Examining the importance of the Sino-Africa swap formula in creating backward and forward linkages

Abstract

African nations are trying to diversify their economies in order to induce industrialization that will help them eradicate poverty and create employment for their young workforce. One of the continent’s key challenges continues to be the shortage of physical infrastructure. Therefore, finding ways to overcome this problem has become of large importance. China has identified this and has thus enhanced its involvement in Africa primarily via its swap formula. The formula enables the financing and development of infrastructure that African nations critically need by depending on their resource wealth. However, the mounting involvement of the formula has continued to stimulate questions on its impact regarding creating backward and forward linkages. As such, one of the significant aims of this article is to identify linkages that emerge from the Chinese swap formula that involve long-term concessionary loans from China’s Exim Bank to finance major infrastructure projects in Africa. It examines whether the swap formula is creating backward and forward linkages in Africa, and what the infrastructure leads to concerning creating novel opportunities for the continent, by theoretically answering this question: “Can China’s swap formula create backward and forward linkages?” Furthermore, the article theoretically identifies the benefits and linkages of the formula via a case study – that of Abuja-Kaduna railway. Arguably, the article discovers that the formula has multiple benefits and linkages for Africa. It is also seen by the Chinese government as a way of fulfilling its strategic goals in Africa.