By Nnanda Kizito Sseruwagi
Any country’s development plays out based on its participation in international trade. Countries with higher participation in global trade are comparatively wealthier than those with lower participation. Therefore, for African countries to develop, they must increase their business involvement with other countries on the international market. Several factors determine this. One of those is the availability of cheap long-term financing for infrastructure that supports production such as roads, dams, etc.
Chinese lending in Africa can be observed to increase the participation of borrowing countries, especially in Sub-Saharan Africa, in international trade. Whereas other major funders in Africa such as the World Bank concentrate their resources on social sectors like education and health, which are equally important, China focuses more extensively on infrastructure, particularly transport, energy and communications.
Research shows that funding towards these sectors which China is keen on achieves practical, significant results for African countries by increasing their potential to share in global value chains.
Over time, Chinese funding for roads, railways and hydropower dams in Africa can be seen to immensely reduce trade costs for African countries while at the same time enhancing their connection to international markets by linking landlocked areas to the coast and connecting seaports.
Since African countries are still limited in their manufacturing capacities, it is difficult for them to have an immediate advantage over more developed countries in the entire value chain of international goods. Those developed countries have centuries of efficient production techniques under their belt. However, by enabling Africa to access markets, China pushes us one step towards competitively playing in the international market.
Of course, we cannot avoid contrasting the disparity in approach between Western funders and China. I think as a recent comer to the scene of developed countries, China has a more practical appreciation of what developing countries need to spur development. It also has a fresh memory of poverty, which aligns its development experience closer to Africa’s. therefore, whereas Western funders are hellbent on dictating moral environments upon African societies as a pre-requisite for their funding, and stage-managing the results, which are often smaller than they are projected and reported to be, China on the other hand is culturally less arrogant but more practical on making results.
Chinese development finance institutions like China Development Bank and China Export-Import Bank (Eximbank) can be observed to respond to African countries’ industrialization agendas. They fund public infrastructure that supports value-added production and international trade.
This funding comes both through Chinese Development Lending (particularly concessional loans) and from China’s Belt and Road Initiative under which China directly builds infrastructure that removes trade inefficiencies like slow production and costly transportation of goods often caused by poor transport and communication networks.
Efficient transport infrastructure is very important for African countries to access the international market. Research shows that each day a good spends in transit translates into a taxation cost based on the value of the good. We should avoid unnecessary delays of our goods in transit if we are to compete better.
African countries also produce mostly raw materials and trade more in parts and components rather than final products. Such goods are much more affected by time delays than final goods. Therefore, for African countries to benefit more in international trade and reduce costs, efficient transport and communication infrastructure is fundamental.
Another area supported by Chinese funding is domestic industrialization in various African countries. Uganda is a key example, with several industrial parks established with China’s support, such as Mukono Industrial Park, Shandong Industrial Park, and Sino-Uganda Industrial Park in Mbale. By supporting the industrial capabilities of Africa, China helps us reduce imports and increase value-added exports, thus transforming our economies toward upstream positions in international production networks.
Additionally, having strong domestic industrial capacities lowers Africa’s need to import inputs used in the production of exported goods. It also reduces our dependence on foreign industries for goods which sometimes are unavailable or become very expensive due to production disruptions. We cannot forget that during the COVID-19 pandemic, we suffered “vaccine discrimination” while most countries hoarded tons of vaccines. That was a crisis we must never suffer again. We must therefore invest in our industries and also enhance the production of domestic value-added goods, which will buy us a higher place in the global value chain.
With the support of non-politicized Chinese funding, we can mitigate liquidity constraints which often limit our exporting capacity since exporters usually need the push of external capital to enter foreign markets. Africa’s weak financial institutions can never reasonably support our development because they are very risk-averse. We need to complement the little funding they are willing to provide with China’s generous, long-term credit.
Lastly, educating our children and youth is very important if we are to compete in the highly innovative and competitive international world. African governments should invest in a highly educated labour force to increase their chances to access global markets and participate more in higher value-added activities. Only by investing in innovation can African States help domestic producers meet the international standards required by global buyers.
The author is a senior research fellow at the Development Watch Centre.
