China is no longer in the game of providing African countries with enormous loans to finance large-scale infrastructure projects. In fact, BRI financing last year for projects in Africa plunged more than 50% to just $7.5 billion.
But that doesn’t mean Chinese companies still aren’t building big things in Africa.
Stella Hong Zhang, a postdoctoral fellow at the Harvard Kennedy School’s Ash Center for Democratic Governance and Innovation joins Eric & Cobus to discuss her new research on the Port of Lekki in Nigeria and why this venture may hold some important clues about the future of Chinese development financing in Africa and around the world.
Show Notes:
- The China-Africa Research Initiative: From Contractors to Investors? Evolving Engagement of Chinese State Capital in Global Infrastructure Development and the Case of Lekki Port in Nigeria by Hong Zhang
- The Conversation: Nigeria’s new Lekki port has doubled cargo capacity, but must not repeat previous failures by Ayodeji Olukoju
- Bloomberg: Nigeria Pins Hopes on Deep Sea Port to End Cargo Congestion by Ruth Olurounbi and Anthony Osae-Brown
About Stella Hong Zhang:
Hong Zhang is a China Public Policy Postdoctoral Fellow at the Ash Center of Harvard Kennedy School. Hong’s current research has two streams. One focuses on the political economy of China’s global development engagements, specifically the Chinese developmental state’s infrastructural power as embodied by its “national champion” enterprises in the construction sector. The other looks at China’s “developmental statecraft” using development planning for coordinating policy agenda domestically as well as internationally.
Translate:
Eric: Hello, and welcome to another edition of the China in Africa Podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander, and as always, we’re joined by China Global South’s Managing Editor, Cobus van Staden, in Johannesburg, South Africa. A very good afternoon to you, Cobus.
Cobus: Good afternoon.
Eric: Cobus, as you know from our discussions over the past few weeks, even several months now, we’ve been talking a lot about the really sharp decline in recent years of Chinese overseas development finance. Couple weeks ago, we interviewed Becky Ray from the Boston University Global Development Policy Center, who came out with some really fantastic new research that showed the drop-off in the latest data that they’ve got. We’ll talk about that. This is not a new story. It’s something that’s been going really since 2017. In fact, in the 2021 period, which is the latest that Becky and her team at BU have, China issued only $10.5 billion worth of loan commitments, which is down sharply from the more than $80 billion that they did in 2016. So, that is a dramatic fall, and it’s particularly acute in Africa. Belt and Road funding in Sub-Saharan Africa dropped 54% last year to just 7.5 billion.
And now, just to put that in context, that’s less than half of the $16.5 billion that was done in 2021. And also last year, there was no new Chinese funding for African railway projects anywhere on the continent. That’s quite a statement given how much railway has been built in Nigeria, in Ethiopia, in Kenya, and so many other places. Now, there are really two reasons for this, and it’s not just because we have a debt sustainability problem, although that is a problem, but it’s also because China just doesn’t have the cash that it once had. I mean, China’s debt levels itself are the highest levels that they’ve been since 1995. Growth has been slowing as the economy matures. There’s also this issue of the declining population, and that kind of ties into productivity and lots of other deeper issues. And then there’ve been the disruptions to the economy brought on by the pandemic and the zero COVID policies.
Put all those together in a mixing bowl, and you have a lot more conservative instincts in China when it comes to lending money. At the same time, this question of the debt sustainability issue is really a big thing for a lot of borrowing countries. We’ve been talking about that all week in the showdown now between the Chinese and the multilateral development banks, the World Bank and the IMF over debt restructurings in Zambia and Sri Lanka. Ghana is now applying for the Common Framework from the G20 as well. So, all of these issues are kind of coming together to the point where the fact is that countries in Asia, Africa, the Americas simply cannot take on much more debt. And this creates a second problem for them because it’s not only money that’s used to fund infrastructure development, but a lot of countries are also using borrowing to fill their budget gaps, so it’s really a huge problem for them.
But let’s focus on infrastructure because in the infrastructure space, there’s an interesting trend that’s been gaining momentum over the past few years where Chinese companies, many of them state backed enterprises, work with governments to build roads and ports and other infrastructure as part of a public-private partnership. Here’s how that works. The Chinese company will put up most or pretty much all of the upfront capital to build the project. That company will then have 10, 20, sometimes 30 years to operate the road or the port, and then they use that time to recoup their investment. And in some take cases, they get that money back plus a little extra, and then they’ll hand over the road or the port back to the host government. But we’re now also seeing Chinese companies take equity stakes in different projects where they act like a traditional investor, almost like a venture capital firm, and they’re in it for the long run.
