(Ecofin Agency) - The article highlights that while Chinese investments are a key part of capital inflows to Africa, they are not as large or transformative as official announcements may portray.

Hinrich Foundation, a Singapore-based organization that promotes sustainable global trade, released findings from its study on Chinese direct investments in Africa on October 15. The analysis clearly states that these Chinese investments are greatly overstated in terms of numbers, value, and job creation.

According to the foundation, many large projects announced by China have been quietly canceled, scaled back, or turned into simple loan deals backed by natural resources. The report, titled “Foreign Direct Investment: How Much of China’s Investment into Africa Is Real?”, points out that China’s foreign direct investment (FDI) database lists 9,049 projects globally, valued at $1 trillion. These projects are said to have created 2.5 million jobs worldwide.

In Africa, there are 643 projects valued at $150 billion, generating 325,000 jobs on the continent. Africa represents about 7% of China’s global FDI projects, 15% of the total investment value, and 13% of the jobs created by these projects since 2003. However, Hinrich Foundation notes that a closer look at Chinese FDI in Africa reveals that these numbers are greatly inflated.

One of the largest projects listed in the database is the $20 billion construction of a new administrative capital in Egypt by China Fortune Land Development Group. Announced in 2016, this project was canceled in 2018 due to a disagreement over how to share the expected revenue.

Another example from the real estate sector involves a $6.4 billion plan to develop a new city in Modderfontein, South Africa, by the Chinese group Zendai. This project was shelved after Zendai failed to reach an agreement with local authorities on its development. The group withdrew before the project even began.

Loans Counted as Direct Investments

Many of the top FDI projects announced by China in Africa are not actual direct investments but rather loan-financed projects. For instance, the development of Kilamba Kiaxi city in Angola by China International Trust and Investment Corporation (CITIC) was funded by Chinese loans secured by Angolan oil. Angola bore all the financial risk, which makes the deal more of a construction contract than true FDI. True foreign direct investment typically involves the investor owning an asset or business created abroad.

The report also notes that inflated investment figures are not limited to the real estate sector. In 2021, West China Cement announced a $2.2 billion joint venture with East African Holding Group to build a large cement plant in Ethiopia. However, the final project was much smaller, costing only $600 million. No further progress on the project has been reported.

While the database lists the total value of the top ten Chinese FDI projects in Africa at $53 billion, the Hinrich Foundation estimates that less than $10 billion of that amount has actually been committed to these projects as true FDI.