Analysis: PETER SICHINSAMBWE
THE extraordinary Sino-African growth story of the early 21st century surpasses those of Africa’s colonial past. There is no other country more entrenched in today’s Africa than China. According to a 2017 report by McKinsey and Company, Dance of the Lions and Dragons, there are more than 10,000 Chinese-owned firms currently operating in Africa. China is Africa’s largest trade partner and levels of trade, investment, infrastructure and financing are unsurpassed.
The future is in Africa, and China already knows it. With 54 countries covering a huge geographical area, Africa’s market is nuanced and dynamic, with key pockets of investment potential. By the end of this century, a third of the world’s population and a greater fraction of its young people will be African and this makes investment in Africa a tempting prospect.
During the past decade, China has been investing a lot of money in sub-Saharan Africa. From 2000 to 2017, the Chinese government, banks and contractors extended US$143 billion in loans to African governments and their state-owned enterprises.
On September 3 and 4, 2018, Chinese President Xi Jinping hosted the seventh Forum on China-Africa Cooperation (FOCAC) in Beijing. Dozens of African leaders made the trip to Beijing with the aim of bolstering political and commercial ties with China. During the forum, President Xi pledged US$60 billion in aid and financing for Africa.
President Xi gave the following breakdown for the partial distribution of funds: US$20 billion in credit lines, US$15 billion in grants, interest-free loans and concessional loans, and US$10 billion in investment financing and the other portion to other sectors. This support will come in the form of government assistance and investment. There is no question that China has become Africa’s most important economic partner.
The investment plan has drawn criticism from pundits stating that it could burden developing nations with unsustainable levels of debt, and some Western observers worry that this represents a new form of colonialism. This debate is particularly animated with respect to Chinese investment in Africa, a continent with a long history of political, economic, and commercial exploitation by foreign powers.
The sectors receiving the most Chinese money have been business services, wholesale and retail, import and export, construction, mining, transportation, storage and financial services. China is swapping its value-added manufactures for low value-added and raw commodities from Africa. This pattern has produced fears of a repeat failure of Africa’s own industrialisation prospects. If Africa continues to just export raw materials to China while importing Chinese manufactured goods, the African continent could be condemned to underdevelopment.
For many developing countries, foreign direct investment is viewed as something very positive. International companies can bring cash, skills, technology, and high ethical standards to a host country. Attracting foreign capital can be a key part of an effective growth strategy and could help in appropriating foreign technology, which could lead to long-term productivity increases.
As Africans learn techniques, ideas and tricks from foreign companies and invent new ones themselves, they will gain the leverage to capture an ever-bigger slice of the value that foreign investments create, and as their productivity improves, that value will grow.
Meanwhile, African governments will control access to an increasingly large share of the world’s young customers, and will be able to use this leverage to extract ever-greater concessions, money, technology and favourable contract terms from multinational corporations.
A recent Brookings Institution report (2017) shows that in many parts of Africa, growth is now concentrated in tradable services related to agriculture, information technology and tourism. As the continent becomes more populous, companies with an established presence in Africa will be better positioned to sell into burgeoning African markets.
They will have the local market knowledge, connections and distribution channels to beat out rivals who failed to invest early. The literacy rates have increased rapidly, malaria deaths have fallen by almost half since the turn of the century, and hunger and child mortality have both plunged. Democracy is also proliferating and creating a stable environment for businesses and investors, and making Africa the number-one destination for investments. All these trends make investment in Africa a more tempting prospect not to ignore or miss out.
Africa should recognise that China, like the US, Russia, Britain, Brazil and the rest, are in Africa not for African interests but their own. Romance must be replaced by hard-nosed economic thinking. Engagement must be on terms that allow the Chinese to make money while developing the continent, such as incentives to set up manufacturing on African soil and policies to ensure employment of Africans.
The Westerners shouldn’t worry that investing in Africa means repeating their ancestors’ colonial sins. Instead of standing on the sidelines and wringing their hands over China’s investments, the West should be looking to copy or surpass China’s efforts to tap the final frontier of emerging markets.
In the modern global economy, funding productive industries is more important than grabbing resources, a win-win relationship instead of exploitation. China understands this and appreciates Africa’s huge untapped productive potential. The West should, too.
Overall, there is little hard evidence to support a malign view of China’s investments in Africa. Certainly, more can be done to strengthen institutions and ensure sustainable resource management. Moreover, African governments could match China’s ‘Africa policy’ with their own ‘China policy’. This could encourage investment in a range of higher value-added sectors, promote positive spillovers, and minimise adverse effects. Only with a long-term strategy can host governments ensure that Chinese (and other) investments become a tool of development, not just a means of generating short-term profit.
The future of Africa lies in the hands of Africans. We need to reflect on how far we’ve come and recognise how far we can go as a continent.
God bless Africa.
The author is an economist and chartered accountant.
Analysis: PETER SICHINSAMBWE