FEATURE: China replaces African loans with energy investments amid faltering economy

China has swapped cheap African loans with energy investments in a bid to bolster its influence and secure future oil and gas supply, as its domestic economic slowdown brings the era of Beijing's largesse on the continent to an end, data from S&P Global Commodity Insights shows.

For decades, Beijing flooded Africa with loans and grants, funding an infrastructure-building spree that included Kenyan trains, Juba's airport and the Zimbabwean parliament. The spending defined China's role in what has been dubbed a "new scramble for Africa."

With China's economy faltering due to rising debt and the coronavirus pandemic, that generosity has diminished. Instead, energy companies have taken up the mantle. Today, the three main Chinese players – CNPC, CNOOC and Sinopec – are collectively the fourth biggest energy investor in the continent, behind BP, Shell and Italy's Eni, according to a release by the African Oil Week conference.

"It is quite the historical reversal," Harry Verhoeven, a senior research scholar at Columbia University's Center on Global Energy Policy, told S&P Global Commodity Insights. "Historically, China makes a lot of credit available to Africa and trades a lot with Africa but actually has been rather reluctant for a number of reasons to actually invest, i.e., take direct ownership."

On the end of China's loan-giving, he said, "Contrary to a number of years ago, China does really need the money."

According to data from the World Bank, China's annual GDP growth has fallen steadily from 14.2% in 2007 to 3% in 2022.

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Megaprojects

Data from S&P Global shows the number of Chinese energy investments in Africa has soared 20-fold since the 1980s. Meanwhile, loans to the continent have plummeted since 2016, according to research by the Boston University Global Development Policy Center.

Among dozens of Chinese investments are Mozambique's 3.4 million mt/year Coral Sul LNG project, the 160,000 b/d East African Crude Oil Pipeline (EACOP) and Niger's Agadem oil project and pipeline, which will increase Niger's oil output from 20,000 b/d to 130,000 b/d upon completion.

In most projects, Chinese energy companies hold stakes alongside international oil companies. However, investments in coup-hit Niger and terror-plagued Mozambique demonstrate the willingness of Chinese companies to operate in challenging regions.

The spate of foreign investment decisions has increased the total gas reserves of Chinese projects in Africa from 3.44 Tcf in 2003 to 22.52 Tcf as of Oct. 12. In addition, China has pumped money into renewable energy projects in Africa, as well as critical minerals – from cobalt to lithium – that will power the global energy transition.

Future energy supply

Long treated as a playground for great powers, Africa's economic and population growth projections and rising diplomatic clout have prompted a battle to secure influence on the continent, involving China, Russia, the US, colonial powers Britain and France and even Turkey and Gulf states.

While Russia has dispatched mercenaries to prop up regimes, China has used trade, grants, loans and more recently investments. "China is the largest trading partner and fourth-largest foreign investor in Africa," said Lei Bian, a policy fellow at the London School of Economics. Using Xi Jinping's landmark Belt and Road Initiative (BRI), she added, China has been enhancing "policy coordination, infrastructure connectivity, trade and financial integration, and people-to-people connectivity," including in Africa.

Experts say the BRI is part of a wider effort to amplify Beijing's voice on the world stage by securing the support of the "global south," which beats developed nations on population size and growth, and economic development. "China has been playing an important role in South-South cooperation since the 1950s," said Bian.

Beijing's largess in Africa has long prompted accusations of debt trap diplomacy and vote buying. According to researchers at AidData, key energy investment recipients have made a habit of siding with China at the UN. Nigeria does so 76% of the time, compared with Egypt's 75% and Algeria's 79%. Last year, the UN Human Rights Council rejected a Western-led motion to debate China's alleged human rights abuses, with emerging oil producers Cameroon, Cote d'Ivoire, Gabon, Namibia, Mauritania, Senegal and Sudan all backing Beijing.

Beyond diplomacy, however, Chinese oil and gas investments are also about securing future energy supply, according to analysts. The world's largest crude importer buys a wide variety of African crudes, both sweet and sour, but its refiners prefer heavy slightly sweet grades such as the Republic of Congo's Djeno and Angola's Girassol, according to data from S&P Global Commodities at Sea.

China imported 1.1 million b/d of crude from West Africa in Q2 2023, around a tenth of total Chinese crude imports, according to CAS data.

Platts, a unit of S&P Global Commodity Insights, last assessed Girassol at a premium of $3.90/b to Dated Brent Oct. 10.

"In the Chinese outlook on global energy it's an 'all of the above' strategy, so yes they invest a lot in solar, they double down on EVs, but they also still build a lot of coal plants and they also still try to secure oil and gas ... exactly because they don't want to be reliant on one industry, or one tech or one market for that matter," said Verhoeven.

Much-needed investments

African producers have been unable to boost production to match rising Chinese oil demand in recent years, with underinvestment and technical issues at aging fields causing production in established producers, including OPEC members Nigeria, Angola and the Republic of Congo, to fall. Meanwhile China – which imports 10 million b/d of crude – has boosted imports of cheap Russian oil since the Ukraine war, initially at the expense of West African petrostates.

However, rising Chinese investments in the continent could change the outlook for African producers who are seeking investment following a wave of IOC divestments from mature basins in favor of frontier plays like Namibia and Guyana. S&P Global data shows Africa needs significant new drilling to maintain current production levels.

Meanwhile, Western energy companies and banks have grown reticent to fund African fossil fuel projects, including Uganda's EACOP pipeline, leaving space for Chinese lenders to fill the void.

Beijing also appears less concerned by human rights abuses and poor governance in emerging African producers, which remains a deterrent for many Western oil CEOs. China's first major energy project in Africa was in Sudan in the 1990s, when a bitter civil war led to a raft of Western sanctions on the East African country.

Through that investment, Verhoeven said, China sent a "signal to other partners that no matter what kind of PR noise or sanctions, we'll be there, we'll be consistent."