Impact of Chinese Investments and Financing on Economic Growth and Inclusive Development in the Horn of Africa

The HoA economies have to be transformed. But, it has huge financing requirements that are largely beyond domestic capacities both at individual country level and collectively as a region. Faced with persistent and large saving-investment gap securing multilateral and bilateral funding and attracting FDI remains important for the sub region. Not only the size but also the type & flexibility, quality, distribution, and maturity and other terms & conditions of financing also matter.

Over the past two decades or so, China has emerged as a credible option not only as source of finance but also technology and know-how, entrepreneurship, relatively affordable equipment & machinery and intermediate inputs, capacity building support, as well as markets for Africa’s products. A recent study by McKinsey concluded:

In a matter of two decades, China has become Africa’s biggest economic partner. Across trade, investment, infrastructure financing, and aid, there is no other country with such depth and breadth of engagement in Africa. The Chinese “dragons”— firms of all sizes and sectors—are bringing capital investment, management know-how, and entrepreneurial energy to every corner of the continent—and in so doing, they are helping to accelerate the progress of Africa’s “lions,” as its economies are often referred to (McKinsey& Company, 2017).

The recent allocation of $60 billion 3-year funding for Africa under the Forum of China Africa Cooperation enhances China’s credibility as source of development finance. However, Chinese engagement in the continent has also attracted criticisms of sorts, ranging from outright labelling of China as merely seeking resources and cherry picking the benefits of exploiting market opportunities; blaming it for using the African continent to dump cheap products; and pushing financial terms that are getting countries highly indebted. Unsubstantiated criticisms aside, the full extent of the opportunities and limitations of Chinese investment and financing, and its role and Impact on Economic Growth and Inclusive Development in the Horn of Africa (HoA) requires further review and study.