Let me walk you through a few of these projects, Cobus, and then we’ll get your take on all of this. Many of you have heard of the Nairobi Expressway that runs through the center of the Kenyan capital. That’s a 27 kilometer, $668 million toll road that was financed and built by the China Road and Bridge Corporation, and they’re also running it as well. They’re going to operate that for the next 27 years. And from the calculations, they’re going to actually make a pretty penny off the tolls that they’re running there. So, it’s a good investment for them if the volume and the traffic kind of fill their forecasts. The China Road and Bridge Corporation is also building a similar toll road out here in Southeast Asia over in Cambodia. And this one is a lot bigger, though. Get this Cobus, the Phnom Penh-Sihanoukville Expressway runs for 190 kilometers and costs more than $2 billion to build. But it’s not cheap — It costs you about $12 to use that expressway. And that’s a key point that we’ll talk about as well.
Then there was news that came from Chile this week that the China Railway Construction Corporation paid $600 million to operate another stretch of the country’s main North-South Highway on Route 5. Now, altogether, China Railway has spent 1.4 billion for the rights to toll 500 kilometers of this highway. So, you’re starting to see these public-private partnerships now in many different parts of the world, including in Africa. And Cobus, it sounds great, it’s a fantastic solution. Developing countries, get the infrastructure without the debt, and Chinese companies get the profits from building and operating these projects, but it’s not an ideal solution given that a lot of the infrastructure can only be used by those who can pay for it. Those tolls are not cheap, whether it’s in Kenya or in Cambodia.
And it also biases towards projects that are revenue generating rather than infrastructure that actually needs to be built, say like sewage systems. You don’t make as much money from that. So, there’s pluses and minuses with this, Cobus.
Cobus: I think what’s really important here is that what we’re seeing is a more fine-grained kind of distinction between China as a development partner and the role of Chinese companies. On the one hand, China has never really fit into the conventional idea of a development funder for a bunch of reasons, but among others, because development isn’t its only priority, right? Throughout the Belt and Road initiative, getting jobs for Chinese companies has been a really big part of that job and it became part of what we think of as Chinese infrastructure provision in the global south. And I think it’s really important to actually unpack that concept because, as you said, Chinese banks and the Chinese state has a different set of priorities now particularly in relation to anxieties around debt.
But Chinese companies have their own set of priorities. Them scouting out these projects and leaning into certain kinds of development fueling infrastructure like roads or rail, for example, has to then be seen separately from whatever kind of development role the Chinese government sees for itself. And also the kind of decisions by African governments also then have to be thought of in a kind of a more fine-grained way because they’ve learned as the Chinese have from decades of engagement with China. And we are seeing these interesting distinctions where African governments are starting to limit certain kinds of risk by, for example, mixing finance or splitting what could have easily have been a single project into two different projects with two competing Chinese companies. These kind of options to that, in some kind of ways, is also a reflection of how the landscape has changed.
Eric: Well, today we’re going to focus on one project in particular in Nigeria. This is the new $1.5 billion port of Lekki that is now West Africa’s largest and most advanced water port that was built by an international consortium that involved companies from China, France, Singapore, and the Lagosian State Government. There’s a new report that came out this week from the China Africa Research Initiative that looks at the role that Chinese state capital’s playing in all of this. It’s an absolutely fascinating read that I highly recommend. We’re going to put a link to it in the show notes, and it was written by an old friend of our show, Stella Hong Zhang, who is a China Public Policy postdoctoral fellow at Harvard University’s Ash Center for Democratic Governance and Innovation. She wrote this report, by the way, when she was a postdoctoral fellow at the China Africa Research Initiative. Stella, welcome back to the show, and good morning to you in Cambridge.
Stella: Good morning and good afternoon. Good evening to you, Eric & Cobus.
Eric: It’s wonderful to speak with you again, and congratulations on this new report. The timing is perfect. You released it just within weeks of the port opening, so it’s very, very timely for us to have this conversation. Let’s start with the basics. Give us a little bit of the background on the port and who was involved with it so we understand the setting before we get into the details of the finance.
Stella: Yeah, sure. And I think this port was already in the making for over maybe two decades, I think the idea of building a port in Lekki and around that area in Nigeria started probably in late 1990s, early 2000s. Originally, it was started by a Singaporean company called Tolaram, and this company is quite prominent in Nigeria because they sell, or they market a kind of instant noodle, which, by the way, is very popular in Southeast Asia, the Indomie. So, they sell it, this is a household food item in Nigeria. So, this company is very well known in Nigeria. Originally, they wanted to just build a jetty for their own logistical needs in that area, but later, I think Nigeria government also discovered that the area around Lekki was originally also a site where the British colonial government was considering building a deep-sea port.
