China has a long history of engaging in Africa’s energy sector. The first Chinese hydropower station was completed in the 1960s. Known as the Kinkon hydropower station in Guinea, it was China’s first foreign aid project in Africa’s power sector, amongst other landmark infrastructure projects like the Tanzania-Zambia Railway (TAZARA) in that same period. However, Chinese aid was largely interrupted during the early stages of China’s economic reforms in the early 1980s, when strategic priorities shifted towards domestic economic development. China resumed its engagement with Africa’s energy sector mainly under President Jiang Zemin’s ‘going out’ strategy in 1992, an engagement largely driven by the crave for Africa’s fossil fuel resources — particularly crude oil — to fuel China’s fast-growing economy at home. Oil imports, mainly from Angola and Sudan, took up over 20% of total Chinese oil imports in the early 2010s, with over 60 million tons each year. Yet, that share has been dropping to less than 15% in recent years due to highly diversified oil imports from the Gulf region, Russia, and — increasingly — the US.
Is China powering Africa?
China’s decreasing role in Africa’s oil and gas sector, however, has been largely compensated by its fast-growing involvement in the electric power sector by constructing large hydro- and coal-fired power stations across the continent. According to Boston University’s China Energy Finance database, by 2020 China’s two major development finance institutions (DFIs), known as China Development Bank and China Exim-Bank, provided 29.7 billion USD worth of power generation capacities in Africa, plus 9.3 billion USD for the transmission systems that often linked to these power plants, which far exceed its 11.2 billion USD in the oil exploration and extraction area. The construction of these power plants and transmission lines is usually driven by the commercial interests of Chinese state-owned enterprises (SOEs) that are involved, and they are supported by Chinese DFIs through massive concessional loans and export credits schemes. For a region that has over 770 million people without electricity access and over 900 million relying on highly polluting and unhealthy biomass-based cooking facilities, Chinese technology and finance in Africa’s power sector is becoming a critical factor for the continent’s much needed energy modernisation and transition.
However, there are growing concerns around whether such a trend is sustainable, as it is increasingly clear that Chinese expansion in Africa’s energy sector has been decreasing since 2018. Moreover, the ongoing Covid-19 pandemic and the associated economic recession accelerated a debt service crisis in many of China’s major African partners in the energy sector, which is casting shadows on the prospect of future cooperation. Both Chinese SOEs and DFIs appear to be much more cautious compared to their highly expansionary strategy noted in the earlier stage. Whether such prudence is a temporary reaction to the Covid impacts or a long-term strategic shift is yet to be seen, but significant changes in the coming years seem to be likely.
From fossil fuels to renewables power projects?
Traditionally, Chinese investments have fallen closely in line with Africa’s rich energy resource endowment across different regions, such as hydro power sources in Eastern and Western Africa and coal power sources in Southern Africa. Chinese financing of coal-fired power stations is likely to decrease in coming years as there is rising consensus within China to speed up the coal phase-out process in light of the recently announced carbon neutrality target by 2060. Investing in coal-related projects will not completely fade away, as shrinking domestic coal power capacities may push some Chinese SOEs to actively seek more overseas opportunities. However, with more and more Chinese investors and financiers acknowledging the increasing risks of coal-fired power plants as stranded assets, the appetite for such investments — particularly in already challenging areas such as Africa — is likely to diminish in the coming years. The recent announcement of China Industrial and Commercial Bank to tentatively reject the 3 billion USD loan application for the controversial Sengwa coal project can be considered as a positive sign for such change.
Instead, the prospect of hydro power projects is hard to predict. China has always branded hydropower as clean energy sources. Under its 14th Five Year Plan, tremendous efforts will be put into exploiting untapped hydropower potential in its Western provinces, and particularly in Eastern Tibet. Yet, overseas hydropower projects are increasingly challenging, particularly as regards dams along major transboundary rivers that may spark off intense inter-state conflicts and local protests due to large relocation programmes and change in land use involved in the construction, driving up both the costs and risks in project development.
Nonetheless, it seems that abandoned coal and hydro power deals might be substituted by cleaner energy options so that Africa can continue expanding its energy access. In fact, the Chinese government, SOEs, and DFIs are gradually shifting their focus towards green energy projects, particularly in wind, solar photovoltaic (PV), or even geothermal sectors in Africa. Such a shift would be closely in line with Beijing’s official narrative to promote a green Belt and Road Initiative (BRI) and the growing commercial interests in expanding China’s world-leading renewable energy technologies. Currently, among the global top ten solar PV manufacturers, nearly all of them are from China, and among the top ten wind turbine producers, at least four are Chinese companies. In addition, the fast-advancing energy storage technologies might make the transition to renewable energy solutions even more feasible across areas with higher energy poverty in the coming years.
Towards a more multi-dimensional cooperative model
A successful transition from conventional to cleaner and more sustainable energy sources requires more deliberate and coordinated efforts from the Chinese government to reverse the current engagement model, which largely depends on SOEs’ uncoordinated efforts with African markets. In the recently announced 14th Five Year Plan, Beijing noticed this gap and urged the establishment of multi-level and multi-dimensional communication channels with BRI countries alongside the strengthening of the role of think tanks, corporations, and even civic groups. Such engagement strategy, once in place, would significantly enhance China’s involvement in African countries’ energy sector beyond individual project level interactions, and allow China to play a more active role in areas like energy consultancy or advisory, capacity building programmes, and dedicated efforts in improving its dubious standards of social and environmental footprint for many of its energy infrastructure projects.
As for African countries, though the scale of Chinese energy projects and associated finance is expected to decline at least in the short run, other opportunities may arise. Apart from physical projects, Beijing still has a lot to offer, including such as much needed knowledge and skill sets from energy regulators and planners to promote renewable energy market and technology capacity. China’s experience with boosting infant wind turbine and solar panel industries from the ground up can be highly valuable for its African counterparts who wish to develop their own production facilities. Some Chinese technological solutions for clean energy transitions, such as long-distance transmission lines or floating solar panels on water surfaces may also be suitable to Africa contexts. Therefore, dwindling Chinese investment and finance in Africa’s energy sector may open a new cooperative model with multiple activities, which may produce more enduring impacts than stand-alone projects.