S.Korea to extend $6 bn in financing for African projects

BUSAN – South Korea will offer $6 billion in cheap loans and funds to domestic companies between 2024 and 2025 to finance their construction and development of infrastructure facilities in Africa, the finance ministry said on Wednesday.

It will mark the country’s largest-ever export financing committed to the continent with an aim of reducing its heavy reliance on China for core minerals and containing China’s influence in the global manufacturing supply chain.

Choo Kyung-ho, South Korean Deputy Minister and Minister of Economy and Finance announced the financing plan in a joint declaration with African Development Bank President Akinwumi Adesina.

The declaration was released following the 2023 KOAFEC Ministerial Conference held in Busan, South Korea. The biennial conference is co-hosted by South Korea’s finance ministry, the African Development Bank (AfDB) and the Export-Import Bank of Korea.

Under the financing package, the Export-Import Bank of Korea (KEXIM) will extend $1.5 billion in loans through an Economic Development Cooperation Fund (EDCF).

EDCF is a long-term, low-interest loan typically offered at 1% or below per year with a maturity of up to 40 years.

KEXIM will also provide $4.3 billion in export financing to domestic companies doing business in 53 African countries stated in the joint declaration.

In addition, the South Korean government will make an additional contribution of $24 million to the AfDB trust fund.

The loans will be offered primarily in three areas: energy development and conversion; agricultural innovation; and intellectual knowledge and competency development. 

SUSTAINABLE RELATIONS

“If Korea’s advanced high-tech industry and Africa’s growth potential are combined, it will be a powerful alliance that will lead the recovery of the international community,” Choo said in a congratulatory speech at the ministerial conference.

In the speech, Choo stressed that South Korea and Africa can work together to create “sustainable development” in Africa.

He appeared to draw a line with China, reproved by some for wiping out natural resources from Africa without passing on technology.

"We will also actively discover and support projects for renewable energy such as solar power generation and expansion of national power grids,” the minister said.

South Korea wants to differentiate its export financing program from China’s package made under the One Belt, One Road initiative. China has been pursuing the initiative since the early 2010s to improve connectivity and cooperation across Asia, Africa and Europe.

In doing so, China’s state-owned banks offered cheap loans to companies in underdeveloped African and Asian countries so that they could pay state-run Chinese developers in charge of their social overhead capital projects.

However, the loan programs face criticism because many of the borrowing companies became overdue in their payments and pushed to the brink of default.

By comparison, South Korea will extend the pledged loans to South Korean companies, not to African ones, with long repayment periods and at low-interest rates.

The 2023 KOAFEC Ministerial Conference on Wednesday was its first meeting in five years due to COVID-19. It was also held on the occasion of the 40th anniversary of South Korea's accession to the AfDB.

The 2023 conference was attended by delegates from 38 African countries: 18 ministerial-level officials and 20 vice ministers.

“Compared with China and Japan, we were late in entering Africa, but we can sufficiently expand our influence with this financial package,” a finance ministry official said.

Africa has significant reserves of cobalt, lithium and graphite, which are key raw materials for secondary batteries. It also has the world's largest reserves of rare resources such as uranium.

Write to Kyung-Min Kang at kkm1026@hankyung.com
 

Yeonhee Kim edited this article.