So, they started to have this idea of building, developing a major port in that area, so that started from then, early 2000s. Then the Nigerian government and Tolaram started negotiating, but at that time, because Nigeria didn’t have a PPP law, a public-private partnership law yet, and so all the ports were owned by the government, and there was no legal way for a private company to be able to invest in the port and own the port and develop the port. So, that took a while, so until Nigeria passed a law in 2005, I think, that allow this kind of PPP to operate. Then they negotiated. At the end, they reached a concession agreement in around 2011, I think between the Nigerian government and Tolaram. Then that’s when the Chinese company, CHEC, China Harbor Engineering Company came into a picture.
First, they were hired by Tolaram to be the EPC contractor of the port project. As you can imagine, CHEC is a very major company in the port construction sector in Africa. So, it’s no wonder they won this contract. But a few years after that, Tolaram wasn’t able to really move forward with this project because they weren’t able to secure finance. And part of the reason was that I think some other investor or potential financiers were not so sure about Nigeria’s economic situation and they were not so sure about the business forecast of the project. So, after long negotiations with some European banks, including also some Nigerian bank, even African Development Bank, they weren’t able to secure financing from that front. And that’s when CHEC kind of started to talk with Tolaram, to say, “Hey, can we come in as investor?” That was around 2017 I think.
After a few years of negotiation, they finally came to this agreement where the CHEC would form joint venture with Tolaram, and CHEC would take 70% of the shares in the joint venture. And they, together, also formed a joint venture with the Nigerian government as well as the Lagos State Government. So, that eventually in the company, that is the concessionaire of the port project — CHEC takes 52.5% of the share. That’s the basic story.
Cobus: Just to be clear, CHEC is now going to be involved in running the port, right?
Stella: Yes. So, the 52.5% share in that company, that’s a developer or the concessionaire of the port project. And there is a sub-concessionaire that would operate the project. And in that sub-concessionaire, CHEC only takes 20% of the share, and 80% belongs to the French company, CMACGM, or a subsidiary of CMACGM, which is called CMA Terminals, which is already a very big player in Nigeria.
Eric: Well, CMA is also one of the biggest shipping companies in the world, so they’re enormous. Go ahead, Cobus.
Cobus: Just for additional little bit of background, could you give an idea of if everything works well and the port kind of operates its full capacity and so on, like what the kind of commercial potential is for the port and the kind of role that it would possibly play in Atlantic shipping? I assume having a major deep-sea port on the West Africa Coast could be a game changer in some ways.
Stella: Yeah, I agree. I mean this really can be a game changer. We are hoping it to be a game changer for Nigeria. Because can you imagine a country like Nigeria, the biggest economy in Africa, they didn’t have a sea port. All their existing ports were like very small, shallow or river ports. They didn’t have a sea port. And as a result, a lot of the goods that were going to Nigeria had to go to other ports in other countries, and then they’ll have to switch to smaller vessels before they can come to Nigeria. So, we can imagine it’s a lot of waste of time and money. And the two major or two existing major ports in Lagos, Tincan Port and Apapa Port, they were at full capacity and also a lot of conjunction because the ports were located in an area that’s very close to downtown Lagos.
And the roads, the connections between the ports and the access roads were very congested and the traps would have to wait for days to pass to the port, to clear their goods. That’s a huge headache for Lagos and for Nigeria as a whole. So, they clearly need this port to help them to be able to receive large vessels because this is one, as you said, is going to be one of the largest ports or deep-sea ports in West Africa. So, it’ll be able to receive big vessels. So, Nigeria can directly receive these vessels from overseas. And then from there, they can also compete with other country, other ports in terms of transshipment because they now can use this port to also kind of to transship some of the goods to other places. This is certainly a very strategic, very important project for Nigeria.
Eric: And help us understand a little bit of the dollar values that are behind China Harbor’s investments here. Again, these are equity stakes. So, they’re buying a share of the company as a joint venture partner. You’ve given us the percentages that they own. Do you know what the dollar values are? The first investment was around 220 million I think, and then it was going to go up to 600 million or somewhere around that. Do you have specifics on that?
Stella: I have this number given to me by CHEC. So, I don’t know the specifics, but according to one figure that was the overall investment cost of this project is $1.044 billion U.S. dollars. I imagine that’s the total equity investment that will include probably both CHEC and Tolaram. And in this, there’s a loan provided by China Development Bank, which is $629 million.
Eric: Oh, so I didn’t realize there was a loan part of this as well because I thought it was an all an equity stake part of it. In that sense, it’s not really that different than some of the other development projects they’ve done other than the fact that there is an equity stake and it’s a joint venture. But the fact that there is such a big loan from the China Development Bank does make it more typical in terms of what China’s done in other parts of Africa and around the world.
