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CWA # 52, 14 August 2018

China
Factsheet: China’s Investments in Africa

  Oishee Majumdar

Why is Beijing interested in Africa? What strategic position do the countries in Africa hold for China, where the investments are being made? What is the nature of this investment? And what does this mean?

Oishee Majumdar is a Project Associate at the National Institute of Advanced Studies (NIAS), Bengaluru

One of the most prominent activities of Beijing in the recent months that have attracted international attention has been China’s investments in Africa.

Why is Beijing interested in Africa? What strategic position do the countries in Africa hold for China, where the investments are being made? What is the nature of this investment? And what does this mean?

Why is China investing in Africa?

The restructuring of the Chinese economy in 1978 resulted in enormous expansion and development of the economy. It increased the Chinese GDP in many folds through the years, and led to an ever growing demand and need for more raw materials and markets. Over the past decade, China has emerged as the world’s leading consumer of most base metals like aluminium, iron ore, copper, manganese, lead, zinc, etc. Africa has become a natural attractive area of Chinese interest due to the following reasons:

  • Africa is important due the continent’s rich abundance in raw materials. Africa is estimated to contain 90% of the entire world supply of platinum and cobalt, half of the world's gold supply, two-thirds of world manganese and 35% of the world's uranium. It also accounts for nearly 75% of the world's coltan, an important mineral used in electronic devices, including cellphones.
  • The privatization of publicly owned enterprises in China are necessitated with the need to scout for new investment opportunities outside China to complete their transition from the state-owned enterprises. To do this, the privatized enterprises needed to step up entry into international market such as Africa. Supported by China ExIm Bank with annual disbursement of $4 billion in 2000 to $15billion in 2005, Chinese firms are ready to seek opportunities in other countries.
  • Africa’s growing economy and population provide an expanding market which China wants to capture for its industries. Being cheaper and often more affordable than European and North American products, Chine goods have flooded markets in Johannesburg, Luanda, Lagos, Cairo, Dakar and other cities, towns and villages in Africa. These goods are of a wide variety and include clothing, jewellery, electronics, building materials and much more.
  • China’s influence in Africa is significant to increase its geopolitical influence if it wants to further establish itself as a leading world power. The largely undeveloped countries of Africa represent a prime opportunity for China to significantly expand its global presence and influence in the world.
  • Africa is also important for China from a strategic point of view. The People's Liberation Army conducts regular joint training exercises across the region. Chinese companies have constructed strategic ports in Djibouti. China also formally launched its first overseas military base here, which also operates as a logistics and intelligence facility. Many experts now anticipate more Chinese bases in the years to come, with Namibia rumored as a potential location.
  • Africa is also crucial for China to implement its Belt and Road Initiative, which would further boost the cooperation, trade and connectivity between the two regions.

How is China investing in Africa?

According to Ernst & Young’s (EY) Africa Attractiveness report, China’s exports to Africa in 2016 stood at 82.9 billion dollars while imports from the continent were valued at 54.3 billion dollars.

China surpassed the United States as Africa’s largest trade partner in 2009. China is a destination for 15 to 16 percent of sub-Saharan Africa’s exports and the source of 14 to 21 percent of the region’s imports, according to estimates from Thomson Reuters and the World Bank.

  • The majority of Africa’s exports to China are comprised of mineral fuels, lubricants, and related materials. It also exports iron ore, metals, and other commodities, as well as small amounts of food and agricultural products.
  • China exports a range of machinery, transportation, communications equipment, as well as manufactured goods to African countries. Beijing has steadily diversified its business interests in Africa. China has participated in energy, mining, and telecommunications industries and financed the construction of roads, railways, ports, airports, hospitals, schools, and stadiums.
  • China is a significant source of foreign direct investment in Africa; offers development loans to resource-rich nations, like Angola; invests in agriculture; and develops special trade and economic cooperation zones in several states, including Ethiopia, Nigeria, and Zambia.
  • Chinese financing comes often in the form of loans and credits provided by the People’s Bank of China, the China Development Bank, the Export-Import Bank of China, and the China-Africa Development Fund. Investment from a mixture of state and private funds has also set up tobacco, rubber, sugar, and sisal plantations. Domestic economic conditions drove Chinese firms to break into new markets for its consumer goods and excess industrial capacity as part of China’s “going out” or “going global” strategy.

Impact of Chinese Investments in Africa

  • China’s demand for minerals and other extractives has increased the world prices for commodity such as copper, aluminium and others. Its demand for these minerals has helped in reversing the age-long decline in prices. This in turn gives African governments much needed revenue and economic boost. Many of the deals closed by Chinese firms in Africa are ones that western companies would not stake their investment. For example, in 2005 China and Nigeria signed a $800 million crude oil sale agreement. This in turn would lead to China’s buying of 30,000 barrels a day for five years. It also won a license to operate four oil blocks and take-over of the Nigerian refinery. These are risky and money losing ventures that no western oil company would ever think of staking its investment38 because these investments are located in a politically volatile and hot spots zones.
  • Chinese companies are aiding the development of human resources by training the workforce and enhancing their skills. This helps to improve the much needed human capital in many African countries.
  • China is also bringing in new and modern technologies to Africa in sectors of manufacturing and mining to harness the resources in a more productive manner.
  • Chinese products, which are increasing in the African markets are generally considered to be more suitable to the African demand. Their prices are generally cheap and could be easily affordable to a large number of people. These products fit into income level in each African country. The relatively low prices in mobile phones in Africa are largely because of influx of Chinese phones which flooded the market. This ultimately drives down the price of other market suppliers.
  • However there are some negative effects too. Many African countries like Kenya, Uganda, Mozambique, Tanzania, etc have taken huge loans from China. As the burden of debt increases on many of these countries, it is a cause of worry as to how these countries will be able to pay back such enormous amounts and at what costs. Giving loans to countries also boosts China’s influence and interference in many matters of the respective countries. Many experts have hence, termed China’s attitude towards Africa as ‘neo-colonial’.
  • African workers have also begun to fault Chinese companies for unfair labor practices, including disputes over wages and working conditions. When Africans are hired, local rules and regulations are often flouted, leading at times to poor safety. For instance, at Chinese-run mines in Zambia’s copper belt, employees must work for two years before they get safety helmets. Ventilation below ground is poor, and deadly accidents occur almost on a daily basis. More frequently, jobs are lost to Chinese employees, who are ferried in project by project. For example, the growing Chinese presence in South Africa may have cost the country 75,000 jobs from 2000 to 2011. In Nigeria, the influx of low-priced Chinese textile goods has caused 80% of Nigerian companies in this industry to close.

Sources:

  • The Brookings Institution
  • Africanews
  • Council on Foreign Relations
  • Africa Renewal
  • CNBC
  • Fortune

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