China’s Role in Africa Business

3y |

 

China has been Africa’s most important economic and business partner for over two decades now. During earlier years, China’s intentions were primarily diplomatic. However, today, no other country can match the influence the Asian giant has across Africa in trade, investment, infrastructure financing, and development.

Chinese firms of all sizes and sectors are bringing capital investment, management expertise and entrepreneurial energy to every corner of the continent and consequently helping to accelerate the progress of Africa’s economies.

While paucity of data poses a challenge in understanding the true extent of the Africa–China economic relationship, in terms of foreign direct investment (FDI), China’s presence in Africa is undeniable.

Between 2010 and 2015 alone, approximately 2,000 Chinese firms invested in over 50 different African countries and by 2016, these investments had South Africa, Algeria, Nigeria, and Zambia as the leading destinations. While this may account for a fraction of the total stock of FDI in Africa when compared to that of the UK, France, and the US, the growth of China’s FDI in Africa is remarkable and the amount impressive in relation to its own level of investment in other countries.

Sub-Saharan Africa in particular earns significant attention from China thanks to its wealth in natural resources. In 2015, China became the top destination for Sub-Saharan African exports with over US $20 billion and the largest exporter to Sub-Saharan Africa, according to the World Integrated Trade Solution (WITS) database. In Tanzania, for example, China has become the second largest foreign investor, with Chinese multinational enterprises  (MNEs) having invested US $2.5 billion in about 500 projects, 70 per cent of which are in manufacturing. There are currently around 20,000 business people from China, who operate in different sectors in rural and urban areas across Tanzania.

Mauritius, which has signed investment promotion and protection agreements (IPPAs) with 15 African member states, has successfully positioned itself over the years as the preferred platform for investing into Africa. There is rising interest from Chinese multinational corporations to set up their headquarters and treasury management activities in most of Sub-Saharan Africa countries.

 

Areas of Interest

China contributes not only to local infrastructure through buildings and industrial zones, but also to the physical integration of African states through regional projects in the form of roads, railways, waterways, energy infrastructure, and others. This can be seen through the 2015 African Union-China memorandum of understanding to cooperate on major infrastructure and industrialization projects, which represents another step toward the African Union’s Agenda 2063 to have world class infrastructure throughout the continent.

Examples include the Merowe Hydropower Dam Project in Sudan, completed in 2009, the West-East Expressway in Algeria linking the North African countries, completed in 2014, and the Ethiopia-Djibouti Railway Project, completed in September 2016. All of these projects were overseen by Chinese state-owned enterprises (SOEs) such as the China International Water and Electric Corporation and the China Civil Construction Corporation, while at least partly financed by Chinese banks. The cost stood at  $60 billion.

In contrast with Chinese SOEs, private small and medium enterprises (SMEs) focus on services sectors over infrastructure and resources-related projects. In a 2015 analysis of the Chinese Ministry of Commerce (MOFCOM) database and International Monetary Fund (IMF) noted that out of 3,989 projects, 60 per cent of all projects were in the services sector, and within that, the business services sector received the most deals (1,053 projects).

This is true for most African countries regardless of their abundance in natural resources. Overall, while it seems that Chinese investment is heavily skewed in favor of natural resource projects when looking at aggregate data and the financial gains involved, other sectors are certainly not ignored – and may develop over time at a faster rate than SOE projects.

 

Impact of China’s Growing Influence in Africa-politically and economically

China and western countries, especially the United States, look to African countries for political support in international forums. China has a particular interest in mobilizing African support in the United Nations (UN) Human Rights Council where it is sometimes under pressure from the West.

Western nations and China welcome African support in the World Trade Organization (WTO). African states have three non-permanent members on the UN Security Council where China, the United States, France, the United Kingdom and Russia all solicit their backing on key issues. China has often been more successful than the West in recent years in obtaining the support of African governments in international forums.

And although both the West and China generally seek political stability in Africa, western countries, especially France, the United States and the United Kingdom, have traditionally had stronger security ties with certain African countries. It is this narrative that China is seeking to change by heavily investing in Africa.

China gives its highest foreign policy priority to developing strong links with governments irrespective of the nature of the governing regime. For instance, China has close relations with the Islamist government in Sudan (irrespective of the ongoing wrangles between this country and Southern Sudan), democratic governments in Botswana and Mauritius and totalitarian governments in Togo and Equatorial Guinea.

China works hard to develop the government-to-government relationship and in recent years has generally been more successful than western countries in establishing close ties with most African leaders. The heads of state and/or government from countries as varied as Ethiopia, Kenya, Senegal, Sudan and South Africa have been demonstrative in recent years in their praise of China.

But despite these promising business relations, it also true to add that some of them are also fraught with controversy.

 

The indifference of African Dictators

Unfortunately China’s investments and its policy of “non-interference in internal affairs” often work in favour of some of the most infamous African dictators. Angola, Sudan, and Congo-Brazzaville, who all have bleak human rights records, have accounted for 82 per cent of China’s crude-oil supply in Africa.

Chinese investments with “no strings-attached” allow these regimes to ignore governance norms and human rights issues. One example is when the Angolan government sought funds to rebuild the country after civil war; it looked to the International Monetary Fund, who was determined to force the regime to be more transparent.

However, Angola ceased negotiations when China offered a better alternative: China’s export-credit agency counter-offered with a 2 billion dollar loan and asked for in return that 70 per cent of future substantial construction contracts be awarded to Chinese businessmen in addition to also guaranteeing more oil for the China.

Consequently, although enthusiasts of the relationship may point to the fact that China has brought Angola more revenue, (Angola was China’s top trading partner in 2010—with a trade value of USD24.8bn) this one example shows how this relationship is not necessarily benefitting the population of African countries.

China has also been involved in Sudan’s domestic affairs. Even while Sudan is China’s third biggest trading partner in Africa as of 2010, China’s involvement in Sudan has been controversial, especially when it comes to the African country’s civil war and its weapons exporting policy. China, despite being a powerful weapons exporter, has not signed any kind of agreement that bases arms export decisions on principles such as respect for human rights.

According to Amnesty International, “China has transferred military, security, and police equipment to armed forces and law enforcement agencies in countries where these arms are used for persistent and systematic violations of human rights.” This is because of their primary concern of protecting its economic interests in the region, which is its state-owned Chinese company’s 40 per cent share of Sudan’s largest oil venture, the Greater Nile Petroleum Operating Company.

Some may argue that China’s demand for oil has been beneficial for Africa, because of growth rate creation. Others may argue that although China’s demand for oil has not been beneficial for the region, China is not solely at fault for African dependency—a number of Western powers began this exploitation in the centuries of colonialism.

Yet regardless of whether this is true, it does not mitigate the situation. There are the obvious short-term benefits for Africa (the rising growth rate) that enthusiasts cite, but the long-term trajectory raises concerns. To prevent the resource curse and to make growth sustainable, governments have to undertake appropriate measures such as investing in human capital and infrastructure. China’s surging interest in Africa’s oil threatens to only intensify Africa’s dependency, and China’s policy of ‘non-interference’ and “let’s just do business” continues to undermine democracy and government accountability in the continent.