Ecobank Opens ‘China desk’ to Manage Africa Loans

China is already a big investor in Africa. In a move that anticipates even greater amounts of Chinese investment, prominent African bank Ecobank plans will launch a “China desk” on April 11th.

Pan-African bank, Ecobank Transnational Inc, will open a China desk next week aimed at easing the flow of Chinese loans for African infrastructure projects, a bank official said.

The desk will be located in Accra and include two Ecobank employees and two senior staff from the Bank of China, Henry Ampong, Ecobank’s global account manager, told Reuters.

“You’ll see lots of funds being channeled through Ecobank for infrastructure projects especially in Liberia, Ghana and Sierra Leone where massive reconstruction is taking place,” Ampong said in an interview.

“Africa is a strategic market for China and we are anticipating huge volumes,” Ampong said, declining to give a forecast for the value of transactions.

The magnitude of Chinese investment in African countries and their terms may surprise you. Deborah Brautigam’s article in Foreign Affairs Magazine provides some insight, and also argues that Chinese investment in Africa has really helped African development:

The first prong of Beijing’s efforts is to offer African states resource-backed development loans, an initiative inspired by its experience at home.

Since 2004, China has concluded similar deals in at least seven resource-rich countries in Africa, for a total of nearly $14 billion. Reconstruction in war-battered Angola, for example, has been helped by three oil-backed loans from Beijing, under which Chinese companies have built roads, railways, hospitals, schools, and water systems. Nigeria took out two similar loans to finance projects that use gas to generate electricity. Chinese teams are building one hydropower project in the Republic of the Congo (to be repaid in oil) and another in Ghana (to be repaid in cocoa beans).

The terms of Chinese loans also tend to be better than those of deals from Western companies. As Congolese President Joseph Kabila has pointed out, a $3 billion joint mining venture in the DRC gives his government a 32 percent share, compared with the 7 to 25 percent that is typical for mining deals with other companies. Former Angolan Finance Minister José Pedro de Morais has said that by setting “a new benchmark,” a  $2 billion loan from China Eximbank in 2004 helped Angola negotiate better terms for other commercial loans. Thanks to its trillions in foreign exchange reserves, China can offer loans at highly competitive interest rates. Eximbank gave the Angolan government three loans at interest rates ranging from LIBOR (the London Interbank Offered Rate, the rate banks charge each other on loans) plus 1.25 percent to LIBOR plus 1.75 percent, as well as generous grace periods and long repayment terms. Commercial lenders, such as Standard Chartered Bank, have charged Angola LIBOR plus 2.5 percent or more, without any grace period and while requiring faster repayment.

In its second major experiment, China is helping to build special trade and economic cooperation zones in Africa. Seven such zones are in the works: two in Nigeria; the others in Egypt, Ethiopia, Mauritius, Zambia, and, possibly, Algeria. Special economic zones were an important feature of China’s early development; today, China has more than one hundred such areas. The economists Paul Collier, author of The Bottom Billion, and John Page, of the Brookings Institution, argue in a recent report for the United Nations Industrial Development Organization that special economic zones can be a very promising strategy for industrialization and employment in Africa’s least developed countries. It allows countries to improve poor infrastructure, inadequate services, and weak institutions by focusing efforts on a limited geographical area. And a targeted focus on boosting manufactured exports can help countries overcome the exchange-rate appreciation and the weakening of local non-energy industries that often accompany natural-resource exports.

However, others argue that China is merely looking to exploit African natural resources. From China Dialogue:

Examples abound where Chinese companies have been caught flouting conservation laws and collaborating with criminals in the exploitation of Africa’s natural assets. While western agents also do the same, the lack of a powerful environmental lobby within China that can effectively critique Beijing’s actions in Africa ­is a real worry.

Even official Chinese publications quote this assertion by Sierra Leone’s Ambassador to China: “The Chinese just come and do it. They don’t hold meetings about environmental impact assessments, human rights, bad governance and good governance. I’m not saying it’s right, just that Chinese investment is succeeding because they don’t set high benchmarks.”

It is time that China started setting high benchmarks and made its resource extraction in Africa a model for co-operation and mutual advantage, and not something that calls Beijing’s recent upsurge of interest in Africa into question. After all, the very last thing that the African continent needs is another set of exploiters.

Open popup

Welcome back!

CDT is a non-profit media site, and we need your support. Your contribution will help us provide more translations, breaking news, and other content you love.