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China and US scramble for Africa

  • Why did US Secretary of State Blinken end his first trip to the continent in the small West African country of Senegal?

  • No doubt his visit was prompted by the 8th China-Africa Cooperation forum (FOCAC), which is scheduled for next week

  • Slowing Chinese growth, intense China-US competition and Covid have changed the world since the last FOCAC in 2018

China and US scramble for Africa
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
27 November 2021
Published by

Why would US Secretary of State Antony Blinken end his Africa trip this week, his first in the 10 months since he started in this role, in Senegal; the small West African country with total imports and exports of just over US$1bn, and a population of merely 17mn?

The answer lies in what takes place next week.

The Forum on China-Africa Cooperation (FOCAC) is scheduled for 29-30 November in Dakar, Senegal. It will be the eighth iteration of the triennial event, with the inaugural one in 2000.

The focus for investors is the amount of capital pledged by China, in the form of grants, concessional loans, trade finance and debt write-offs. The last two FOCACs have each seen US$60bn of pledges.

The larger context is slowing growth in China, consensus scepticism over China's Belt and Road Initiative (BRI), China-US competition globally and lingering Covid disruption in Africa.

The world has changed since the 2018 FOCAC

China's slowing growth, BRI scepticism and "dual circulation"

China's slowing growth may bring into question its capacity for large overseas capital pledges and, if so, this matters particularly in instances of sovereign debt distress, especially where it is the largest external creditor.

There is consensus scepticism over BRI projects, in terms of the competitiveness of the bidding process, the long-term value of those projects and the implementation obstacles encountered (balance of debt versus equity finance, security of fuel supply, access to land, sanctity of long-term purchase contracts and local opposition to using imported Chinese labour).

This scepticism does not always have merit in our opinion: we argue that BRI reinforces the existing characteristics of the recipient country's political economy, just as capital inflow from other foreign sources does.

Regardless of the standalone ethical merits of BRI, there is very little prospect of the G7's "Build Back Better World" Initiative, which professes higher ambition on climate impact mitigation, anti-corruption and labour rights, ever matching the scale and capital outlay of BRI.

Some may interpret China's economic development strategy shift to "dual circulation", which places greater emphasis on self-sufficiency, as a move away from imports of any kind.

But it is more accurately viewed as:

  1. Replacing imports of high-end, technologically sophisticated products with locally developed and manufactured alternatives (which is negative for automotive and tech product exporters from Germany, Japan, South Korea and the US, rather than commodity exporters from Africa, with high commodity prices a reminder of Africa's strategic value for China, not merely in oil but also in copper, rare earth metals, and uranium); and

  2. Developing international demand for Chinese exports, which, in turn, actually reinforces the importance of BRI as a means to open up access to less-developed overseas markets for Chinese exports.

China growth forecasts imply deceleration post-Covid

China-US competition

Irrespective of the recent Biden-Xi call, China-US competition is as intense across the trade, territorial and technology spheres as it was under the Trump administration.

Most emerging countries, including those in Africa, of course, want good relations with both, and the associated trade and investment flows and defence and diplomatic cover. But the space for emerging countries to navigate between the US and China is shrinking.

One issue that, under Biden, likely hampers the US and favours China is the language of morality injected into its foreign policy: something that ideologues in the US administration portray as a universal concern for human rights and many in emerging countries view as a selectively applied lacquer for foreign policy that remains driven by realpolitik.

For emerging country leaders, including those in Africa, navigating domestic political challenges, sometimes of their own making, the amoral and non-interference stance (at least, overtly) of China can be preferable.

Ethiopia, with the current conflict between the Abiy Ahmed elected government and the Tigray rebels, is a case in point: Abiy supporters argue that the US is undermining the democratic ideals it professes to champion and ignores the historic monopolisation of political power under the Tigray-dominated EPRDF.

Veteran specialist Africa investors and analysts hate when relative newcomers refer to Africa as if it is one country. The problem is that this is often how the US and China, the two largest external influences on the continent, view it. Not so much as one country but one region among all the others globally where they compete.

In 10 charts below, we illustrate how Africa appears to be carved up by Chinese finance and trade on the one hand, and the US military on the other.

China, over the past decade, has become a much bigger source of finance and trade for Africa than the US, albeit at levels now lower than past peaks. The erosion of US importance is partly driven by its waning interest in Africa's hydrocarbon resources, eg Nigeria, following the shale revolution and in the ongoing transition to renewable energy, and the priority given by its fastest-growing and largest private sector companies (in technology, pharma and branded consumer goods) to commercial opportunities in Asia's emerging middle class.

Meanwhile, the US remains the dominant international military presence in Africa. But it may open space for others as its "War on Terror" winds down. The Horn of Africa (Djibouti, Eritrea, Ethiopia, Kenya and Somalia), which matters for the security of sea transit to the Suez Canal to the north and minerals access to the likes of Democratic Republic of Congo to the west, is one such region where all the world's militaries appear to be converging.

(1) Next Forum on China-Africa Cooperation in September 2021 should signal China's ongoing commitment to Africa

(2) Perhaps, a necessary signal given China annual FDI in and loans to Africa are well below historic peak

(3) Nevertheless, China loans remain very significant for a subset of African countries

(4) Contrary to popular perception, China finance in Africa is not driven by the extraction of natural resources alone

(5) China has become a much bigger investor in Africa than the US over the last decade

(6) China has become a more important trading partner for Africa than the US over the last decade

(7) African countries may be turning their attention to trade deficits with China and likely seek better market access

(8) The US military footprint in Africa is small for the US but huge for Africa, overwhelming all rival international powers

(10) And US troops in Africa are well below prior peak as its "War on Terror" has wound down, opening space for others?

Covid

Africa was initially somewhat insulated from Covid economic disruption because of its young population, but, as more variants of the virus spread, the continent may take longer to normalise because of its lagging full vaccination rate.

In this context, China has successfully gained geopolitical favour via its Covid 'vaccine diplomacy' compared with the relative hoarding of vaccines by the US and the EU.

Covid vaccination in Africa lags well behind