China signs US$2 billion development deal with AfDB

people bank of china wikimediaChina has signed a US$2bn co-financing cooperation agreement with the African Development Bank (AfDB) Group for the African Common Growth Fund, according to the People's Bank of China

The bank said the fund would provide co-financing to sovereign and non-sovereign guaranteed projects over the next ten years to support African infrastructure and industrial development.

Reports stated that China is keen to invest in Africa, across various sectors like rail and power. Last week, AfDB Group said it would endorse Africa50 Fund, which is targeting an equity of US$10bn from an initial capital of US$3bn for infrastructural projects.

According to the World Bank, African nations have a funding shortfall of US$50bn a year to ease energy shortages and transport bottlenecks. The AfDB’s expenditure on Africa is far lesser than China — the nation invested more than US$13bn in infrastructure in 2012, as the world’s second-largest economy boosts its dependence on Africa’s oil, coal and other resources.

Joe Cosma, head of government and infrastructure at Ernst & Young, Johannesburg, said, ”The AfDB is investing significantly into African infrastructure. They are investing a lot of time in working out how they can work with African governments to define infrastructure requirements and investment options. In a sense, they are competing with the Chinese.”

The AfDB said it had approved funding of US$9bn in 2011, with infrastructure projects accounting for US$3.4bn. Chinese premier Li Keqiang said that the government will boost its line of credit to African nations by US$10bn to US$30bn. He also pledged to almost double capital in the China-Africa Development Fund, which gives financing to Chinese companies for private equity deals, to US$5bn.

With a population exceeding 800mn spread across 48 countries, sub-Saharan Africa generates the same amount of electricity as Spain, which has a population of 45mn, according to World Bank statistics. Only a third of Africans in rural areas are within two km of an all-season road, compared with two-thirds of the population in other developing regions.

”Chinese investors provide both funding and technical expertise, a full implementation package, which African governments find attractive,” said Cosma. ”The AfDB is much more connected to the African governments and they can use this relationship to their advantage.”

Alastair Herbertson, an investment specialist with Investec Asset Management added that the AfDB fund would complement China’s investment in Africa, given the scale of the infrastructure shortfall in the region.

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