African countries are still recovering from several external shocks that have affected economic growth: the COVID-19 pandemic, the Ukraine crisis and the effects of climate change. These trends have led to debt distress, fiscal deficits and strained global supply chains. This economic state constrains the ability of African countries to focus their resources on low-carbon development goals such as energy access and transition.
Even today, 43 percent of the African population do not have access to electricity and 670 million Africans lack access to a clean source of energy for cooking. Although Africa's green energy potential (wind, solar, hydroelectric and geothermal) is one of the highest in the world and it has the potential to improve energy access and affordability, the share of renewable energy (solar and wind) in the continent's total energy production is marginal, leaving African countries dependent on fossil fuels.
African countries may be constrained by challenging economic factors, but the energy transition presents a unique opportunity to improve energy access and affordability. Initiatives such as the African Union's African Energy Transition Program show that African countries demand consistent capital to realize energy access and transition objectives.
China has been a strong partner in supporting economic growth and sustainable development in Africa. In fact, compared to other multilateral institutions and countries, China provided the highest amount of energy finance to African countries from 2012 to 2021, contributing to the continent's increasing electrification and export revenues from resource extraction. Given Africa's current economic challenges and energy opportunities, the next phase of China-Africa economic relations should see China playing a bigger role in contributing to African countries' low-carbon development goals.
Past trends in China-Africa economic relations, including trade, development finance and foreign direct investment, highlight how China could address this growing demand.
The Africa-China trade in goods from 2000 to 2022 shows three major trends: trade expansion, deficits and an exchange of natural resources for finished products. China has increasingly become many African countries' top trading partner, which has led to an increase in trade from $11.67 billion in 2000 to $257.67 billion in 2022.This exponential growth has also led to a trade deficit for African countries and trade surplus for China, due to African countries' exports of natural resource primary commodities that fluctuate in price and imports of higher-value goods, such as telecommunications equipment, footwear and machinery. However, renewable energy technologies that benefit from Africa's raw commodity inputs are not among the top goods African countries import from China.
Chinese development finance has benefited the infrastructure development of African countries but the environment and biodiversity impact should also be addressed. From 2000 to 2022, the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM) supplied at least $134.01 billion in financing to African countries. About 39 percent of this finance was distributed to the energy sector. Over half of the energy development finance was to fossil fuel projects that provided electrification and or extraction of primary energy commodities. Hydropower plants received 31 percent of the energy finance, while renewable energy (solar and wind) projects only received 2 percent. In the coming years, as China greens the Belt and Road Initiative, the CDB and CHEXIM are expected expand concessional financing to renewable energy sectors on the African continent.
FDI from Chinese companies is a promising stream of capital that does not burden African countries' balance sheets. From 2000 to 2022, Chinese investors announced $112.34 billion in greenfield FDI and completed $24.60 billion in mergers and acquisitions deals. Relative to development finance, a higher proportion of FDI (8 percent) from Chinese companies was directed to renewable energy investments, including announcements of greenfield investments for solar panels and farms. Chinese FDI has also been channeled to transition material inputs into renewable energy technologies. About 49 percent of Chinese M&A deals and 25 percent of greenfield FDI announcements were for the exploration and extraction of materials such as copper, aluminum and iron, essential inputs for electric vehicle batteries, solar modules and wind turbines. While this shows African countries' place at the upstream stage of these supply chains, there is room for China to expand these renewable energy technologies to African countries.
African countries and China can take several steps to ensure their economic engagement is supporting Africa's energy access and transition goals.
African government recipients of Chinese overseas development finance should aim to advance midstream or downstream activities associated with the production of batteries, an area of growth that various African governments have identified as an opportunity to move up the value chain. Given that Africa is endowed with natural resources, it can invest in renewable technologies that can be used to process the unfinished products exported to China.
FDI support for fossil fuels such as oil runs counter to global energy transition goals. Although investment in essential transition materials shows African countries play a primary upstream role in the supply-chain for renewable energy technologies, African countries should enact policies to ensure that extraction of these commodities aligns with increasing energy access.
China's imports of transition material inputs for various types of green technologies indicate that there is potential for ensuring that the extraction of these commodities is aligned with increased energy access goals. China could export renewable energy technologies that use the primary commodities imported to China to provide more support toward the development of Africa's renewable energy potential.
Furthermore, to increase the share of renewable energy in the continent's total energy production and consumption, CDB and CHEXIM should push to fund accessible and affordable renewable sources that are directed toward meeting the energy access needs on the African continent.
China has already indicated that it will prioritize engagement with African countries focused on sustainable and green investments through a greener Belt and Road Initiative and high-quality China-Africa cooperation. What is more, China would see benefits from shifting its economic engagement with African countries, such as leading a global energy transition, further enhancing relations with African countries and expanding the presence of Chinese green companies in the Global South.
Moving forward, China can rebalance to other forms of economic engagement to preserve the economic ties it has built with African countries over the past two decades. If so, the next two decades of China-Africa economic engagement could potentially be even brighter than the past two.
Dianah Ngui is a collaborative research manager at the African Economic Research Consortium. Oyintarelado Moses is the data analyst and database manager for the Global China Initiative at the Boston University Global Development Policy Center. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.
Source: China Daily
