China’s investment in African infrastructure as part of its Belt and Road Initiative has proven to be both transformative and controversial. While investment projects are helping Africa to close its infrastructure gap, they have also raised fears of runaway debt levels. Overall, more research is needed on the development impact of Chinese investment activities on the continent, including the financial implications thereof. This report aims to address this knowledge gap. Drawing on diverse datasets, it examines Chinese infrastructure projects in three countries: Ethiopia, Kenya and Nigeria. A key result of the study is that while many of these projects are still under way, they are likely to have a positive impact in the future. In particular, they will boost trade and development in the commodities and services sectors. Nevertheless, the benefits of the Belt and Road Initiative will not be evenly distributed in Africa. Top commodity producers and exporters will continue to benefit more than some other African countries. Countries should take cognisance of and mitigate the downside risks associated with Chinese interventions in Africa, including growing their debt loads and minimising the negative effects on the environment.

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Affordable and efficient energy supply is essential for enhanced welfare and better development outcomes. However, African states suffer from huge deficits in energy generation and distribution, resulting in unreliable power networks, frequent power outages and expensive tariffs. In a bid to improve efficiencies through interconnectivity and reduce energy development challenges at the national level, sub-regional power pooling initiatives have become increasingly popular in Africa. The idea behind creating power pools is to encourage cooperation among countries, through linking excess capacity in one country where power is produced more economically, with excess demand in another country that can benefit from cheaper imports.

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The COVID-19 pandemic has had a debilitating effect on the Nigerian economy. Specifically, the combination of lockdown measures and the global slowdown of economic activities led to the contraction of Nigeria's GDP by 6.1% in the second quarter of 2020, thus inducing the country's second recession within five years . Nevertheless, it is noteworthy that the pandemic occurred amid prevailing economic vulnerabilities.

This policy brief examines the pre-existing economic vulnerabilities, evaluates the Nigerian government's responses to the pandemic with regards to achieving a green and more diversified economy, and develops a new agenda and strategies for sustainable growth and economic transformation.

While the African Continental Free Trade Area (AfCFTA) provides opportunities for regional financial sector development, it also poses a real test for the continent’s financial system. The ability of Africa’s financial sector to perform the crucial function of facilitating economic growth and integration, at the required scale to support the capacity of small firms to benefit from the single African market remains shaky. In terms of opportunities, the elimination of inhibitive regulations under the AfCFTA is expected to ease cross border trade, enable capital and information flow, attract greater foreign and intra-continental investments, potentially increase capital funds, and provide a much larger customer base for financial institutions to serve. This potential new market base includes traditionally excluded micro, small and medium enterprises (MSMEs) that constitute a large share of the African economy. MSMEs are expected to be a major catalyst for increasing intra African trade and shared economic growth. However, the constraint to MSME financing is a major threat to the success of the AfCFTA as effective economic integration and development depend on easily accessible and affordable capital. This brief therefore advocates for urgent implementation of harmonised financial sector policy reforms across the continent to eliminate these funding constraints, and allow for a more supportive business environment.

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This research analyses the effects of COVID-19 pandemic on micro, small and medium business activities, and its implications for how to be better prepared for possible future socioeconomic shocks, and the geopolitical repercussion for African governments.

This article was first published as a Visiting Scholars’ Opinion Paper for the Korea Institute for International Economic Policy (KIEP)