Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021
This paper, which follows my presentation, provides an overview of the Belt and Road Initiative (the "BRI"), its aims, objectives and progress to date. It also discusses the impact and implications that the BRI will have on/for Africa within the broader context of African efforts to develop, industrialise and foster trade and investment on the continent. Moreover, this paper also looks at some of the challenges which arise, including how and when these can lead to disputes, and the role that the African dispute resolution community can play in resolving and mitigating such disputes when they arise.
Scope of the BRI
Launched at the end of 2013, the BRI is a globe-spanning network of sea and land trade routes originating in China, and funded by vast sums of Chinese capital. At its heart, the BRI is an infrastructure initiative (90% of BRI projects are linked to ports, rail and road, mineral processing or energy (oil, gas and renewables)) – albeit on a vast scale. Africa is a central element of the BRI; as the second-largest recipient of BRI investment, after Asia.
Infrastructure and interconnectivity: planning and projects
Africa's infrastructure challenge remains the most significant and persistent hurdle to industrialisation and intra-African trade. Approximately US$ 68-108 billion is required to meet Africa's infrastructure financing needs.
China is the largest funder of infrastructure in Africa, and the BRI of course comprises a significant influx of capital for infrastructure. China has so far invested in over 40 African countries under the BRI. Notable projects include the following:
- US$1.6bn – Nigeria. The railway between Lagos and Ibadan, opened in January 2021. This is part of the larger proposed US$ 11.1bn 2,733km railway line between Lagos and Kano.
- US$589.5m – Uganda. The Isimba Hydroelectric Power Station, a 183.2 MW hydroelectric power station was commissioned on 21 March 2019 (funded by the Export-Import Bank of China), construction began in 2015.
- US$3.4bn – Ethiopia/Djibouti. The modernisation of the railway from Addis Ababa to Djibouti (and associated construction of an industrial park in south Addis Ababa), completed in January 2021.
Despite the increase in high-profile projects, the question remains as to whether the BRI is a purely economic construct to enhance international cooperation (as China claims), or a geopolitical tool to enhance China's global strategic influence (as its strategic competitors suspect). Regardless of the true position, the challenge for African countries is to align China's ambitions with their own needs and objectives, and therefore effectively take advantage of the synergies and opportunities that undoubtedly exist.
What are the biggest opportunities for Africans presented by the BRI, and are there any challenges?
Funding & Infrastructure
There is undoubtedly a vast and unprecedented influx of funding into major infrastructure projects in Africa as a consequence of the BRI. The influx has the potential to help address long-overdue gaps and shortcomings in national infrastructure, and also to provide for more effective and efficient links within sub-regions of the continent. However, funding often comes with conditions. These can serve to limit the opportunities for Africans to participate. For instance, the Standard Gauge Railway project (the "SGR Project") in Kenya (linking Mombasa with Nairobi, and originally planned to extend to Uganda) was funded on the condition that it be constructed by Chinese entities. Such restrictions are not uncommon on BRI projects. The conditions surrounding the SGR project are not uncommon, given that a third of major infrastructure projects undertaken in Africa are constructed by Chinese entities. Statistics show that while the labour constructing African BRI projects is increasingly African, more senior staff on projects are usually Chinese. This restricts the opportunity for knowledge transfer and capacity-building. Opportunities for participation by African contractors are often limited (though may yet remain significant additional opportunities further down the supply chain).
It must therefore be kept in mind that challenges remain. The SGR Project in Kenya, serves as an example of how BRI projects ultimately remain subject to China's aims and objectives, as the funding party. In the project the objective to continue the line through to Uganda (therefore providing and important link, facilitating trade between two key regional economies) was abruptly dropped when China declined to fund the next phase of the line's development. This is likely a consequence of the Chinese Government's recent steps (against the background of the global COVID-19 Pandemic and a changing global financial landscape) to scale back BRI investment, and shift away from more low-cost and less commercial funding. As such, we have seen a drop in the levels of BRI investment over the course of 2020.
