Building Bridges China’S Growing Role As Infrastructure Financier for Africa

TRENDS AND POLICY OPTIONS • INFRASTRUCTURE No. 5 • PUBLICATION FORTHCOMING HELPING TO ELIMINATE POVERTY THROUGH PRIVATE INVOLVEMENT IN INFRASTRUCTURE Building Bridges China’s Growing Role as Infrastructure Financier for Africa Vivien Foster William Butterfield Chuan Chen Nataliya Pushak TRENDS AND POLICY OPTIONS. NO.5. PUBLICATION FORTHCOMING HELPING TO ELIMINATE POVERTY THROUGH PRIVATE INVOLVEMENT IN INFRASTRUCTURE BUILDING BRIDGES: CHINA’S GROWING ROLE AS INFRASTRUCTURE FINANCIER FOR SUB-SAHARAN AFRICA Vivien Foster William Butterfield Chuan Chen Nataliya Pushak © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 5 11 10 09 08 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e- mail: [email protected]. TABLE OF CONTENTS Authors iv Acknowledgements v Executive Summary vi Glossary of Terms xiii Abbreviation and Acronyms xiv 1. Introduction 1 2. China’s Growing Ties with Sub-Saharan Africa 3 3. Methodology 7 4. The Emergence of Chinese Infrastructure Finance 13 5. Economic Complementarities Between China and Sub-Saharan Africa 23 6. Financing Issues 40 7. The Changing Landscape of Infrastructure Finance 50 8. Conclusion 56 Bibliography 58 Annex 1: Methodology for Searching Factiva Database 61 Annex 2: Methodology for Creating Project Database 63 Annex 3: Summary of Chinese Funded Infrastructure Projects by Sector 65 Annex 4: Summary of Chinese Funded Infrastructure Projects by Country 73 Annex 5: Summary of Chinese Funded Natural Resource Projects by Country 77 iii AUTHORS The authors are respectively Vivien Foster, World Bank, Chuan Chen, formerly Professor Lead Economist, Sustainable Development at the Department of Civil Engineering, Department, Africa Region of the World Bank, Tsinghua University, and Nataliya Pushak, William Butterfield, formerly Consultant to the Consultant to the World Bank. iv ACKNOWLEDGMENTS This activity was funded by a grant from the Carneiro, Astrid Hillers,DDouglass Hostland, Public Private Infrastructure Advisory Facility Wendy Hughes, Victoria Kwakwa, Charles and undertaken by the Director’s Office of the McPherson, Pierre Pozzo di Borgio, Prasad Sustainable Development Department of the Tallapragada, Silvana Tordo, Mark Williams, Africa Region of the World Bank. and Whenhe Zhang. We would also like to thank the development agencies that made their The authors would like to thank all of our procurement data available to us in order to World Bank colleagues whose input and advice analyze activities of Chinese contractors in helped us understand these issues more clearly, projects funded by African Development Bank, including Eleodoro O. Mayorga Alba, Agence Française de Développement, KFW, Sudeshna Ghosh Banerjee, Philippe Charles and World Bank. Benoit, Harry Broadman, Francisco Galrao v EXECUTIVE SUMMARY In recent years, a number of emerging those associated with ODA. A large share has economies have begun to play a growing role gone to countries that are not beneficiaries of in the finance of infrastructure in Sub-Saharan recent debt relief initiatives. In some cases, Africa. Their combined resource flows are infrastructure finance is packaged with natural now comparable in scale to traditional official resource development, making use of a development assistance (ODA) from OECD mechanism known as the “Angola mode.” countries or to capital from private investors. Chinese finance is on a scale large enough to These non-OECD financiers include China, make a material contribution toward meeting India, and the Gulf states, with China being by Africa’s vast infrastructure needs. As such, it far the largest player. offers an important development opportunity for the region. This new trend reflects a much more positive economic and political environment in Sub- Despite the importance of Chinese finance for Saharan Africa. Real GDP growth in the African infrastructure, relatively little is region has been sustained at 4 to 6 percent known about its value. The main purpose of now for a number of years, and has benefited this study is to quantify the magnitude of these from an improved investment climate. The financial flows from China by collating public rise of the Chinese and Indian economies has information from a wide range of Chinese fueled global demand for petroleum and other language sources. On this basis, it becomes commodities. Africa is richly endowed with possible to document the geographic these and faces a historic opportunity to distribution of resources, the types of harness its natural resources and invest the infrastructure involved, the size and financing proceeds to broaden its economic base for terms of the projects, and the modalities supporting economic growth and poverty through which finance is being provided. The reduction. In this context, south-south findings raise deeper questions about the cooperation provides a channel through which economic, social, and environmental impacts the benefits of economic development in Asia of the projects concerned. These lie beyond and the Middle East can be transferred to the the scope of this research, but are undoubtedly African continent, through a parallel important and merit future attention. deepening of trade and investment relations. Value of Chinese Infrastructure Finance Chinese finance often goes to large-scale China and Africa have a long history of infrastructure projects, with a particular focus political and economic ties, which have on hydropower generation and railways. More greatly intensified in recent years. Both than 35 African countries are engaging with bilateral trade and Chinese foreign direct China on infrastructure finance deals, with the investment (FDI) in Africa grew about biggest recipients being Nigeria, Angola, fourfold between 2001 and 2005, Sudan, and Ethiopia. The finance is channeled accompanied by a major influx of Chinese primarily through the China Export-Import enterprises and workers into the region. The (Ex-Im) Bank on terms that are marginally natural resource sector, principally petroleum concessional, though significantly less so than and to a lesser extent minerals, has been the major focus for both Chinese FDI to Africa vi and African exports to China. Nevertheless, Ex-Im Bank has its own environmental China remains a relatively small player in standards, and its policy is to follow the Africa’s petroleum sector relative to the environmental regulations of the host country. OECD countries. The growth in commercial activity between China and Africa has been Sectoral Distribution of Chinese accompanied by a significant expansion of Infrastructure Finance Chinese official economic assistance to the In terms of sectoral distribution, a large share region, which is focused mainly on of the Chinese finance is allocated to general, infrastructure and typically channeled through multisector infrastructure projects, within the the China Ex-Im Bank. framework of broad bilateral cooperation agreements that allow resources to be To provide a clearer picture of the value and allocated in accordance with government nature of this finance, a database of projects priorities. However, it is clear that the two with Chinese finance was constructed, initially largest beneficiary sectors are power (mainly based on press reports and subsequently hydropower) and transport (mainly railroads). verified from public Chinese language Web sites. The database covers 2001–07. On the In the power sector, China’s activities have basis of this database, it can be estimated that focused on the construction of large Chinese financial commitments to African hydropower schemes. By the end of 2007, infrastructure projects rose from less than China was providing US$3.3 billion toward US$1 billion per year in 2001–03 to around the construction of ten major hydropower US$1.5 billion per year in 2004–05, reached projects amounting to some 6,000 megawatts at least US$7 billion in 2006—China’s official (MW) of installed capacity. Once completed,

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