By Salman Gulzar


As Air Force One touched down on the soils of Africa recently, the high power delegation on board may well have had an unnerving feeling that this flight had arrived two decades too late. The presidential trip came as a follow up to the Africa summit held in Washington last year in realisation that Americans have some catching up to do if they are to play any part in Africa’s economic future.
On every occasion, the delegation was reminded of the Chinese dominance in the continent. When President Obama was addressing Africa’s leadership; trying to balance his rhetoric of a need for good governance with emphasis on American desire to contribute to Africa’s economic growth and social progress, he was doing so in a $200mn Chinese Government funded African Union Hall in Addis Ababa.
China is asserting its authority to execute its strategy to boost connectivity and commerce with countries lying on the ancient Silk Route and consolidating a population of 4.4bn to enhance trade. Such a strategy provides opportunity for Qatar and the GCC countries.
African gold rush: Major American companies and funds are being attracted by growth rates in Africa that remind Americans of the spirit of adventure of forty niners, gold seekers who headed to California in 1849, during the Californian gold rush. At stake is an opportunity to tap a $1tn Africa trade flow currently dominated by China exchanging $222bn worth of goods a year with clear ambition to invest $100bn in the continent and double trade to $400bn by 2020.
While African policymakers attempt to formulate legal foundations by easing trade policies, Chinese investors are particularly well-positioned to take advantage of the improved economic environment in Africa as most of these commercial endeavours are represented by state enterprises with subsidised credit available to them from Beijing. China aims to transfer its labour-intensive manufacturing sectors like textile, garment and household appliances to Africa and is eager to contribute to the infrastructure of the continent, including logistics both road and rail, telecommunications, power and other projects that facilitate connectivity in the continent.
Re-building connectivity to Arabia: China has allocated $62bn to rebuild the ancient Silk Route called One Belt, One Road. Pakistan will be central and a test case for Beijing’s regional economic strategy. Beijing has committed $45bn for an economic corridor between the Gwadar Sea Port in southern Pakistan and China’s Western Xinjiang province that will connect China to the Middle East through multiple road and rail networks and shorten the sailing distance to Africa by 15 days. This corridor is the equivalent to an overland Suez Canal for Beijing and dynamics around logistics with China would substantially change once these projects are executed.
Building banks, funding projects: Since their establishment in 1944, Bretton Woods Institutions (IMF and World Bank) have not reformed to give additional voting rights to emerging countries, in particular China. Beijing’s requirement to have development banks under its directions was critical as it needed to tackle sustained infrastructure development. China has therefore embarked on establishing rival institutions that it will be able to control. The Asian Infrastructure Investment Bank, headquartered in Beijing has been capitalised with $100bn and the New Development Bank (BRICS Bank), based in Shanghai has been allocated a capital of $50bn with an associated Contingent Reserve Arrangement of $100bn of which $41bn has been underwritten by China.
In addition to creating new banks, China has also embarked on strengthening its policy banks, a term used for China Development Bank, Export-Import Bank of China, and Agricultural Development Bank of China. At a time when US Export Import Banks is fighting for survival, Beijing is finalising a convertible structure, where loans get converted to equity, with $32bn foreign reserves injected in China Development Bank and $30bn into Export – Import Bank of China. This move will not only provide capital to fund One Belt, One Road but also improve yield for forex reserves which are predominantly invested in US Treasury Bills.
GCC at the crossroad: Chinese influence may not be as evident in the GCC but there are clear advantages that can be achieved by being on the cross road of this trade corridor that China is so heavily reliant on for its future. The silk route dynamics have only improved over the centuries and while valuations in Europe continue to be aggressive this development by Beijing provides an exciting opportunity for GCC businesses and sovereign wealth funds to evaluate investments that are mitigated by Chinese support. The GCC region can secure feedstock to its non-oil and gas industries like steel and aluminium; gets access to Africa and Asia for natural resources including agricultural land for food security at a time when valuation of such businesses is still attractive.
Economic implications of this corridor would result in renminbi becoming one of the top traded currencies in the next decade. Qatar has already secured itself as a renminbi clearing country and it is critical that further steps are taken to trade and create liquidity in the region.