Stella: I think it’s still different because what you were saying before was that there was a lot of loans which were submarine loans that Chinese banks lend to the host country governments. And as a result, the host country government, they are financially liable for these loans. But in this case, this loan was provided to the joint venture or the company that’s developing this port. And even though the Nigerian government had a very small percentage of shares in this joint venture, I don’t think they are going to be directly liable for this loan. In that sense, it’s still, it’s different kind of financing, different type of loans that’s going into this project. And it’s like all these equity investment project, all these investment projects by Chinese companies, none of them is going to be 100% financed by equity capital because no company will be able to do that. For sure, there’s going to be some portion of it, it’s going to be financed by loans, but the problem is who is liable for this loan.
Cobus: Just to confirm, so this joint venture would be liable for the loan, and if say there’s default then that default or the rest of that debt would actually not land under public coffers of Nigeria itself?
Stella: Yeah, I think a simple answer would be most likely, yes. Even though I think the real picture will be more complicated than that. In this case, the loan in this case is considered project financing, which means that it’s going to be based on the future revenues of this project. And the company, the CHEC, as the parent company of this joint venture, is only limited or only provide some kind of limited guarantee to the loan. If there’s default, or in the event of default, who will be paying back what I think is technically very complicated issue. And I can’t answer that question because I don’t know the details. It is not public. I think it’s confidential, but the nature of this loan, this project financing basically tells us that even the Nigerian government might also provide some kind of guarantee in terms of their contractual obligation in this project. But I don’t think this loan can be counted as some kind of public loan of a Nigerian government.
Eric: Interesting. When you were doing the research for this and you were looking at the way that this deal was structured, and you’ve been following China-Africa infrastructure development for many, many years now, did you see that there was something unique about this project? Or did they borrow from other projects in terms of the methods and what they were doing to inspire what they were doing here? I’m trying to understand if what we’re seeing with this Lekki project is something really unique that might point us to the future of what the Chinese might do in other parts of Africa and elsewhere around the world.
Stella: Yeah, it’s both unique and not unique. Let’s start with the not unique part. And not unique, I think, it’s just very not so unusual greenfield infrastructure investment project where you have companies, consortium companies coming in, contributing capital, also borrowing from banks and develop something also in a sense in a public private partnership with the Nigerian government governed by their PPP law where the government would have their respective responsibilities in providing for this project. So, in that sense, it’s not an unusual project, PPP project, even though every PPP project would be different depending on the local circumstances. But let me come to the unique part. I think this is what I’m coming at in the paper which I want to introduce about this new model of Integrated Investment Construction and Operation, IICO, which is a thing that has been discussed in the Chinese industry over the past few years as a way for them to innovate in their business model.
Let me explain this. It’s unique because the companies that are trying to do this kind of things are the companies that used to be the contractors, construction contractor, EPC contractors. So, they play a very narrow role even though that role has enabled them to really expand very rapidly in Africa and also driving a lot of Chinese finance in the form of mostly ESPO credits to Africa and other places. And so, they used to just play this role of contractor, but now they want to become also investor as well as operator. So, they want to go to the early end of value chain and also later, they want to capture the whole value chain in a sense. This is quite unusual because basically the companies are going to just do something that they are not familiar with at all.
They were very good at building ports, railways, etc., but they are not good or they don’t have much experience in conceiving an investment project, a greenfield infrastructure investment project, and they are not good at operating a port or a road or a railway. That’s why it’s quite unique and that’s quite why it’s so interesting for me to keep following whether these Chinese companies will be able to do this kind of things, whether they’ll be able to move to this direction.
Cobus: Yeah, it’s very, very interesting. It’ll be fascinating to watch in terms of taking on this risk that they’re also now going to be operating this port, you mentioned in the paper that that is one of the reasons why the French company, CMA, has been pulled in. I was wondering if you could talk a little bit about how the cooperation between them is going to work.
Stella: I think one key information that my interviewees told me was that CMA agreed to provide some kind of guarantee in terms of the traffic to the port. How that work exactly, I don’t know because I think it requires some kind of industry expertise to really understand how this traffic guarantee works, but that guarantee was very important for CHEC to decide that, okay, we’ll go ahead with our investment, because for CHEC, the revenues from the core operation is very important or is the key part for their investment in this project because they are putting in so much money in building the ports. And even though as the EPC contractor, they’re able to earn back some of the investment they invested, but the key thing, the meat of this project still is going to be the operation over the next few decades.
Like I said, CHEC has not been an operator of any port project outside China or even inside China. So, they don’t have this expertise. So, they really need somebody to be able to tell them, yes, we are sure we can do this. So, this is where CMA comes in. And CMA, of course, already has various kind of cooperation with CHEC in other projects too, in Kribi Port in Cameroon already, CMA as well as another French company former joint venture with CHEC to operate the Kribi Port in in Cameroon already. And also I think, since they’re both in this port shipping business, they have had a lot of interaction, so they kind of already knew each other, and that’s why they saw that this could be a good idea for them to work together in this project.