Outside of funding, there are opportunities brought by the infrastructure assets themselves. A clear potential benefit is the increase of connectivity across Africa, and its potential to boost intra-African trade, economic activity and development.
African parties involved in BRI projects, be they states, contractors or suppliers, must appreciate the risk that a divergence between their interests and the interests of China, could very likely lead to a fundamental change in the project structure, a dispute or a stalled project. By way of example, the Beijing Everyway Traffic and Lighting Co Ltd v Ghana claim (brought under the Ghana-China BIT, in February 2021) provides an example of Chinese companies becoming more assertive in relation to pursuing and protecting their perceived rights in relation to projects and investments in Africa.
As regards advice and disputes, there are clear opportunities for African lawyers and consultants. Infrastructure projects on a 'mega-project' scale inevitably give rise to disputes, at all levels. Such projects will require a robust and efficient mechanism to address disputes as they arise in the course of the project itself (e.g. a DAB or DRB). Further, more significant and project-critical disputes may need to be resolved by arbitration (and other ADR methods, such as mediation, can also play a role). This underlines the importance of the work of bodies such as AfAA – in promoting knowledge of arbitration and dispute resolution in Africa.
The potential for dispute work is vast, and disputes are not necessarily confined to Sino-African companies and states. Other international actors are likely to be involved as contractors, suppliers and funders.
How can the opportunities presented by the BRI be taken advantage of?
We have seen arbitral institutions take specific steps to improve their ability to service BRI-related disputes, and to address related issues and considerations that arise. Examples include the ICC's "Belt and Road Commission" and the HKIAC's "Belt and Road Advisory Committee". Further, arbitral institutions (such as the CAJAC) are now in existence which aim to cater specifically to disputes in relation to Sino-African projects.
African arbitral institutions have an important role to play in taking steps to upskill domestic legal sectors (e.g. by developing skills and sharing their experience of complex cross-border arbitration with arbitrators, judges, lawyers, clerks etc.), thereby developing knowledge and capacity.
Against the background of the COVID-19 Pandemic and travel restrictions which we have all had to become familiar with, investing in, developing and adapting technology to support the conduct of arbitration has become, and will continue to be, more important.
The African Continental Free Trade Area
This year has seen the coming into being of the African Continental Free Trade Area ("AfCFTA"). This is the largest free trade agreement since the creation of the WTO. It serves to enhance economic integration and cooperation in an economic area worth US$ 3.4 trillion, with a population of 1.2 billion people, and offers a further vital potential force for Africa's further development. The AfCFTA has as its objective the deepening of economic integration amongst African states by creating a unified market for goods and services and, in the process, to drive Africa's industrialisation and structural transformation.
The aforementioned infrastructure gap, and shortcomings in key areas such as power capacity and availability and data connectivity, present obstacles to the achievement of the objectives of AfCFTA. Indeed, as important as the removal of trade barriers, which AfCFTA provides for, is the alleviation of these physical barriers and bottlenecks which hinder the capacity for trade between, and within, African countries.
The BRI therefore has what is potentially a highly important role to play in working towards maximising the opportunities presented by AfCFTA – specifically by making available such a considerable (and vital) volume of funding to be directed towards infrastructure projects. Such projects can, in turn, deliver infrastructure assets through which increased trade, unlocked by the AfCFTA, can flow.
With such a volume of capital being committed, to such major projects, this undoubtedly presents opportunities – and infrastructure investment is a clear and pressing African need. However, as can fully be expected, in committing such investment, China understandably has its own objectives and aims (including expanding Chinese access to new markets and facilitating Chinese strategic global expansion) foremost in mind. Africans will need to be astute, and aware of their legal and commercial rights and how to protect them, if they are to take best advantage of this once-in-a-generation opportunity. An approach that might be summarised as "belt and braces", for the Belt and Road.
* Partner, Mayer Brown International LLP