- Tenfold increase in Chinese policy lending into MENA from 2015 to 2016
- UAE was the top target country for lending in MENA
- Sub-Saharan Africa has seen the vast majority of lending into MEA since 2014
- Power projects attracted most of the financing
The value of loans from Chinese lenders to energy and infrastructure projects in the Middle East and Africa (MEA) has soared between 2014 and 2017, from USD 300mn to USD 8.8bn, with policy lenders China Development Bank and China Exim particularly active in helping bridge the MEA’s infrastructure gap, according to the latest research by global law firm Baker McKenzie*.
Almost half of the total USD 19bn of Chinese outbound loans poured into infrastructure projects in sub-Saharan Africa since 2014 were made last year (2017). Notably, Chinese lenders accounted for more than 40% of all infrastructure finance in sub-Saharan Africa in 2017 and its policy banks made more than four fifths of lending by Development Finance Institutions in the region. The African countries seeing most Chinese lending are Kenya and Nigeria, which alone have swallowed up almost 40% of the USD 19bn of lending to projects in sub-Saharan Africa since 2014.
Chinese policy lending into the Middle East and North Africa (MENA) increased nearly tenfold from 2015 to 2016 alone, from USD 368mn to USD 3.5bn, reflecting the Chinese government’s vision for an enhanced relationship with the countries of a strategic region. The Arab nations play an important role in China's signature Belt and Road Initiative (BRI) for strong trade routes linking China with central and South-East Asia.
The MENA energy sector, particularly power, as well as oil and gas, has been the major recipient of Chinese policy loans since 2014, with activity seen more recently in the transport sector.
The UAE was the most attractive target in MENA for Chinese policy lenders in the last two years, with USD 2.3bn of loans, including financing towards the expansion of both Dubai International Airport and Al Maktoum Airport. Jordan came in second place with a total lending valued at USD 1.7bn, followed by Saudi Arabia with USD 977mn and Egypt with USD 890mn.
“The rising impact of Chinese policy lending in the Middle East and Africa (MEA) is remarkable,” said Sandeep Puri, Partner and UAE Head of Banking & Finance at Baker McKenzie Habib Al Mulla. “The total value of loans to energy and infrastructure projects in the MEA region more than doubled between 2016 and 2017, and there have been a couple of very sizable UAE deals backed by Chinese policy lenders in this period. Although the total lending in 2016 is higher than in 2017, a more diverse range of sectors benefited from Chinese lending last year.”
In addition to China's recent pledge of USD 20bn in loans and USD 106mn in financial aid to Middle East nations over the next few years, a new financial consortium will be established by Arab and Chinese banks with a fund of USD 3bn to promote cooperation on oil and gas, nuclear, and clean energy.
“What we are witnessing is just the beginning of long-term collaboration between China and Middle East nations in a bid to shore up China’s geostrategic footprint in the region,” added Sandeep. “China's pledge to revive economic growth in the Middle East underlines its commitment to a strategic partnership in the region.”
Over the next five years, China plans to import goods worth over USD 8tn from the Middle East, providing Arab countries with huge investment opportunities. Moreover, negotiations to establish a free trade agreement (FTA) between China and the Middle East has already begun, which in turn would pave the way to more investments being poured across all industries.