Eric: It seems like the circumstances that came about to build this port in Lekki were unique to Nigeria, the partners and Lekki itself, that it may not be possible to replicate this model, say in the port of Bagamoyo in Tanzania, where there’s considerably less port traffic than there would be if CMA is guaranteeing port traffic into Lekki, into a market as large as Nigeria. And so, I guess I’m wondering if what we see here in Nigeria is scalable to other countries in Africa who are no doubt looking at this model with a lot of interest because here was investment, here was non-state debt, not sovereign debt. And those are things that they certainly want themselves, but is it possible, based on your research, to do that in other countries, do you think?
Stella: Yeah, that’s a good question. I also was wondering about that. I agree, I think the circumstances behind this project was quite specific to Nigeria and that’s why I also said in the paper that I think CHEC’S ability to initiate a project like this elsewhere, it’s questionable because basically the heavy lifting part of the early project conception was done by Tolaram they did the negotiation was the Nigerian government, they reached a concession agreement which was very difficult to reach. And so, I wonder if CHEC will be able to do it if it was the one who initiated this process. This remains untested. Also, like I said, CMA’s role was also very critical for CHEC to agree or to decide to invest in the project. So, CHEC will be relying on CMA’s expertise in port operation to be able to reap the benefits or profit from this investment.
All these things suggest to me that, at least in the port business, I think different sectors have different dynamics. It’ll be different in the toll roads and railway sectors, but in port business because it’s such a globally connected sector and a lot of established player’s already in this sector. For newcomers like all the Chinese companies, not just CHEC, it would be very difficult for them to really compete with the established players and scoop out, carve out a piece for themselves. That’s why, at least in this port sector for the Chinese companies, if they want to continue to expand their footprints, they want to upgrade, to move up the value chain, for sure, they would have to work in some way with established companies, especially European ones. Also a conclusion I drew from this paper was also that ICO, even though on paper it could be a good idea for the Chinese industry in terms of also reducing the debts, submarine loans for the host countries, it could be a good idea, but how feasible it is and how capable the Chinese companies are in terms of executing these kind of projects, I think is still in doubt.
Cobus: This is a very broad question and it might be a bit difficult to answer, but the point that you’re making about how this huge company is interested in occupying the larger parts of the value chain or trying to get a stake into almost all parts of the value chain is echoing stuff that… we recently interviewed experts on solar energy, and they were making the same point about these master solar energy companies in China that they are also interested in trying to vertically integrate almost all parts of solar panel manufacturing and the wider industry into themselves essentially to really control almost all parts of that value chain. Is that a trend that you’re seeing as these Chinese companies are moving into the second and third decade of these very big international expansion projects? That they are increasingly trying to occupy larger parts of the value chain and then also, how should African governments deal with that trend?
Stella: Yeah, so this vertical integration, or in Chinese, they call it this IICO, Integrated Investment Construction Corporation, that’s definitely a hot topic that has been discussed in the industry. So yes, the answer to your question is that they do… we are seeing similar trends in the infrastructure construction industry, like what you’re saying in the solar industry. And I think this is kind of… It seems very common for Chinese companies to want to vertically integrate and capture the full value chain. It’s kind of seems to be a mantra among them is sometimes this idea might not be very realistic. And when we talk about this IICO, when I say that it’s hotly debated, not even debated, it’s the kind of promoted in the industry, this model is only possible for the very leading largest companies in the industry because it’s so complicated.
You have to be able to do so many things well at the same time. So it’s not going to be possible for the majority of the Chinese companies, but the few leading ones like CHEC, CRBC, or their parent companies, CCCC, and also the other major companies that are very high profile in Africa and in global south in general, they are looking in this direction, and they think that because they want to become globally competitive companies, they want to remain major players in the sector. So, they want to move up the value chain. They don’t want to just continue to be the contractors because contracting, by the way, is low value added, and also a lot of it was based on China’s low cost advantage in the past, which is quickly eroding because of the rising labor cost because of the over competition among the Chinese companies themselves, and for a lot of reasons that Eric mentioned in the beginning.
So, they have to think about new ways to engage in overseas infrastructure development. And now the implications for the host government, I think overall, this is also not something that’s unique to Chinese companies. I think overall, globally, there’s a trend of moving towards PPP, because in the past where the government was re responsible for investing in public infrastructure and using only public money or borrowing money to do that, that was something that that’s both… I think that we are already seeing all the issues. The government became very highly indebted and also the government are not very good at investing. I think, in the past, already two, three decades, this PPP is on the rise. The Chinese notion of IICO also speaks to or echoes this PPP trend overall
For host government, if they also agree that PPP is the direction to go, they want to move to this to this direction, I think they would need to also build it their institutions that could support healthy PPP projects because PPPs are very difficult to do for any government, and you need to have very sound regulation, and the government needs to have the capacity to be able to participate in this process of project development and operation, and also work with private companies in a fair way and also to make sure or provide the kind of assurance to investors to really invest their private capital or their, yeah, whatever money they bring in into these very risky projects. I think, in that sense, for the host government, an implication, it’s not that specific to Chinese companies. It’s just that overall, they need to build up their capacity for allowing PPP projects to take off in their countries.
