World Bank: China Narrows Africa’s Infrastructure Deficit

The World Bank today released a 100-page report (PDF) that outlines the many desperately needed infrastructure projects (hydropower, railways, ports, dams, highways, etc.) China is funding in poor countries throughout Africa. China is working on infrastructure finance deals with more than 35 African countries with Nigeria, Angola, Sudan and Ethiopia receiving about 70 percent of Chinese finance.

The report, Building Bridges: China’s Growing Role as Infrastructure Financier for Sub-Saharan Africa” argues that many of these infrastructure projects are driven by strong economic growth in the region, an improved business-friendly climate, and rising demand for petroleum and other commodities from China and India.

From the World Bank’s announcement:

The report notes that the investment commitments being made by emerging financiers are unprecedented, both in scale and the focus on large infrastructure projects.  In a changing world, with new actors and financing modalities coming into play, there is a learning process for investors and recipients.  This will place new demands on national capacity to negotiate complex and innovative deals, and apply appropriate environmental and social standards needed for the long-term success of such partnerships.

Sub-Saharan Africa’s natural resource exports to China have grown exponentially, from just over $3 billion in 2001 to $22 billion in 2006.  Petroleum dominates, accounting for 80 percent of total exports to China.  Nevertheless, the bulk of Africa’s oil exports still go to the United States and Europe, which together receive 57 percent of the total, compared with only 14 percent going to China. Other important African export commodities are iron ore and timber, followed by manganese, cobalt, copper and chromium.

Detailed findings from the report:

* China’s financing investments in Africa started from a low base (less than $1 billion per year before 2004) but rose to over $7 billion in 2006, and dipped to $4.5 billion in 2007

* China has committed $3.3 billion for ten projects which can potentially boost Sub-Saharan Africa’s hydropower generation by 30 percent or 6,000 megawatts of installed capacity

* China is financing the rehabilitation of 1,350 kilometers of railway and constructing 1,600 kilometers of new railway lines across the region, an important contribution to the continent’s existing 50,000 kilometer rail network

* 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 $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

As background to the publication of today’s report, last year the World Bank and China’s Export-Import Bank (Exim Bank) signed a cooperation agreement with particular focus on Africa, which was to tap into China’s development experience and the World Bank’s expertise in analysis and capacity building.

China Exim Bank has had enormous impact on development activity around the world and African economies in particular. The bank lends over $20 billion a year, almost as much as the World Bank. China Exim Bank is expanding its loans by 15-20% per year. A growth rate of 15% would increase its lending to approximately $40 billion in 2010 – considerably more than the lending of any other export credit agency or the World Bank.

That cooperation agreement was interesting since in the past the World Bank had accused China and the Exim Bank of financing projects rejected by others because of environmental and human rights concerns. Then again, despite criticisms from the World Bank, China has been increasingly winning civil works contracts under World Bank bidding, consistent with the Bank’s safeguards.

With this report, it now appears the World Bank has fully come around to welcoming China as a major agent of development in Africa.

Related news coverage:

China laying key foundation for Africa growth: World Bank (AFP)

China leads new financiers in Africa-World Bank (Reuters)

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