China’s Investment In Africa – The African Perspective

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By Steven Kuo

JOHANNESBURG – China’s interest in Africa is often said to come on the back of colonial aspirations. Newspaper headlines scream that Chinese firms, backed by the powerful and deep-pocketed Chinese state, will mop-up Africa’s business opportunities to the detriment of Western and indigenous firms. Given these developments, is it possible for Africa to benefit from increasing Chinese investments in Africa?

While it is easy to conclude that China is taking over and ‘colonizing’ Africa when one sees ‘Made in China’ goods in every African marketplace and Chinese construction crews on seemingly every construction site, it is easy to forget that Chinese goods and labor are able to entering the African marketplace amicably, rather than the historical model by which Beijing would be sailing a warship up to the coast and forcing African governments to accept trade. In fact, Chinese goods and companies are possible in Africa because WTO efforts over the past two decades have decreased trade tariffs and opened up the African marketplace. Ironically, therefore, it is not a ‘colonialist’ China, but the WTO that set the playing field for Africa as an attractive opportunity for China.

During his visit to the African Union in 2014, Chinese Premier Li Keqiang announced that China expects to achieve $400 billion in trade volumes with Africa and raise its direct investment in the continent to $100 billion by 2020. China’s investments will be mainly in infrastructure development and be channeled through various Chinese lending agencies, including the newly established BRICS Bank. Such a sustained injection of investment capital from China is bound to create opportunities in all sectors.
In Africa’s price-sensitive marketplace, telecommunications infrastructure, for example, has become very reliant upon Chinese technology, which is competitively priced, durable and enjoys strong back-up service compared to its Western competitors. Similarly, Chinese construction companies are able to overcome difficulties and deliver roads and bridges on budgets that cannot be matched by Western or even local companies. Chinese companies, however, do not always get it right. The Chinese commerce ministry estimates that 65% of Chinese foreign direct investments make a loss; compared with a 50% international norm. Chinese companies have only begun to venture overseas. Beijing declared “go-out” state-policy in 2000, and most Chinese companies are still in the steep learning curve of learning to operating in a foreign, international environment.

What is often ignored when the media portrays the Chinese as a new colonial power in Africa is how much China needs Africa. As a growing economy, China needs African energy, resources and access to African markets. As a rising power, China needs the political support of African leaders as bulwark against the West.

From Africa’s perspective, Chinese investment – especially in basic infrastructure – is more than welcomed. It is estimated that Africa suffers from a $900 billion infrastructure deficit: without potable water, all-weather roads, adequate power and reliable communication, African economies cannot thrive. China’s focus on basic infrastructure investment will lay the groundwork for children to be able to go to school and businesses to trade. But China’s arrival will bring challenges. ‘Made in China’ products over the past two decades have had a devastating effect on local manufacturing. For example, textiles from China have decimated the once thriving textile industry in South Africa. However, African countries such as Ethiopia have recently seen the benefits of rising investments by Chinese manufacturers. Huajian, a Chinese shoe producer, has increased its employment from the initial 600 to 3,500 in a few years. Despite shortcomings of Chinese firms that engage in poor labor and environmental practices and the competition they bring to indigenous companies, growing Chinese investments, so long as Africa grasps the opportunity, will provide a net positive gain for African economies and people in the coming decades.

Steven Kuo is an Africa Analyst at Control Risks, the global risk consultancy. For more analysis, sign up for a free trial of our political risk monitoring services.

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