How Africa can use big-power rivalry to seize investment opportunities

Africa is entering a golden era of big-power courtship that could usher in major improvements in people’s lives if the continent’s leaders seize the moment.

Although the EU is still Africa’s biggest investor and trade partner — its two-way commerce was $300bn in 2018 — it is a bloc of countries rather than an individual power.

The three individual powers — China, the U.S. and Russia — offer African nations investment opportunities but also pitfalls rooted in their business approaches. African leaders should pick the best possibilities for their people while avoiding the traps.

The U.S., which has reduced its investment in Africa as the shale revolution has minimised its need for the region’s oil, should help the continent diversify its economy away from petroleum and minerals. This would not only benefit Africa, but be in the US’s interest because it would help the continent achieve longer-term stability.       

As an example of the differences in the big powers’ development approaches, China likes to build infrastructure abroad to keep its huge construction industry busy. The sector, which accounts for a quarter of the country’s GDP, has had less work at home recently, so the government is aggressively seeking overseas projects to fill the gap.

Africa suffers from the world’s greatest infrastructure shortage. It needs trillions of dollars of roads, rail lines, airports, ports, and power generation and distribution facilities — all projects that China has had decades of experience with.

At first glance, a China-Africa infrastructure-development partnership would seem heaven-sent. But there are catches.

One is that China likes to finance overseas projects with long-term loans that end up being a burden for many African countries. Seventy-two percent or $5.3bn of Kenya’s bilateral debt is with China, and Zambia owes China $9bn for 19 infrastructure projects.

Another rub is that Chinese construction companies want their nationals to do the important work, like engineering, preventing Africans from obtaining cutting-edge skills on the job.

Despite this, most Africans welcome the infrastructure the Chinese have built. The long-term loans are worth it, they say, because they now have roads, railroads and power facilities that improve their lives and offer business opportunities.

U.S. companies have had a history of investing by themselves or with joint-venture partners in Africa rather than financing projects with loans that Africans must repay. They also buy into the “local content” proposition — giving Africans on-the-job training and improving their manufacturing skills by buying parts and equipment from local companies.

I have personally benefited from U.S. corporations’ willingness to pass on knowledge to Africans working with them. I learnt important lessons from scores of American petroleum-company executives before becoming a lawyer who puts together oil and gas deals on the continent.

The key problem with the U.S.’s corporate investment in Africa is there is less than before. it fell from $69bn in 2014 to $48bn in 2018, largely because the U.S. shale revolution created more opportunities for U.S. companies at home with less risk.

Two-way trade between the U.S. and Africa encapsulates the situation. It dropped from $125bn in 2011 to $61bn in 2018 — although the 2018 figure was up from $48bn in 2016. The decline reflects the U.S. importing a lot less oil from Africa than before.

Aware of the investment and trade declines, and worried about the effect they will have on U.S. influence in Africa, both the Obama and Trump administrations crafted initiatives to reverse the situation. African leaders should look closely at how these programs could benefit their countries. One focus might be how the initiatives could help them develop industries beyond oil, gas and mining, such as tech, manufacturing and tourism.

Russia began re-engaging with Africa a half-decade ago after neglecting the continent for two decades in the wake of the Soviet Union’s collapse. Its big state-owned companies have invested mostly in the energy sector — including building nuclear plants — and in minerals extraction.

Russia has far less money than China or the U.S. to pump into Africa’s economies. So, it is making strategic investments — ones that not only offer an economic return and help Africans but also bolster its image on the continent as a re-emerging power.

Some African leaders like the idea that Russia does not put human rights and other conditions on its investments, as the US government and the U.S.-led World Bank do.

Russia’s quest to become a geopolitical force in Africa again includes a military side that the continent’s leaders need to figure into the equation, however. Russia is the second-largest arms seller to Africa, has the largest peacekeeping contingent on the continent, and — according to many reports — has mercenary forces in some African countries.

Africa’s biggest investment need is modernising and expanding its power sector. More than 620 sub-Saharan Africans — two-thirds of the population — lack electricity. The other third are constantly having to endure blackouts. With Africa’s high birth rate, experts predict the crunch will get worse.

Russia’s power-industry experience means it could help Africa address the problem. With their financial resources, China and the U.S. could play an even greater role in powering Africa up.

The continent’s leaders should be talking with investment officials and companies from all three powers to try to bring electricity to a lot more Africans.

With big powers more intent than ever on wooing Africa for strategic reasons, savvy African leaders have their best chance in years to cherry-pick investments, plucking the juiciest ones while letting the less mouth-watering ones fall to the ground.