China applies brakes to Africa lending

This is an audio transcript of the FT News Briefing podcast episode: China applies brakes to Africa lending

Joanna S Kao
Good morning from the Financial Times. Today is Tuesday, January 18th, and this is your FT News Briefing.

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UK inflation numbers are out this week. China is changing the way it lends to Africa. And the FT’s Hannah Murphy has been looking into Facebook’s plans for its metaverse. The company’s patent application suggests it might go after a lot more data.

Hannah Murphy
Data that perhaps it’s never collected before, and that might be your eye movements, your pupil movements, if your nose wrinkles, if you scrunch your forehead.

Joanna S Kao
I’m Joanna Kao, in for Marc Filippino, and here’s the news you need to start your day.

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Inflation in the UK is expected to rise to a 30-year high. Tomorrow we’ll see data from December, and a Reuters poll is forecasting inflation at 5.2 per cent. Economists point to higher energy costs, stronger demand for most goods and services and continued supply chain disruption. Now, bearing in mind that economic forecasts are especially uncertain during the pandemic, most experts predict inflation will peak in April. That’s prompting expectations that the Bank of England will increase its key interest rate several times this year.

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We’ve been hearing a lot about Facebook’s plans to build a metaverse. The company even renamed itself Meta. But how exactly is it gonna make money from this avatar filled virtual universe? The FT’s Hannah Murphy search for clues in a number of patent applications that Meta has filed. She said many of them were for technologies aimed at collecting data they’ve never collected before.

Hannah Murphy
And that might be your eye movements, your pupil movements, if your nose wrinkles, if you scrunch your forehead, in order to power its metaverse. And that’s in two ways. One way might be used to sort of guide where you’re moving around in the metaverse if it tracks your eyes, for example. Another is to ensure that your avatar mirrors realistically what you’re doing. So that’s sort of one camp of patents. And then the second camp looks a little closer at what its business model might look like. And we’re seeing signs from those patents that it’s gonna look at advertising and personalised advertising, very similar to the model that we see currently.

Joanna S Kao
So Hannah, were there any other patents that jumped out at you?

Hannah Murphy
The one patent in particular that struck me, that talked about having a kind of blueprint for a virtual reality store. And in that virtual store, you’re able to kind of go in and advertisers, so say at night, for example, might sponsor a virtual object, say a shoe. You go in and you see that shoe, you can interact with it in some way. And then either you buy that shoe and you get an actual, real physical shoe in real life delivered to you or the idea is that you have a sort of digital twin living in this world permanently. You might just be buying a virtual shoe that your virtual avatar then wears. And Facebook or Meta gives the possibility of either that you can either buy a digital good or a real good, and it’s the advertiser that sponsors that in a virtual store.

Joanna S Kao
I bet there’s some consumer privacy experts who are raising some red flags. What are some of their concerns?

Hannah Murphy
It’s very likely that Facebook is going to collect a lot of data that it hasn’t before. And obviously there’s concerns about how is that data protected, where is it stored, sort of will that data then be fed into this personalised advertising system that we just spoke about? Obviously, there’s concerns about whether people are sort of aware of that and to what extent they can consent to it. And currently it’s a bit of an open field, there’s just no legislation in this space. And so privacy experts are concerned and asking about that.

Joanna S Kao
Hannah Murphy is the FT’s tech correspondent.

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Africa has come to rely on China for much of its financing. Chinese state lenders have become Africa’s biggest source of development finance, but they’ve become nervous about possible defaults. The IMF lists many countries on the continent as being at high risk of debt distress, so Beijing has been adjusting its approach to lending. The FT’s Kathrin Hille told us about one Chinese loan worth $200m to expand an airport in Uganda.

Kathrin Hille
We noticed that Ugandan lawmakers and also some government officials in the Civil Aviation Authority of Uganda got really worked up about the conditions of a loan that apparently when it was signed about six years ago, almost seven years ago, people were not really aware of the fine print.

Joanna S Kao
The dispute made headlines. One newspaper suggested that China could seize the airport, and there were accusations that the loan could undermine Uganda sovereignty. But Kathrin didn’t find anything predatory about the loan. She says the details reveal more about how China’s changed the way it historically lent to African countries.

Kathrin Hille
They started from resource-rich countries where they could back loans with collateral in the form of future resources exports or future resource export revenue. And so as they expanded into financing infrastructure construction in other African countries that were not so resource-rich, they would also try to back up some of these loans with a certain kind of security like other revenues, maybe not from resource exports, but like the evolving revenues from the airport that is being modernised. It seems to be a result of a learning process by Chinese state banks in Africa. And part of the reason is that they have been active in some of the riskier markets. So they ended up writing some clauses into these loans that are typically historically used by international commercial banks in project finance.

Joanna S Kao
And if it’s any indication, China’s president Xi Jinping said recently that Beijing would cut the amount of money it supplies to Africa by a third. And it would also change the way it provides financing to the continent.

Kathrin Hille
And it is gradually shifting from a major focus on lending, and it is shifting more to investment, for example. So what we are likely to see going forward is maybe a larger number of co-operation projects with smaller project size, and we may see more projects focused on energy security and energy sustainability and more projects are focused on new kinds of energy sources. And also, there’s going to be a larger focus on training African human resources and that kind of thing. So maybe we’ll see less of a focus on loans and more on investment, and we’ll see less of a focus on infrastructure and more on human capital.

Joanna S Kao
Kathrin Hille is the FT’s greater China correspondent.

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Before we go, Scotland is going big on wind power. Its government has awarded 25 gigawatts of offshore wind project development rights to companies including BP and Shell. That’s more than double the UK’s existing offshore wind capacity. More than half of these Scotland projects will use a new technology called “floating” wind turbines. Usually, offshore wind farms use turbines that are fixed to the seabed. But the new technology allows for projects to be built further out at sea at greater depths where wind speeds are higher.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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