Webinar Summary: Assessing the ESG Risks of Chinese-financed Development Projects in Africa

By Ishana Ratan

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Van Staden began with an overview of the report, which examined Special Economic Zones (SEZs) and power projects across Egypt, Nigeria and Ethiopia, to understand the role of the private sector in addressing ESG risks. He reviewed the various projects included in the report, before handing it over to Tang to discuss project specific challenges.

Within Egypt, the report examines the TEDA-Suez Special Economic Zone and Sinohydro’s Attaqa hydroelectric dam, while in Nigeria, several transmission projects are investigated, in the context of the Lekki Free Zone, located in Lagos. In Ethiopia, the report surveys the prominent Eastern Industrial Zone, as well as transmission lines between Grand Ethiopian Renaissance Dam and Addis Ababa. Across SEZs, van Staden stressed that China complied with local laws, but that there were challenges due to local regulatory quality around taxation and local labor utilization. In Africa, there is a strong drive from both communities and regulators to improve and create jobs. While projects often create many local jobs, host countries do not always have the regulatory tools to manage social rights and land protection. A lack of clarity around actors’ responsibilities and involvement of multiple government agencies during project implementation was a common challenge.

For example, at the Attaqa hydropower project, as well as various transmission lines, local communities levied complaints about the consultation process. This was exacerbated by the presence of many government agencies, and lack of clarity over project responsibilities. In Nigeria, corruption was a challenge for community compensation, with lack of coordination over payments to locals. In terms of regulatory reform, greater clarity over the delegation of responsibilities would strengthen project implementation. Notably, countries may improve ESG standards as they implement projects; in Egypt, there were incremental gains in the strengthening of local regulation throughout project development.

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Onyekuru provided remarks that noted the importance of ESG standards, but lack of compliance to-date with best practices for Indigenous and other rural communities. As much as projects must be profitable, he stressed that it is necessary to consider the effects on society and the environment. Community engagement with local stakeholders, not just the government, is necessary for project implementation, especially Indigenous communities who are stewards of the land.

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Van Staden responded to questions regarding public disclosure and transparency. He noted that large publicly listed companies face regulatory pressure and scrutiny for project management. However, smaller companies may fly under the regulatory radar. These small companies may both have less capacity and face less scrutiny over project management. This gap in transparency could be resolved with an increase in ESG standards on the African side, as Chinese firms are very responsive to local regulation. Recent regulation from the African Union is a promising step, suggesting that recipient countries are moving towards higher standards.

In closing, both Tang and van Staden stressed the role of local government reform around key challenges, for example, management of compensation for land use, which could prompt Chinese investors to increase their investment in ESG practices going forward.

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