China gives EU stiff competition in investment expansion

Armed with more cash and less concerns
about rule of law, China is giving the European Union (EU) with stiff
competition in the scramble for Africa, Caribbean and the Pacific.

 

China’s sprawling expansion of investment
frontiers across the continents is putting EU on its toes also in
Pacific countries covered by Cotonou Agreement.

 

In the heat of the race, EU recently
established Trust Fund for Africa and the soon-to-be-expanded European
External Investment Plan are the EU’s latest Africa-focused investment
vehicles.

 

The EIP was launched in autumn 2016 and the Commission says it will generate more than €44 billion of investments by 2020.

 

The European Investment Bank is set to have a major role in coordinating the EU’s expanding investment remit.

 

The EIB’s investment in projects in East
Africa in 2017 totalled €400 million. That was a good year, said the
bank’s bureau chief for the region, Catherine Collin.

 

“The Cotonou mandate has a very strong focus on private sector development.

 

To have growth you need a port that
functions, you need energy supply, so it is normal that we are still
focusing on those traditional infrastructure projects,” Catherine Collin
tells EURACTIV.

 

“On the other hand, we have been given a
mandate and the instruments to develop the private sector…and in this
region there is potential,” says Collin.

 

The scope of this mandate is broad enough
to include access to local currency loans for small businesses;
regional private equity funds – including funds investing in
microfinance and local mid-cap enterprises; and subordinated
bank capital to banks in the region.

 

Around half of the EIB-backed lending in
Africa supports private sector investment by small and medium-sized
businesses each year.

 

But the EU’s various investment vehicles
all come with political agendas. The EIP and Trust Fund are focused on
long-term migration control. Increasing energy capacity and agricultural
industrialization are other key goals to
the EU.

 

Those agendas are not going to disappear
in a post-Cotonou agreement and, if anything, will be expanded. The
European Commission’s negotiating mandate for the post-Cotonou talks
seeks to increase the levels of conditionality and
sanctions for governments with poor human rights records.

 

This would mean that no funds would be
allocated to states violating human rights, with the repayment of funds
to be demanded if a severe violation of human rights is established.

 

China’s investment offensive comes with different strings attached

 

China does not have the EU’s cash
restraints or agendas, and the sums involved in Chinese investment on
the African continent dwarfed those offered by Europe. At the start of a
two-day China-Africa summit on Monday (3 September),
President XI pledged $60 billion (€51.6 billion) in new development
financing. The summit focused on the Belt and Road Initiative, 
a major Chinese project which reaches into the African continent.

 

China may be investing lavishly, but its
projects often come with strings attached, mostly in the form of loans
from Chinese banks. China is already facing increasing criticism for its
debt-heavy approach to investment. The likes
of Zambia and Congo-Brazzaville have saddled themselves with soaring
debt to GDP burdens, in large part because of taking on large
Chinese-financed infrastructure projects.

 

China is set to make further inroads into
European infrastructure, as a state-owned company attempts to gain full
control of Portugal’s power grid.

 

But the fact that China’s cash comes with
no political conditions, compared to the financing from the EU, the
IMF, World Bank and other development finance institutions, as well as
the size of the sums involved, make it attractive
to African governments.

 

Anxious not to be left behind, but
without the taxpayer-funded resources to rival China’s largesse, several
EU countries have launched their own initiatives.

 

Outlining its plans for a ‘Marshall Plan
for Africa’ at the G20 last year, the German government called on
European countries to ramp up public and private sector investment in
the continent.

 

“We cannot leave Africa to the Chinese,
Russians, and Turks,’ Development minister Gerd Müller said, pointing
out that only about 1,000 German firms currently did business in Africa.

 

The UK is also stepping up its
investment, quadrupling the funding of its African and Asian investment
arm, the Commonwealth Development Corporation (CDC), from £1.5 billion
(€1.7) to £6 billion (€7 billion), with a mandate to
focus on the poorest, riskiest investment climates. The CDC is in the
process of setting up shop in Nairobi, making it the latest addition to
the network of European and international development finance
institutions in the Kenyan capital.

 

But many in Africa feel like that they have heard it all before.

 

“Many nations have declared ‘years for
Africa’ but at the end of the year it ends only with policies on paper”,
says Shehu Sani, Chairman of Nigeria’s Senate Committee on Local &
Foreign Debts.

 

Unless Europe is able to match its
promises with hard cash, its leaders should not be surprised if African
leaders continue their pivot towards China.