used to fund its infrastructure construction.

Beijing’s adoption of this mercantilist strategy has transformed China into a quid pro quo consumer of primary products in Africa – China is willing to finance and build crucial infrastructure for economic development in exchange for almost exclusive access to Africa’s mineral resources.  

Under the directive of Beijing’s “going out and bringing in” strategy, the Chinese government has sought to internationalise its state-owned enterprises by encouraging national companies to expand overseas and capture market share in resource industries. Thus, the strategy is generally characterised as resource-seeking in its intent as Chinese firms have gradually increased investments in foreign infrastructure projects that help extract and transport minerals crucial to China’s development ambitions. 

China’s high tolerance for political instability and its ability to integrate its firms into foreign industries have not only allowed Chinese companies to penetrate complex natural resource markets but has also given them a competitive advantage over other competitors in the extractives industry. 


Many poor African governments struggle to obtain financing from developed Western nations and international financial institutions as they have poor credit ratings and are subsequently marked as high-risk investment destinations. 

As an alternative source of investment, China uses RFI deals to reach agreements with African nations that are dependent on commodities and eager to secure low-interest loans for infrastructure development. 

The main benefit of the model is that a government can acquire infrastructure earlier than it would have been able to if it were to wait for conventional revenue streams in the form of taxation. In other words, because the debt contracted from RFI agreements is not limited by standardised lending practices, African countries are able to undertake infrastructure projects that may not otherwise have been possible. Given the limitations of traditional Western sources of lending, Chinese RFI loans present an attractive source of development finance for African economies that have limited alternative financial options to improve their considerable infrastructure deficit.  

RFI deals provide the necessary financial support to develop critical industrial, energy, communications, and transport infrastructure needed to accelerate economic development on the continent. Relative to other developing regions, Africa faces a severe infrastructure deficit that continues to undermine growth and development. 

By international comparisons, per capita availability is low, infrastructure is heavily concentrated in urban areas, operational efficiency is weak, and consumer costs are high. In this context, Chinese funding presents a promising opportunity for the continent, as Chinese development finance has the potential to make a meaningful contribution to closing Africa’s infrastructure gap


Countries’ experiences on the continent have shown that while RFI agreements offer valuable opportunities, there are often also considerable risks involved. In addition to issues over good governance and transparency, there are concerns about the structural effect of Chinese investment on African economies. This includes the overall structure of trade with China, which reinforces Africa’s position on the periphery of the international economy and echoes its traditional trade relations with the West, that African countries export primary resources and import manufactured goods. 

The recent volatility of commodity prices brought on by the coronavirus pandemic has emphasised the risks of depending solely on resources for revenue and the pressing need for African economies to diversify. 

Furthermore, there are concerns that the structure of Chinese RFI loans could increase the debt burden on African economies. Given the volatility of commodity prices, many resource-rich African countries run the risk of becoming dependent on Chinese RFI deals for development financing. 

It is important to state that RFI agreements do not necessarily worsen Africa’s resource curse, nor are they a panacea for the development challenges on the continent. If RFI projects are well-chosen and implemented, they can in theory, produce significant returns for a country’s economy. Yet, if African governments do not carry out the necessary due diligence for selecting projects, make inappropriate agreements, or accrue too much debt, the consequences of RFIs could be potentially severe.   

RFI financing has decreased markedly due to the recent unpredictability of commodity prices, and there are limited records available on new deals which would help to assess how resource financing might change moving into the future. Nevertheless, it is crucial to evaluate past and present experiences with RFI agreements to help African countries determine if and how they should enter into RFI agreements with China in the future. 

Borrowing governments, lending institutions, civil society, and international financial institutions have a common interest in learning from previous failures and successes in order to develop more appropriate agreements going forward. Chinese RFI deals can make an essential contribution to closing Africa’s infrastructure gap. However, the complex nature of RFI agreements and the high level of technical expertise needed to determine the benefits and the risks of infrastructure projects poses a significant problem for the use of RFI agreements in Africa. 

The coronavirus pandemic has placed enormous strain on the budgets of many African countries. This is as most developing countries in Africa are often not well-positioned to commit resources to fight the pandemic and repay their debt commitments simultaneously. That being said, China seldom writes off RFI loans due to several domestic constraints and usually prefers to adopt more flexible options on repayment.

Moreover, a range of debt write-offs amid a global economic downturn caused by the coronavirus pandemic is likely to undermine China’s win-win narrative regarding the mutually beneficial nature of overseas investments. In this context, the relative value of resources has proven critical as borrowing countries in Africa repay their loans in commodities. However, with commodity prices at record lows due to the pandemic, these borrowers will struggle to produce enough resources to repay these RFI loans. 

In light of the above, it is therefore imperative that African governments show leadership and strategic thinking, drawing from best-established practices through their own experiences with conventional finance partners, and incorporate these insights into how they approach RFI deals with China. How impactful RFI agreements are depends on the ability and commitment of African governmental institutions and policy organisations to harness opportunities and minimise risks.

Ultimately, the extent to which China’s RFI model can help to develop rather than exploit the continent is more dependent on how African governments utilise RFI agreements than on the strategic interests of Chinese investments.