Eric: I want to wind down our discussion a little bit and stepping away from Lekki and looking at Africa more broadly. You, again, have mentioned this early on, you’ve been in this business for a long time. You’ve been studying China-Africa relations for as long as anybody out there. So, you have a very good perspective on this. Help us understand the moment that we’re in right now in terms of China’s engagement in Africa. We’ve seen the trade numbers go up, the BRI numbers are down, the financing is down. What’s your sense right now in terms of the state of China-Africa relations in 2023?
Stella: I can’t claim I’m a Africa and China expert, but yeah, I’ve been studying China’s overseas engagements. But let me come to this infrastructure sector first. Right now, we are seeing, like we were talking in the beginning, the financing’s down, but for all these Chinese companies, they’re still very eager to continue to work in Africa, especially in such countries as Nigeria which has a very big markets, huge potential. At least in countries like Nigeria big markets, I’m still seeing that the Chinese… When I was visiting Nigeria in June last year, I was still seeing new Chinese companies coming into Nigeria, I mean infrastructure company coming in, trying to get some projects. I think from these companies’ point of view, they are still seeing Africa as a future market with great potential. They want to stay there even though they are now in a very difficult time, but they want to find some way to be able to stay there, stay put and wait and see, and wait for the next cycle for them to pick up so that they can also continue to expand.
In that sense, I think that right now we are just experiencing, I think these are kind of technical adjustments in terms of how China is going to continue to finance or whether China is going to continue to finance major infrastructure projects in Africa, or whether these companies, like this paper was trying to investigate, whether the companies would be able to find new models, new business models that would allow a more sustainable way of financing from China. These things I think will take a few years for the industry and for Chinese financial institutions to figure out, and hopefully they will be able to figure out something. But I think, overall, the willingness is still there, interest is still there from the Chinese company’s point of view, economic interest. They still want to work in Africa, which is the future, which still has so much untapped potential. That’s basically my take.
Cobus: Earlier, Eric asked about the scalability of the project. During that bit of the discussion, I was thinking that maybe trying to scale this project to fit other possible ports in Africa or other projects in Africa might be… There might be a different approach which is learning from the way that the project was designed. Because it seems like, as you pointed out, Lekki has very unique position, Nigeria has a unique position. It is a clear kind of massive opportunity to build a deep seaport on the Atlantic coast of Africa. It’s clear that that one doesn’t have to be particularly sympathetic to African development to be able to see the potential in that deal. I was wondering what lessons African governments should take from this deal if they’re not taking the lesson of simply trying to replicate Lekki somewhere else. What kind of project development lessons or project pipeline lessons should other African countries take from this example in order to generate other similarly bankable but different and unique projects in a similar way?
I think basically what the government can do is not about how they can make projects bankable. I think that’s the question that should be left to the companies because the companies are the ones who should be thinking about these issues and who should be coming up with solutions to present to the government. I think, for the government, their role is about providing sound institutional environment so that companies know that whenever contract they entered with the government, they can rest assured that the contract will be honored or be executed as planned. And so that the companies can come up with solutions. And for the government to make projects bankable, I think it’s hard to give government advice in terms of how to make projects bankable. Also, I think in this Lekki project, probably the Nigerian government was also… Because this whole process of negotiation took so long and I think there was so much delay in the process, I’m not sure what exactly the role that the Nigerian government played, I mean, what positive role Nigerian government played in this process.
But overall, the fact that Nigeria had this PPP law that was passed in 2005 that provided this institutional foundation for these kind of deals to be possible, that’s an important thing. And also Nigerian has been trying to pursue PPP projects here and there. So, they have been building their experience in PPP, and that’s also very important. I think all these are necessary for countries to be able to enter a major project like Lekki Port and to execute it as a PPP, and also make sure that these kind of PPP projects are sustainable, are going to really help countries, to bring them the real benefits.
Eric: The paper is From Contractors to Investors? Evolving Engagement of Chinese State Capital in Global Infrastructure Development and the Case of Lekki Port in Nigeria. It was written by Stella Hong Zhang, who is a postdoctoral fellow at Harvard University’s Ash Center for Democratic Governance and Innovation. And again, she wrote this paper while she was doing work as a postdoc fellow at the China Africa Research Initiative in Washington, D.C. Stella, thank you so much for taking the time to join us and to walk us through all of these details. We really appreciate it. It’s wonderful to speak with you again. If people want to follow what you’re reading and writing in your latest research, what’s the best way they can get ahold of you?
