London - Chinese companies can expect higher returns by investing in regional projects in Africa, said Professor Mthuli Ncube, Vice President of the African Development Bank.

Mthuli Ncube, Vice President of the African Development Bank. [Stephanie Shepherd for China Daily]

"It is important for Chinese businesses to forecast on Africa's regional integration, and the historical example of the Tazara railway shows that it can be done," Professor Ncube said in an interview after The Economist's forum on High Growth Markets in London on Friday.

Built by China between 1970 and 1975, the $500 million Tazara railway linked the landlocked Zambia to the Tazania port of Dar es Salaam.

But bi-lateral contracts between China and individual African countries dominate the trend, as regional projects face issues of different legal, cultural, political and pricing systems across Africa.

"Economic opportunities in the oil, gas and other power generation sectors can best be captured by regional projects because they often require large distribution networks to be shared by different countries", said Besife Tonwe, managing partner of Newshield Capital LLP, a consultancy firm.

For example, water rich countries including the Democratic Republic of the Congo and Ethiopia can use their potential to generate hydropower and trade electricity regionally.

But obtaining funds for regional projects has long been a challenge, due to difficulties in securing agreement between countries and the appropriate guarantees for multi-country loans.

"It would be important to match Africa's infrastructure needs with Chinese financiers such as their Sovereign Wealth Funds, perhaps with the help of project preparation funds", said Dr Dirk Willem te Velde of the Overseas Development Institute, a think tank.

Infrastructural demands are prominent in landlocked African countries that need access to the nearest sea ports, including Uganda, South Sudan, Zambia and Malawi.

Establishing these transport infrastructures will also significantly reduce the costs of Sino-African trade and improve Chinese exporters' accessibility to Africa's growing consumer markets.

Trade between China and Africa exceeded 110 billion USD in 2010, a tenfold increase over the past decade. Chinese investment in African infrastructure has remained stable at about USD 5 billion a year, according to African Development Bank statistics.

Recent infrastructural constructions carried out by Chinese companies include the Merower Dam in Sudan, the Sisal Plantation in Tanzania, the Lagos-Kano railway in Nigeria and the Sunon Asogli Kpone Power Plant in Gana.

Investing in regional projects will require China to work closer with African regional groupings such as the East African Community, the Southern African Development Community, and the Common Market for Eastern and Southern Africa.

"So far China has mostly worked with national governments. Working with regional groups would be different but a good development," said Dr Willem te Velde.

Professor Ncube added: "I certainly want to see more Chinese investments in Africa, everyone wants to see more Chinese investments in their countries. Is that not the case?"

Diversifying African foreign reserves into renminbi

Professor Ncube also sees a potential for African countries to increase their holdings of the renminbi, although denying any definite commitments except for Nigeria.

Nigeria's central bank governor Lamido Sanusi said last month that Africa's second-largest economy will start holding the renminbi as 10 percent of its reserves from the next quarter, and will look at investment opportunities in the offshore renminbi market.

Professor Ncube said: "The renminbi has been a strong currency for a while, backed by strong economy. I wouldn't be surprised going forward to see more countries taking renminbi as a currency diversification.

"As long as the Chinese economy is growing strongly, which we believe it will, then its currency will always be dependable."