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African countries which work to understand Chinese approach will be the big OBOR winners, says expert

Chinese investment in Africa's infrastructure is welcome, but there are few reliable details of what is on offer.22 Aug 2016

This is part of our series analysing China's One Belt One Road infrastructure investment programme. For more, sign up to request Pinsent Masons detailed region by region guide to OBOR.

China has been investing in Africa for decades, so it can be difficult to identify what should be categorised as a One Belt One Road (OBOR) project and what is simply a continuation of its ongoing involvement in the continent.

Recent years have certainly seen an increase in Chinese investment activity, with a series of China Africa summits held over the past two to three years. The most recent of these, at the end of last year, brought together the presidents of around 50 countries and saw China promise around $60 billion in investment.

The problem is, there are few specifics in that promise. There are no details of whether it includes past projects, current or only future investment, and it's unclear how it is going to be distributed across the continent. There are no specifics on what will go where, either: countries will compete for the funds, and inevitably some are better than others at managing the complexities of the Chinese approach. Those governments which understand the Chinese finance system and how to work with the state-owned banks will be the winners here.

There is very little data released in how much money is actually coming into Africa. There has been recent speculation in the press that, in fact, the US is investing considerably more in the continent than China. That may or not be true, but it drives home the fact that, with all grand gestures on Chinese investment, it's important to drill into what is actually on offer.

China tends to invest in different sectors, and countries, to most western countries. Agriculture is a major sector at the moment, as China aims to boost food security. There is also an interest in infrastructure, but there has been a drive to invest in infrastructure through Chinese 'free trade zones' within Africa. The downside of that is likely to be the lack of African involvement if it just brings subsidiaries of Chinese businesses flocking into the marketplace.

The countries that China invests in can also differ. Chinese loans tend to come with fewer 'strings' attached, in terms of demands for democracy, human rights and so on: China is much more hands-off than other countries. That does make it easier for African governments seeking cash, and also gives the Chinese an advantage when it comes to winning projects, but it leads to Chinese investment being focused on less stable regions.

For any outside business wanting to get involved, therefore, it's something to bear in mind: the countries with access to Chinese cash can also be more challenging environments to work in.

Chinese contractors often bring in their own workforces. This can mean the work gets done quickly, but it has employment implications for the countries where they work, and means that the developers fail to develop the relationships and goodwill they need longer term.  

That's not to say there are no opportunities, of course: UK companies in particular can bring a great deal of knowledge to the region, consulting on legal, financial and technical aspects of projects.

Anyone looking to benefit from the Chinese OBOR policy, or investment generally, will have to put some work into understanding the different bodies that have been set up to distribute the funds, and how to navigate each of their systems. There are commercial bodies like the China Africa Development Fund, which will be searching for bankable projects to invest private equity and venture capital funds, a Special Loan for the Development of Africa SMEs, and many more targeted funds that may be relevant to different suppliers.

Chinese investment remains vital to Africa, and the OBOR policy will potentially encourage more companies to get involved in infrastructure development. There are certainly opportunities here, both locally and internationally, for any company that is prepared to put the work in and OBOR will only increase the funding push in the region.

Akshai Fofaria is a projects expert with Pinsent Masons, the law firm behind Out-Law.com.

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