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US-China rivalry poised for expansion in Africa

Face-off could boost state-backed lending in $120bn infrastructure financing market

The U.S. is stepping up efforts to counter China’s growing role in infrastructure financing in Africa and other emerging markets, according to a new report, highlighting the expanding scope of the rivalry between the world’s two largest economies.

Chinese development finance institutions and export credit agencies accounted for 53% of the investment flowing into African power projects in the past 10 years, according to a report released by U.S. law firm Baker McKenzie and U.K. financial data provider IJGlobal on Monday. U.S. peers only contributed 3% of the funding, the research found.

However, a survey of more than 430 executives in the industry found that respondents were evenly split on whether U.S. or Chinese finance institutions would be the most active lenders for African power projects over the next decade.

“The U.S. is not standing on the sidelines watching,” the report said.

Chinese government-backed lending has surged in recent years, driven by its Belt and Road Initiative. The project has been plugging the massive demand for infrastructure development in Africa and other emerging markets.

But in a countermeasure, the U.S. recently consolidated overseas development agencies into a new body, the International Development Finance Corporation, with lending capacity of $60 billion. The move “is further evidence that the U.S. is indeed reviving its interest in bilateral policy lending,” the report noted.

Nevertheless, the Belt and Road Initiative is still in its early stages and has room to grow. “As development in BRI countries accelerates, industrial parks and new markets for Chinese suppliers and retail goods will open up, starting a new phase for the initiative,” according to the report.

The findings signal a new dimension in U.S.-China rivalry, which is currently centered on trade and security issues.

The role of state-owned finance institutions in the $120 billion global market for financing emerging market infrastructure is set to grow, according the report. “They offer certainty through the economic cycle and political volatility”, and are able to withstand risk that commercial lenders are unwilling to take, said Michael Foundethakis, global head of banking and finance at Baker McKenzie.

His assessment underscores the challenges facing multilateral finance institutions like the International Finance Corporation. More than two-thirds of respondents to the survey confirmed that creditor governments were increasingly focused on bilateral policy lending over multilateral lending.

Source: Nikkei Asian Review

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