Stella: I’m on Twitter, and my handle is @stellahongzhang, so you can find me there.
Eric: We’ll put a link to Stella’s Twitter handle plus the paper in the show notes. Stella Hong Zhang, thank you again. We really appreciate it.
Stella: Thank you.
Eric: Cobus, Stella really changed my thinking on this whole port project, because, on the one hand, I really was approaching it that this is absolutely revolutionary, it’s a very new way for China to finance infrastructure, but it turns out that it’s a mix of the old and the new, and that’s what makes it so interesting. At the same time, the other part of this that I really find fascinating is in these polarized times that we live in, in this hypercritical time of China, here we have an example of, not only tripartite cooperation, but four-way cooperation with Singapore stakeholders, French stakeholders, the Chinese, and the Nigerian government. And building these coalition of investors where risk is then spread more evenly, or at least not as concentrated as it used to be, is really interesting. And especially it shows that European and Chinese can do things together. That’s something that’s very interesting.
I’m not entirely sure how much the United States, there’s an appetite for this kind of thing. That being said, the dirty secret is that companies like General Electric rely heavily on Chinese contractors to do work. So, that happens out of the spotlight. But this coalition that they’ve built, I think, is so interesting. And I think, if I was to give one piece of advice to African policy-makers, I would look for really strong coalition partners like they did in Lekki.
Cobus: Yes. I think that is a very solid piece of advice and it clearly also helps to mitigate some of the risk issues involved. And we are really seeing some of those developments in other places too, where, for example, in Tanzania, their rail development where there’s a mix of Turkish and Chinese actors, financiers, contractors and so on in involved. all of that, it’s very interesting. I think it’s also, it is a kind of a necessary corrective, I think, to two kind of narratives that show up a lot in this space. One is that the idea that the sharp pullback that we’ve been talking about a lot that you mentioned at the top, the sharp pullback in Chinese project financing and BRI financing that equals a pullback from Chinese activity in these countries, which is not true. Just because it’s more a change in funding model, a change in the activity of Chinese policy banks versus Chinese companies, it’s more complicated than simply a pullback in Chinese project financing equals a pullback by China from Africa.
The second place is, as you pointed out, it’s the idea that, oh, we at such a geopoliticized moment, everything is so polarized, the western companies and Chinese companies can’t work together at all — the end, right? That’s clearly not true. Western and Chinese companies are working together all over in good ways and bad ways. Bad being, all to my mind, bad being the oil pipeline that’s being done by a Total Energy and the Chinese company, I think CNOOC. Maybe I’m…
Eric: CNOOC. Yeah, it’s CNOOC. That’s the East African Crude Oil Pipeline.
Cobus: Yeah, in Uganda. It’s a terrible project. This could go well or go badly, but the point is the idea that, oh, we are in such a polarized moment that it’s impossible for companies to work together, that’s clearly not true.
Eric: Well, it’s interesting because as we were talking about public-private partnerships, I kept thinking of what the United States and what the Europeans have been talking about. The Europeans have their global gateway initiative and the United States has its PGII or Global Partnership Infrastructure Investment.
Cobus: The Partnership for Global Infrastructure and Investment.
Eric: These acronyms I can’t keep up with. But what’s interesting is that they talk a lot about engaging their private sectors to do this. Now, the Chinese have an advantage because companies like China Railway in Chile, China merchants in Djibouti, and then China Harbor in Lekki are not private companies. They’re state companies. But in many ways, they act like private companies. But they can be compelled and they can be enticed using state enhancements and inducements. So, it’s a little bit different, but it really shows, in many ways, the advantages that the Chinese have to be able to do these kinds of things. Because at the end of the day, the U.S. government cannot force GE or Bechtel or any American company to do anything. It’s just not in their power to do that. And it’s more or less the same in Europe. They can’t compel Bosch to do something that it doesn’t want to do.
Eric: Where, and again, I’m not even sure that the Chinese government can force CHEC to do something it doesn’t want to do. But again, there are ways to do these things. And again, there’s an ecosystem that really supports it. And so, we’re seeing a lot more activity, in many respects, from Chinese public-private partnerships on these large-scale infrastructure projects than we are from European or Americans. And in many ways, it would be interesting for the Europeans and the Americans to take note of what’s going on to see if there are lessons that can be drawn from this experience. Again, I don’t expect American companies, at this point right now, given the politics in the U.S., to line up to partner with Chinese companies to build infrastructure and to operate infrastructure in the global south. But again, there’s something in Stella’s research that might be useful for the U.S. Exim Bank or for American companies to learn from how these things are done, how to build the coalitions, how to structure the joint ventures, what are the ideal working conditions.
