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What 22 Years of China-Africa Trade, Development Finance, and FDI Reveals About Renewable Energy Support for African Countries

Kenyan technician installs a Chinese-made solar panel in Nairobi that makes up some of the 80% of renewable energy generated in the East African country each year. LUIS TATO / AFP

By Oyintarelado Moses

Energy access and transition are prominent development objectives in African countries.

Across the continent, 43% of the population does not have access to electricity and 670 million people lack access to clean energy sources for cooking. Those with energy access are highly dependent on fossil fuels to generate electricity.

Although African countries have some of the highest green energy sources in the world to address energy access and transition, much of this energy potential has been unexploited to date.

Lack of access to enough affordable funds spread evenly across African countries is one of the barriers to maximizing electrification and transition benefits from renewable energy sources.

China is one of many external country partners that could extend the kinds of capital needed for African countries to achieve energy access and transition goals.

A new report by the Boston University Global Development Policy Center and the African Economic Research Consortium analyzes China-Africa trade, overseas development finance, and foreign direct investment (FDI) from 2000-2022 and provides lessons for aligning China’s engagement with African countries’ energy objectives. China’s past economic relations related to energy and transition materials led to both electrification and extractive types of economic engagement.

“Given current economic challenges and future energy opportunities, China can play a role in contributing to Africa’s energy access and transition through trade, finance and foreign direct investment”

Boston university global development policy center

From the trade angle, Africa-China trade features expansion, trade deficits, and resource extraction. From 2000-2022, Africa’s total goods trade with China swelled from $11.67 billion to $257.67 billion, as China became many African countries’ largest trade partner.

However, Africa experienced sustained trade deficits due to fluctuating commodity prices and external global shocks. About 89% of Africa’s exports to China included oil, copper, iron, and aluminum commodities, mostly hailing from Angola, South Africa, Sudan, the Democratic of the Congo, and Congo.

In contrast, 94% of imports were manufactured goods, indicating that Africa-China trade was an exchange of natural resources for finished goods. Top imports from China did not include renewable energy technologies that benefit from China’s primary resource inputs, revealing the largely extractive nature of China’s trade with African countries. Unsurprisingly, these trade trends align with China’s priorities to secure oil imports to fuel economic growth and inputs for green energy technologies, such as electric vehicle batteries, solar photovoltaic modules, and wind turbines.

In contrast, China’s overseas development finance support has expanded and contracted, leading to economic benefits and environmental risks, as well as electrification and extraction energy projects. From 2000-2022, China’s development finance institutions (DFIs), the China Development Bank and the Export-Import Bank of China, extended an estimated $134.01 billion to African countries. Although this financing has waned since 2016, Chinese DFI loans have contributed substantially to energy projects. About one-third of development finance supported the energy sector, of which more than 50% went to fossil fuel projects (oil, gas/liquified natural gas (LNG) and coal).

In contrast, loans to wind and solar projects received just 2% of financing, while loans to hydropower projects amounted to 31% of lending. No sovereign loans were identified for transition materials. Loans targeted mainly power generation projects, such as hydropower power plants and solar wind farms, but also sustained exploration and extraction projects run by state-owned oil companies and joint venture entities with Chinese companies. While this finance supported energy access, the energy sources of supported projects do not fully align with goals to transition to renewable energy reliance.

As Chinese loan financing shrinks due to challenges that include debt distress in African countries and China, FDI is materializing as a form of development support with more potential.  

Chinese FDI has largely supported resource extraction and modest forms of electrification. From 2000-2022, Chinese companies announced an estimated $112.24 billion in greenfield FDI and completed $24.60 billion in mergers and acquisitions (M&A) deals in Africa. Both streams of equity mainly targeted energy and non-energy mining and processing sectors. Greenfield and M&A FDI supported the extraction of oil and gas projects, but only greenfield FDI financed renewable energy projects at $3.31 billion announced for solar projects. Chinese companies directed greenfield and M&A FDI to mining, pipeline, and refinery projects pertaining primarily to copper, aluminum, and iron ventures. When paired with trade data, these commodities are the top three exported transition materials to China by trade value, which underscores Chinese FDI support for the extraction of these resources. Other ventures involving transition materials, such as uranium, lithium, chromium, and cobalt, also received Chinese equity investments.

Trends in 2000-2022 China-Africa trade, finance, and FDI regarding energy access and transition can inform future economic engagement. On the one hand, China has supported energy access by financing electrification infrastructure, including power plants, transmission and distribution lines, and solar and wind farms.

On the other hand, their engagement supported resource extraction through exploration, mining, and exporting of primary commodities. While extraction may lead to trade revenues, this track does not fully lead to energy access or transition benefits for African countries. African countries must benefit from the green technologies, receive those resource inputs at a larger scale, and improve opportunities for value-chain addition. Indeed, amid a rise in resource nationalism, African countries are enacting policies to ensure they will reap the benefits of resource extraction.

As the China-Africa relationship deepens, it is essential that future economic engagement balances the electrification and extraction support through highly concessional loans, FDI, and trade in alignment with African countries’ energy access and transition goals.

Oyintarelado (Tarela) Moses is the Data Analyst and Database Manager for the Global China Initiative at the Boston University Global Development Policy Center. Follow her on X: @tarelamoses.

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