The recent African Economic Outlook points to East Africa’s growth increasing in 2014 to more than 7%, from below 5% in 2013. It is projected to decelerate to 5.6% in 2015 and accelerate again to 6.7% in 2016. This means it will become the continent’s fastest-growing region.

China, in particular, invested about $11.7bn between 2009 and 2014 in 129 greenfield projects, creating about 48 000 jobs, the report states. It adds that, in 2013-14, a large proportion of this investment ($4.3bn) concentrated in oil and gas-producing countries of the West African region, although Chinese capital is diversifying into transport, construction and clothing.

But East Africa is also the central point of much of the country’s investment. In May, Djibouti President Ismail Omar Guelleh revealed that China was seeking to develop a naval base in the African state’s northern port of Obock. Reports indicate that Chinese investment in infrastructure projects to assist landlocked Ethiopia is valued at more than $9bn.

It also signed an agreement last year to invest in a new railway line in East Africa, which will run from Mombasa to Nairobi and will extend eventually to Uganda, Rwanda, Burundi and South Sudan. The first stage of the project is estimated to cost $3.8bn.

This is why Dr Ross Anthony, acting director for the Centre for Chinese Studies, explains that East Africa is important for China, as it is also a means from which to secure its sea lines of communication (SLOC), particularly with regard to the Middle East, where energy security is paramount.

“Additionally, East African port and rail development is being included as part of China’s new concept of a ‘maritime silk road’, which will result in an increasing geopolitical influence within the Indian Ocean.”

US-based Asia-Pacific Centre for Security Studies’ Professor Ji Guoxing said in an online statement that an SLOC is important, as world countries have depended on the free passage of goods across the seas, and the majority of Asia-Pacific countries, with their export-oriented economic structure, have even more depended on maritime transportation.

“An uninterrupted flow of shipping is critical to regional countries’ survival and prosperity,” he added.

China’s new initiatives – the “Economic Belt along the Silk Road” and “21st-Century Maritime Silk Road” – aim to re-awaken and establish regional integration in Asia, as well as propel economic globalisation.

Chinese Investment in East Africa

J.R. Mailey, a Washington-based research associate at the Africa Centre for Strategic Studies, explains that many analysts believe that Chinese mining investments in Africa are merely in their early stages.

“During this phase, some Chinese firms are said to have overpaid in order to break into the market. Others have hurried into investments deemed too risky by many investors from elsewhere around the world.”

The African Economic Outlook data points to China’s financing commitments to Africa increasing from $5bn in 2006 to $10bn in 2009 and to $20bn in 2012. In 2014, China increased this credit line by another $10bn. “The majority of this concessional support is channelled to infrastructure development.”

“Chinese firms still seem to exhibit a higher tolerance for risk, but many of these firms now understand the East African mineral market well enough that they don’t have to cut corners,” explains Mailey.

Chinese firms have been active in the mineral sector throughout East Africa. Mailey explains that Chinese firms first started to make significant investments in Africa’s mining sector in the late 1990s—a watershed moment being China Non-Ferrous Metal Mining Company’s $20m purchase of Zambia’s Chambishi copper mine in 1998.

“Chinese firms’ presence in East African mining has expanded significantly ever since — from Sudan to Madagascar — with a sharp uptick in investment coming since 2011. One of Kenya’s largest coal concessions is owned by a Chinese firm. Chinese firms have signed deals to mine for clay, iron ore, and limestone in Mozambique. In Tanzania, already a major destination for Chinese mining investment, there are reports that upwards of 6000 Chinese firms want access to the country’s mines.”

Anthony explains that one particular sector, which has drawn in Chinese investment and firms, is the oil and gas industry. “East Africa is currently undergoing an energy boom. The China National Offshore Oil Corporation, in conjunction with Total and Tullow, is developing oil production in the Albertine valley, including pipelines and a possible refinery. China National Petroleum Corporation (CNPC) has provided a pipeline to transport Tanzanian gas from Mtwara to Dar e Salam; Chinese companies are also involved in Mozambique’s off-shore gas industry; as well as large infrastructure projects in East Africa, including the Lappset project, as well as port developments in Tanzania and Kenya,” adds Anthony.

No Jaw-Dropping Deals

But Mailey expects Chinese investment in the region’s mines to continue over the coming decades, but perhaps without the same sort of ‘ jaw-dropping’ deals experienced during the last decade.

“With that said, a prolonged economic slowdown in China could deter its investments in East African minerals—but it’s not even entirely clear how commodity price busts will impact the investment decisions of Chinese mining companies and commodity traders. Coal prices, for example, fell sharply in 2014 as a result of reduced commercial output in China, and customs officials in Beijing recently reported that coal imports were down by 42% in the first quarter of 2015, compared with the same period last year. On the other hand, Chinese copper imports have surged amid declining prices as traders seek to stockpile reserves on the cheap.”

Mailey also explains that the level of influence wielded by Chinese investors varies greatly from country to country and investor to investor.

“There does seem to be near consensus, at least among mining executives, that Chinese firms have been among the most influential on the continent over the past decade. However, Chinese firms are not always able to just throw their weight around without any resistance.”

In 2011, for example, China’s Fenxi Mining Industry Company won a tender to develop a 400m metric ton coal deposit in north-eastern Kenya, but the project was delayed for several years because of a dispute with residents in the mining area over relocation and revenue-sharing.

Anthony believes that overall, it is good for African states to have multiple investors to minimise risk so the addition of China is positive in this regard.

“The main issue is to make sure that locals are on board in the development process and are not alienated. For instance, during the construction of the Tanzania pipeline by  CNPC, there was local resistance over the construction of the pipeline.

China is still developing aspects of corporate social responsibility and environmental accountability and faces a learning curve in terms of local engagement.”

The Only Show In Town?

Mailey believes that African countries should strive to attract and partner with the most qualified and reliable mining firms, regardless of their country of origin.

“In order to ensure this happens, licences and concessions should be awarded through transparent, competitive bidding processes. Mining contracts should be made public, and firms active in the natural resource sector should be required to declare the identities of their beneficial owners.

“Civil society and the press should be empowered to scrutinise these deals as well. Ultimately, when considering how citizens can get the best deal for their natural resources, the source of investment matters far less than the quality of institutions in place to hold mining companies and government officials accountable.

“The sharp spike in Chinese companies entering Africa’s mining sector — and the fanfare that often follows — often gives the impression that Beijing is the only show in town.”

But Mailey says this is not quite accurate, as mining firms from Australia, Europe, and North America are still major players in East Africa’s mining sector.

“Some have even partnered with Chinese firms on high-profile deals,” he concludes.