Picking Lekki was great because CMA’s guaranteeing traffic and there’s an underutilization of ports, there’s not a deep-sea port, all of those criteria added up to make this a great project. Looking at those feasibility studies for other parts of the world is something, again, is a very tricky thing to do. I think there’s a lot of lessons that if you unpack the research from people like Stella, you’ll find really helpful, helpful insights.
Cobus: I think so too. And agreeing what you said, I think it’s clearly not a situation that the Chinese government says, march, and the company’s march. It’s just imply, I mean like Western communities-
Eric: No, they have a lot of agency in those companies. They have a lot of agency.
Cobus: Yeah, exactly. A lot of Western communities love to assume that, but it is just not that simple. It’s much more situation where there are this kind of sweeteners added to the deal, right? Th different, as you say, different kind of inducements. And I think there’s a lot to learn there. But I think the other issue I think is that the one thing where the Chinese government and the Chinese companies are united is that they both, I think have… they have a very kind of solid fear of risk, right? Both of them are risk averse in their different ways, but I think they also see potential in Africa. Whereas, I think both companies and governments in the West are so siloed in a particular way of thinking about Africa, which is essentially a completely developmentalist idea or like an aid-focused idea of always having to help Africa. And the flip side of that, because those two go together, is just pure racism, right?
Because aid does have its racist side, and with that, there’s just this flat assumption that Africa is just a basket case, that it’s just a set of problems, that there’s no there, there, right? Those two, that kind of aid focus, and “Oh, we need to help,” lives in tandem with that just pure rejection, right? I think western companies and western governments end up stuck in that space, and it makes them blind to the actual potential, the actual commercial potential that is in kind of African development in a way that the Chinese actors are not, even though Chinese actors have many blind sides and many racisms of their own. I think it is revealing that the one field in Africa where they really is strong western participation, particularly from Canada and Australian companies, is mining, right? Because that is this settler colonial industry that’s very strong in Canada and Australia, and that makes sense from that mindset.
There’s no interest in many of these other fields that Chinese companies are making a mint in, right? Including things like music streaming, including things like these port-related issues, things related to trade and customer bases, and those kind of things. It’s very interesting to see how the Chinese are, see opportunities and go for them, and somehow those opportunities are not visible from the West.
Eric: Well, if this is a topic that interests you, on our website, we’ve got a lot of the details about the Port of Lekki. Also, we’ve been writing about the Sihanouk. And just this week, we wrote all about the Chilean road as well. The website is a great resource. It’s available to subscribers, doesn’t cost much at all. If you’re a student or faculty, we offer a 50% discount. All you have to do is to send me an email and I will email you back a coupon link that you can use. And also, you’ll get our China Global South Daily Brief every morning at 6:00 AM Washington Time. We’re just so excited to see our reader community start to grow. We’ve got a number of universities now that are signing up. We’ve got about 25 governments that get it every day, and thousands of readers around the world. So, it’s really just very exciting and very rewarding for us and the team that are putting this together every day.
And we’ve got staff now in Asia, Africa, and the Middle East, and we’ve got some China researchers as well that are pouring through WeChat and Weibo, and looking for fascinating, fascinating kind of nuggets of information that you just don’t get in the propaganda stuff.
Cobus, this week we found a story about a woman named Rose from Uganda who lives in rural Zhejiang Province, speaks the most beautiful Mandarin you’ve ever heard with a Zhejiang accent. I mean, a rural Zhejiang accent. Incredible. And she’s become one of China’s most popular food vloggers. I mean, she has over a million followers on Bilibili and Douyin. Incredible. And that’s the kind of stuff that our China researchers are finding, and it’s really cool to see that thing. Again, it just challenges a lot of the very simplistic discussion that happens about the Chinese and Africa and so forth, especially now in these hyper-partisan times. So, all of that’s available on the site.
Go to chinaglobalsouth.com/subscribe. You can try it out for 30 days, see if you like it. If you don’t like it, you can cancel or send me an email. When people say, “Hey, listen, I got charged. I don’t use it. Can you give me my money back?” I always say yes because we want people to enjoy the service. And if you didn’t like it, that’s okay, but we’d love for you to try it out. Once again, chinaglobalsouth.com/subscribe. Let’s leave the conversation there. Cobus and I will be back again next week for episodes of our Global South Podcast and our China in Africa podcast. Until then, thank you so much for listening.
Outro: The discussion continues online. Tag us on Twitter @ChinaGSProject and visit us at chinaglobalsouth.com. If you speak French, check out our full coverage at projetafriquechine.com and AfrikChine on Twitter. That’s Afrik with a K. And you’ll also find links to our sites and social media channels in Arabic.
