Africa and China’s Construction Sector

 
 

It is commonly assumed that Chinese investment in Africa’s infrastructure is being driven by natural resource extraction. Given that many countries in Africa have only very limited railroads and highways – it is estimated that Africa suffers from a $900 billion infrastructure deficit – it makes sense for China to slake its resource thirst by paving the way towards successful extraction.

In the middle of his recent African tour, Chinese President Xi Jinping unveiled a $60 billion investment plan for the continent. It is of course undeniably true that China needs an ever growing pool of raw materials to feed its massive economy, but Chinese credits lines for infrastructure in African, or elsewhere, cannot be entirely explained as facilitating mining operations.

In fact, China is using African infrastructure to keep its construction firms busy. Construction has become a priority in itself. Construction has emerged over the years as one China’s most important exports. Even China is candid about this. In August this year, China Daily was reporting that new financing mechanisms for infrastructure overseas were a key part of government’s plan to boost the construction sector.

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Construction constitutes roughly one quarter of China’s $10 trillion economy. And it is slowing alarmingly. Until now, much of China’s double-digit growth has come from investment in construction (which encompasses construction material and services).

With Xi Jinping’s promotion of his “New Normal” theory, which proposes a much slower growth to foster a more sustainable economic model, the role of construction is expected to decrease significantly in China. That is likely to be tricky, because construction has been responsible for much of China’s growth. According to Joe Zhou, head of China research at JLL real estate consultancy, China passed the peak of construction activity in 2013, with construction output expected to grow at 3.9 percent annually going forward – less than one third of its rate between 2005 and 2014.

In short, the construction market in China is saturated. Stories about ghost cities in China have led some to believe that Chinese growth during the past two decades was based on building houses for nobody. There are hundreds of new empty cities in China, and dozens more being built, in a scheme often presented as a way to absorb China’s next generation of retirees.

Which brings us back to Africa. While it may very well have been the case about 10 years ago, the Chinese are no longer funding routes and railways because they are the only one to do it; rather, they are doing it because they can no longer do it at home. Infrastructure construction in Africa has now become an end in itself.

Deborah Brautigam has written a comprehensive article questioning conventional wisdom on China’s dedication to natural resources. She uses the example of the Democratic Republic of the Congo and two Chinese construction companies which set up a joint venture to bring an abandoned copper mine back to life. The joint venture then negotiated a 6 billion commercial loan from China’s Export-Import Bank with a repayment guarantee based on profits from the mine. It wasn’t the mine that justified the road, but the other way around.

Examples of such investments shifts are proliferating. In fact, Foreign Policy has reported that in 2014 alone, Chinese companies signed construction contracts in Africa worth $70 billion.

With more than 3,000 active projects in Africa, Chinese companies have achieved unprecedented penetration of the African construction sector. Chinese companies now dominate the African construction sector, with a market share larger than those of France, Italy and U.S. combined. And this is just the beginning. China’s construction sector remains gigantic: It is expected to represent almost a quarter of all construction worldwide.

In fact, China has already showed the world its intention of constructing abroad by entering Central Asia, Russia’s historical imperial zone of influence, with its One Belt, One Road policy. There is no reason to believe the recent plan to invest $60 billion in Africa doesn’t serve the same purpose of keeping Chinese construction firms afloat.

Pierre-Olivier Bussieres is Editor in Chief of Republic of the East. He holds a graduate degree from the Institute of Eastern European, Russian and Eurasian Studies at Carleton University and a practical certificate in foreign intelligence assessment.

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