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Letter to the Editor: Those “Sino-Africa Swap Deals are Happening”

Rickshaws drive past a signboard to showcase the new standard gauge railway line under construction from Iju in Lagos to Abeokuta, Ogun State in southwest Nigeria, on February 7, 2019. The passenger train service which is designed to boost economic activites and ease movement of passengers by rail from Lagos to Abeokuta when fully operational will reduce damage on roads caused by heavy duty trucks and traffic congestion especially in Lagos, Nigeria's economic nerve centre. PIUS UTOMI EKPEI / AFP

After I published the story yesterday on the evolution of China’s Resource-for-Infrastructure deals in Africa and the emergence of new financing models, known as “Sino-Africa Swap” deals, I wanted to get some additional perspective to find out if this is something that’s actually happening or if it’s just a compelling PR talking point. So, I sent the story to Li Chenmei, a Beijing-based policy specialist at a leading Chinese think tank. But unlike many policy advisors and analysts who do most of their work in an office, Chenmei is out in the field, working directly with local and Chinese governments, SOEs and a variety of other stakeholders on large-scale development projects in Central Asia, Africa, and other regions.

Chenmei wrote back a fascinating, thoughtful response to the story that I thought would be helpful to share with the CAP community.

PLEASE NOTE: This letter has been reprinted with Li Chenmei’s permission however it is very important to note that the opinions expressed here are her personal views only and do not represent the views of her employer or any affiliated agency/organization.

Dear Eric,

I am currently in Nigeria and working with the local government here together with one of their major partners, a Chinese state-owned construction company. Since Nigeria is very rich in oil, gas and other resources, some of the so-called “swap deals” are, in fact, happening right here with people next to me. So I am very much in the middle of these kinds of negotiations and would like to share a few comments regarding the article you published this week.

First of all, the Resource-for-Infrastructure swap is there. And, as you rightfully pointed out, this wasn’t something actually invented by Chinese but it does, sometimes, create certain “win-win” outcomes.

Second, it is also very true that this model doesn’t always end well for one or both parties, as you indicated in the case of Angola when oil prices collapsed.

But I think it’s important to add some more context:

  • Resource-for-Infrastructure swaps are just one type of solution, among many, that African countries and Chinese contractors consider in their discussions with one another. In many instances, in my experience, [these kinds of talks] highlight how both parties work collaboratively together to find solutions that achieve their objectives.
  • Since Resource-for-Infrastructure swaps often encounter a lot of criticism, another solution that’s been explored is a construction-financing-operation package of services that would be provided by Chinese SOEs. This means that the SOE transforms itself from being just a contractor to a real partner that has a stake in the project’s finance and operational risk, so there’s added incentive on the Chinese SOE side to work more efficiently and cost-effectively. We’ve seen that this [construction-financing-operation] model is quite popular with African stakeholders here as [the skill levels] of local management are often not sufficiently high-enough to operate large infrastructure projects like railways, ports, roads, and industrial zones. It’s a very difficult task and often requires the Chinese SOE to undergo a painful transformation but it highlights how we’re trying and exploring new [financing models].
  • The last thing that I want to add is about the general low-resilience of resource-rich African countries to external shocks. I believe the ultimate solution here is [economic] diversification and the starting point to do that would be to develop more export-oriented manufacturing. This is the area now where my team and I are focusing the bulk of our efforts. So, the problem of increasing a country’s debt burden due to changes in oil prices can’t be resolved simply by avoiding the use of oil in these kinds of swaps. The swaps themselves can’t do anything to improve African resilience against price shocks. The only way to resolve this issue is if oil revenue is used to build productive infrastructure and other projects. And this requires not only Chinese but also other members of the international community to work together to ensure projects are both productive and sustainable, regardless of whether they’re done by Chinese or others.  

As far as I know, Chinese construction companies are, in fact, just as concerned about a country’s debt situation as are local stakeholders. And on the ground, I’ve seen them (SOEs and local governments) work closely together and find areas where they have to compromise with one another. In the future, it would be good to hear directly from the SOEs themselves and maybe, possibly, let more [outside] observers see up close how the things actually work on the ground.

Regards,

Chenmei

This letter was edited for clarity.

About Li Chenmei:

Li Chenmei is a Beijing-based Project Specialist in the international development field with a special focus on industrial policy, Special Economic Zones, and foreign direct investment. She has extensive experience across working across a number of different continents providing policy consultancy to governments in developing countries including Ethiopia, Benin, Nigeria, and Uzbekistan. For more information about Chenmei, please see her profile on LinkedIn.

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