Continent 'must be prepared to grow'

While China presents opportunities, Africa must be ready to make the most of them, experts say

Opportunities for Africa are coming more sharply into focus due to China's Belt and Road Initiative of trade and infrastructure measures and industrial transfer plans.

But experts say there are a number of changes that African nations need to make to take full advantage of a historic chance to catch this rising star.

One such change is a unification of markets to strengthen Africa's participation in the new trading landscape being shaped in important ways by China.

At a seminar in Nairobi, African leaders also were urged to build an infrastructure network to seamlessly connect the continent's 54 countries.

China's Silk Road Economic Belt and 21st Maritime Silk Road plans present enormous opportunities, they said. The Belt and Road Initiative proposes to use trade and investment to boost ties primarily along ancient trade routes from China to central and southern Asia, the Middle East, Africa and Europe. The maritime link would touch sub-Saharan Africa at Mombasa port in Kenya and then extend via the Red Sea to Egypt.

Africa is seen as an emerging trading block, with its ports used as conduits for goods and services to and from China. Infrastructure is essential to link coastal cities to interior areas such as South Sudan, Rwanda and Burundi in East Africa.

Policy analysts from China and Africa at the Oct 29 seminar, China-Africa Cooperation on Three Networks of Africa's Infrastructure and Industrialization, focused on the role of rail, road and air transport. It was organized by the African Economic Research Consortium - a Nairobi-based not-for-profit group devoted to economic policy research and training - in partnership with the Center of African Studies at Yunnan University and the Chinese embassy in Kenya.

The seminar highlighted China's policy of increasing Africa's infrastructure stock to buoy the continent's push towards industrialization. Implementation challenges, priorities, implementation by subregions of Africa and financing modalities were deliberated.

According to African Construction Trends Report by global consultancy firm Deloitte, China was responsible for building 31 percent of 51 projects in East Africa last year. This translated to a total infrastructure value of $61 billion.

However seminar participants noted that the infrastructure gap persists. World Bank research shows that the gap is about $90 billion per year, with large deficits in power and roads.

"The underdeveloped transport infrastructure raises the cost of doing business in Africa, negatively impacting competitiveness and thus economic growth," says Liang Yijian, associate professor and deputy director at Yunnan's Center of African Studies.

Despite the handicap, Africa has emerged as a key market. "The increase in China's economic and political involvement in Africa is arguably the most momentous development in the continent," says Lemma Senbet, African Economic Research Consortium executive director.

"China's robust interest in infrastructure is very timely. Existing modern developments are promoting inclusivity as it is linking small-scale farmers with markets and they are providing meaningful employment to our youth, hence addressing the youth bulge."

Yet many participants said they were doubtful of coordination among African governments in linking individual transport projects to a greater network that would enable transformation and industrialization.

Group members said challenges - such as fragmented markets, poor infrastructure planning and coordination, and funding issues - undermine Africa's position.

An integrated market would see economic and political barriers lowered, reducing the costs of doing business. Unification of air space would also contribute immensely toward opening and connecting markets, facilitating trade and enabling African firms to link into global supply chains.

"We need to implement the Yamoussoukro Declaration to transform and improve intra-African trade," says Lemmet.

In that 1998 declaration, African countries agreed to liberalize their air space. But protecting markets for national airlines has created difficulties with inflated airfares and dampened air traffic growth. According to the World Bank, Africa's air service markets accounts for less than 1 percent of the world total.

Poor infrastructure design and implementation has seen emphasis placed on developing the transport sector while neglecting other key components such as water and sanitation, and health and housing.

According to the 2013 Ernst & Young Africa Attractiveness Survey, in 2012 there were over 800 active infrastructure projects across Africa, worth over $700 billion. Those related to transport represented 41 percent, while 37 percent were power projects.

Zhang Jin from Yunnan University notes: "0.1 percent to 3.7 percent of the economic growth rate is based on provision of clean water." Zhang emphasizes the need to upgrade related equipment to improve the productivity of sectors such as agriculture and energy.

There also is poor linkage between land and water transport. Adebukola Daramola of the Economic Policy Research Department of the Nigeria Institute of Social Economic Research says the majority of infrastructure projects in her country are not integrated.

"They are poorly structured and it seems they are competing rather than complementing each other. They are also not leading to the port."

She notes that it would be costly both economically and politically to overhaul the existing systems. "If governments do not coordinate and align investments with the three networks and the industrialization concept, the dream to industrialize will elude us."

Daramola says it is time China invest in soft infrastructure such as strengthening economic and legal institutions and building the capacity of Africans to promote the implementation and sustainability of infrastructure development.

"Legal frameworks need to be spruced up to promote favorable policies that protect foreign investment," Daramola says.

Funding also has emerged as a persistent challenge. Sources of funds include the Export-Import Bank of China, owned by the Chinese government, which gives concessional loans to African countries.

"This has attracted modest interest rates," says Joseph Onjala, a senior fellow at the Institute for Development Studies at the University of Nairobi.

"Chinese bilateral aid loans to Kenya have been gradually increasing when loans from other bilateral sources are going down. The problem, however, is affecting the external debt performance of the country. Kenya has been undergoing challenges in servicing its debts that have shaken up the stability of the economy," says Onjala, an economist.

Loans from lenders have had a maturity time of up to 30 years and a grace period of around six to eight years. "Interest rates have been gradually increasing in the last five years from 1.1 percent in 2009 to the range around 2.6 in 2013. Kenya is increasingly servicing its loans from expensive sources and undermining its debt situation," he says, calling for more innovative financing.

Participants widely agreed that concessional loans were not sustainable. Many said African governments also need to consider financing products like treasury bills and bonds.

"China can participate in buying these papers to reduce the serious consequences faced by governments on high debt portfolios," says Witness Simbanegavi, director of research at consortium.

Other suggestions included, first, launching selective infrastructure development around a budding sector to catalyze industrial transformation. "This will bring quicker and sustainable results," says Simon Githuku of the Kenya Institute for Public Policy Research and Analysis. "If a country can streamline its supply processes, it will be able to meet the needs of both the domestic and export markets and addresses intra-Africa trade."

Second, it was suggested that Chinese lenders establish a presence in the continent to improve cooperation.

Third, the need for special economic zones was emphasized. Liu Xiaohua of the Chinese special economic zone office of the State Council, says such zones pioneered China's rapid growth. "I believe this is why African governments should be keen to replicate this success," says Liu, closely involved in planning the six industrial parks currently in Africa.

Liu says China presents many opportunities to Africa, "but Africa has to be strategically positioned to compete for these opportunities with other regions".

lucymorangi@chinadaily.com.cn

( China Daily Africa Weekly 11/20/2015 page23)