Out-Law / Your Daily Need-To-Know

China steps up Africa investments role with launch of trust fund and think tank

Out-Law News | 07 Jul 2015 | 4:57 pm | 2 min. read

The World Bank Group has said it will host an “infrastructure-focused” trust fund being set up by China’s finance ministry that will offer “strong support to African countries”.

In addition to the trust fund, which is reportedly valued at around $50 million, the World Bank said it is joining the ministry and the China Development Bank to launch the ‘Investing in Africa Think Tank Alliance’, which aims to support the industrialisation of the region.

The developments were announced at the ‘Investing in Africa Forum’ (IAF) in the Ethiopian capital city of Addis Ababa, Ethiopia. The two-day event, which ended on 1 July, was supported by the World Bank, China’s government, the China Development Bank, the China-Africa Development Fund, the Ethiopian government and the United Nations Industrial Development Organization (UNIDO).

During the IAF, the China Development Bank and UNIDO signed a memorandum of understanding to “consolidate each other’s strengths and resources for future cooperation, including in Africa”.

The World Bank said China’s Guangdong province will host the next IAF in 2016 “as an affirmation that support to accelerate investment and industrialisation is an ongoing partnership with African countries”.

Guangdong is home to China's Pearl River Delta economic zone, one of several such trading zones in the country, the model of which could help Africa “accelerate improvements in infrastructure and trade logistics... and create conditions to attract development-oriented investment”, the World Bank said during the IAF.

“When it began its process of industrialisation, conditions in China were very similar to those pertaining in many African countries today,” the World Bank said. The special economic zones were used to “pilot economic reforms before adopting them nationally, and to open the economy to foreign investment, technology and skills”.

Since 2007, the Chinese government has supported six Chinese company-initiated industrial zones in Africa, according to China’s state-run Xinhua News Agency.

A report for the World Bank presented at the IAF (40-page / 2.70 MB PDF) said China and sub-Saharan Africa (SSA) trade “has rapidly intensified since the late 1990s and in 2013 China became SSA’s largest export and development partner”.

China now represents about a quarter of SSA’s trade, up from just 2.3% in 1985, the report said. Despite China’s slowing economic growth rate, Chinese trade with SSA has continued to expand rapidly, reaching a total value of $170 billion in 2013, the report said. “China has recently overtaken Europe as SSA’s largest export partner, and regional economies are becoming increasingly vulnerable to changes in international commodity prices and Chinese demand conditions.”

The report said foreign direct investment (FDI) flows from China to SSA “rose from next to nothing a decade ago to $3.1bn in 2013, representing 7% of global FDI flows to SSA”. China has established itself as a major investor in Africa, “a dynamic that runs parallel to China’s growing trade involvement”, the report said. “China’s FDI stock in SSA reached nearly $24bn in 2013, reflecting an annual growth rate of 50% between 2004 and 2013.”