VENDREDI 08 MAI 2020 BIZWEEK ÉDITION 289 WHEN CHINA SNEEZES, AFRICA CATCHES A COLD Impact of COVID-19 on African Belt and Road Initiative The launch of the Belt and Road Initiative (BRI) was announced by the Chinese government in September 2013. It is an ambitious international development strategy that aims to increase trade and stimulate economic growth across Asia and beyond. It involves infrastructure developments in nearly 70 countries in Asia, Europe and Africa. The « Belt » refers to economic and overland transport links connecting China to Central Asia and Europe via six economic corridors, while the « Road » indicates a network of maritime routes connecting Asia, the Indian Ocean, the Middle East, Africa and Europe. As of September 2019, 40 of the 55 African countries had signed some sort of memorandum of understanding or other agreement on the BRI. The BRI focuses on the development of large infrastructure projects, and many African countries hope to use this opportunity to fill their own infrastructure gap. Bridging this gap is high on the agenda of African nations. The Association of Chartered Certified Accountants reported that in 2018 approximately USD 133 billion was spent on infrastructure in Africa, meanwhile, USD 177 billion of investment was required in the region, putting the infrastructure investment gap at USD 45 billion. A number of large scale BRI-related infrastructure projects have already been completed across the breadth of the continent. Notable projects include : Ethiopia : Hawassa Industrial Park, the first phase of which became fully operational in 2017 ; Kenya : the Mombasa-Nairobi Standard Gauge Railway connecting Mombasa to Nairobi, which launched in 2017 ; Mozambique : Maputo Bay Bridge, the longest POST SCRIPTUM While the direct impact of Covid-19 on countries in Africa may be limited in comparison to countries in Asia, Europe and North America, many African countries are highly exposed to the knock-on economic effects of Covid-19. In March, Global Data revised its 2020 construction output growth forecast for Sub-Saharan Africa to 3.6%, down from a previous projection of 6% made in the last quarter of 2019. In recent years, a significant proportion of the financing for Africa’s most ambitious infrastructure projects has come from China. Between 2014 and 2017, Chinese Banks lent some USD 19 billion to energy and infrastructure projects on the continent (almost half of which was accounted for in 2017 alone). Much of China’s investment in African infrastructure projects is linked to its Belt and Road Initiative (or BRI, formerly known as One Belt, One Road). This Article explores the possible short termand long-termimpacts of the coronavirus pandemic on BRI related projects in Africa Authors : Emma Schaafsma and Kemi Wood Herbert Smith Freehills LLP twin-tower suspension bridge in Africa officially opened in November 2018 ; and Nigeria : the Abuja-Kaduna Standard Gauge Railway connecting Abuja to Kaduna is Nigeria’s first standard gauge railway and has been operational since 2016. IMPACT OF THE COVID-19 AFRICAN BRI PROJECTS As a result of the BRI, and prior to the outbreak of the Coronavirus China had become an increasingly important stakeholder and participant in Africa’s infrastructure development. China’s direct investment into Africa had gradually moved away from the mining sector, to Africa’s construction, manufacturing and financial services sectors. This complemented the efforts of African nations to diversify their economies and reduce over-reliance on natural resources for economic growth. However, the immediate impact of Covid-19 has been felt acutely by African BRI projects, and indeed on construction and infrastructure projects more generally. The specific impacts of the outbreak on African infrastructure projects, including BRI Projects, has included : Labour shortages – Construction companies have been unable to access skilled personnel who have not been able to travel to project locations whether due to travel bans, quarantines or self-isolation ; Plant and material shortages – Projects are being impacted by indefinitely delayed shipments of plant and material due again to many of the restrictive measures taken to slow the spread of the disease ; Blocked access to site ; and Full project shutdown : Infrastructure projects are, by their very nature, particularly vulnerable to market instability and restrictions on movement of labour and materials. Taken together, the impacts of the Covid-19 pandemic on infrastructure projects will inevitably result in significant delays and increased costs. This in turn, raises the possibility that contracts will be terminated early and that disputes between contractual parties willarise. WHAT DOES ALL THIS MEAN FOR BRI PROJECTS AND SINO-AFRICAN RELATIONS ? Uncertainty regarding the impact of Covid-19 on Africa is expected to be serious, given the continent’s exposure to China. According to ratings agency, Fitch, the outbreak will have a downside risk for short termgrowth for sub-Saharan African growth, particularly in Nigeria, Ghana, Angola, Congo, Equatorial Guinea, Zambia, Gabon and South Africa. There is already evidence of a dip in BRI-related activity in Africa due to Covid-19, even as the Chinese authorities lift many of the stringent measures they brought in to bring the disease under control. This initial dip in activity could possibly be attributed to the Chinese government re-evaluating its planned investment in the region. There is a risk that this could ultimately lead to China reducing or even cancelling planned investments in less critical markets, at least in the short term. While the impact of Covid-19 will be detrimental to African construction and infrastructure sectors, project delays are expected to be mostly short term(in relative terms). With an anticipated completion date of 2049, the BRI is firmly a long-termproject. As the disruption precipitated by the pandemic eases, and Chinese and African economies recover, we would expect to see a scaling backup of BRI related infrastructure projects in Africa. In the short-term, African nations will reap some immediate benefits of the deepening of Sino-African relations that had occurred due to the BRI. China has sought to share its experience of battling Covid-19 with African BRI countries and is assisting in strengthening the healthcare systems of countries such as Algeria, Ethiopia, Nigeria, Zimbabwe, Cameroon and South Africa with donations of PPE, medical supplies and equipment such as ventilators. Conversely, Sino-African relations have suffered due to allegations that African nationals based in China are being routinely discriminated against, and the forthright and angry responses from African ministers. These events risk causing more lasting damage to BRI projects in Africa (and indeed the political, commercial and cultural relationship between China and Africa) than the Covid-19 pandemic. 6 |