There is a general trend of decreasing foreign direct investment (FDI) in Africa. It fell by nearly 21 per cent in 2017, and a portion of that can be attributed to a reduction in Chinese FDI on the continent. This differential is even starker considering that China emerged so quickly as a key stakeholder in Africa; China issued an estimated $94.4 billion dollars in loans to finance more than 3,000 infrastructure projects across African between 2000 and 2015.
In the run up to the Forum on China-Africa Cooperation (FOCAC) this month, African leaders in both the public and private sectors were holding their breath to see what President Xi would deliver. FOCAC is perceived as the most comprehensive platform for collective dialogue and cooperation between China and African countries.
During the last FOCAC summit held in Johannesburg in December 2015, China pledged $60 billion to African countries, $5 billion of which came in the form of grants and interest-free loans. While there is contention about how much has actually been paid out, there have been a number of loans disbursed liberally in the past three years to finance hundreds of projects, from the Standard Gauge Railway in Kenya to hydropower projects in Angola.
While it may seem worrisome that Chinese investment has slowed, many people contend that Chinese loans are still too much and too unbalanced, and that the consequences will reverberate throughout the continent. For example, China now holds 72 per cent of Kenya’s bilateral debt, albeit Kenya’s debt to China has steadily grown over the last five years, and not just since FOCAC.
However, the slowing of government loans and large-scale projects might provide a bigger opportunity for the private sector to make a sizeable impact in Sino-African relations. Because of its ambitious programme to improve intercontinental trade — the Belt and Road Initiative— the Chinese government has developed physical and digital infrastructure on which both Chinese and African companies can build. Many private sector companies, like Huawei, have already benefited enormously from Chinese public financing, but it can be intimidating for smaller companies to make their move in Africa. The expectation of Chinese firms in a number of African countries is usually one of power and wealth. Smaller companies may not be able to live up to that reputation, and this may hinder negotiations.
Given China’s position as a leading and rapidly accelerating technological superpower in the world, making strides especially in the fields of logistics (smart cars, drones, e-commerce) and energy (solar panels, smart metering, etc), it makes sense that the most logical industry for the next stage of Sino-Africa collaboration is technology.
While there are a number of other fast-accelerating industries, such as Chinese military hardware sales, the growth of entrepreneurship and grassroots tech innovation might lead to a more equal relationship between China and Africa. Rather than just one-sided trade, different models of collaboration such as peer-to-peer mentorship can lead to a more a nuanced and reciprocal collaborative era. While Africa may be behind China in terms of R&D and innovation, it makes up for it with a rapidly growing population and an increasingly educated middle class that will begin to demand technological advancements.
Nearly 7 per cent of the of the $100 billion dollars invested in Africa from 2000 to 2013 has been in communications, including an Ethiopian information technology infrastructure project, a Nigerian space satellite and other various projects to improve mobile coverage in rural areas. The other two areas that received the most attention were energy, and transport and storage, which received $25 billion, and $31 billion respectively. Energy generation supplies a lot of other industries, such as manufacturing, but is still a major contributor to technological advancement through its provision of stable and consistent access to electricity. Roads and distribution networks open up markets for innovations such as e-commerce, but also a more organic flow of technology transfer.
Chinese entrepreneurs understand how to navigate Africa’s current explosive growth in internet literacy. While Western technology companies have made some first strides on the continent, Chinese companies may have an advantage, as their domestic market experiences often closely resembles that of Africa.
In the early 2000’s, when the Chinese tech giants of Alibaba Group, Tencent and Baidu were just launching, internet penetration in China was less than one per cent. With this previous experience and understanding of similar trends, combined with the infrastructural foundation provided by Belt and Road Initiative projects, Chinese entrepreneurs have a massive opportunity to collaborate with African entrepreneurs to implement Chinese technology tailored to Africa.
Perhaps this is why Alibaba Group, the unparalleled pioneer of e-commerce and payments in China, has started to show an interest in Africa. Not only did they collaborate with UNCTAD on the eFounders programme to train over 100 African entrepreneurs in the next couple of years, they recently announced a fund of $10 million to invest on the continent over the next 10 years. Furthermore, Alibaba’s subsidiary Ant Financial has signed a partnership with the United Nations Economic Commission for Africa and the IFC to promote digital financial inclusion. While these are preliminary steps, we are hopeful for more serious commercial involvement in Africa from a company with a $500 billion market cap.
Simultaneously, China is still a pivotal joint in the supply chain of many more traditional industries. To this end, African investors and corporations can start thinking about how to integrate closer to these manufacturing innovators. For example, Kenyan-based venture capital firm EAV recently visited China in order to collaborate more closely with the solar panel manufacturers already used by many of their portfolio companies in Africa.
Africa is still a long way from integrating into the global manufacturing supply chain, particularly on a scale that China would be willing to take seriously. However, these are steps in the right direction, and we hope examples of small wins will encourage more companies to do the same.
With the emergence of private sector collaboration and grassroots engagement, there is an opportunity for a more balanced dialogue between China and Africa. While it is unlikely that such private sector collaboration will re-balance the China-Africa debt ratio, it is more likely that Chinese and African tech entrepreneurs can engage as equals and generate a greater business understanding between these two regions.
Stephany Zoo, Founder, China Africa Tech Initiative.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.