China has increasingly become an important economic player in Africa. Chinese investments in Africa span across many sectors and are not confined to Chinese government and large state-owned companies. Several private Chinese companies have also invested heavily in Africa. For example, Huawei, a Chinese leading global telecom services provider, has invested a total of USD1.5 billion and employs 4000 workers in Africa.
China’s trade with Africa has also grown steadily during the past decade reaching USD160 billion in 2011 from just USD9 billion in 2000. China’s share in Africa’s total trade has been phenomenal, rising to 13% from 3% a decade ago. The growth in China’s interest in Africa has been driven by the appetite for Africa’s natural resources to sustain its rapid growth. Currently, China imports one third of its oil from Africa, and some of its investments are tied to resource extraction. For instance, Angola has bartered its oil resources for infrastructure development. Nonetheless, Chinese interests in the region go beyond oil and other raw materials.
China’s presence in Africa: What are the risks for the continent?
Africa’s resource-driven growth may be hampered by drastic shift in factors affecting the Chinese economy. These factors include geopolitical issues, the slowdown of the Chinese economy and idiosyncratic risks.
Geopolitical factors: A recently released Chinese policy document highlighted the country’s plan to strengthen the relationship with Africa: large in scale, broad in scope and deeper in levels. This expansionary policy has raised concerns among Africa’s traditional western partners. For instance, recently the USA accused China of ‘securing oil at the sources’. China’s relationship with African regimes perceived as undemocratic has specially been the major source of this criticism. For instance, Chinese commitments in Sudan and Zimbabwe are among the most controversial. The Sino-African partnership should therefore be fully explained in order to assuage growing concerns by western scholars and officials.
Risk of a Chinese economic slowdown: Africa has benefited from the Chinese economic boom through increased trade and investment, mainly in natural resource sectors. Thus, Africa is particularly vulnerable to economic shocks hitting the Chinese economy. Recent estimates by the IMF indicate that China’s GDP growth is projected to slow to 8.2% and 8.8% in 2012 and 2013, respectively from an average of more than 9% over the past three decades. Since Chinese economic ties with Africa are largely resource based, a fall in China’s demand for Africa’s commodities could create tensions in the current account and fiscal positions of these countries. Lower growth in China could also result in contraction of credit lines from major Chinese banks to Africa. In recent years, Chinese banks have funded large infrastructure projects. Currently, funding to Africa accounts for a third of China EXIM bank’s total global assets. Some of the large Chinese financial deals include USD13 billion to Ghana and USD6 billion to Congo.
Idiosyncratic risks: A growing number of small-scale Chinese private firms are making business in Africa without the direct endorsement of the Chinese government. Growth in Chinese private investment in sectors outside traditional natural resources has however fuelled resentment among local investors and the people. For instance, Ethiopian and Zambian farmers have complained of Chinese acquisition of large tracts of land at their expense. At a recent World Bank organized conference, China was identified as the biggest land grabber in the world and in Africa. Chinese companies have also been accused of unfair competition without forging strong links with local firms. This has resulted in lack of transfer of skills and technology to the locals. These issues have perpetuated dissent towards Chinese investments in Africa.
Leveraging the benefits from China’s engagement with Africa
Despite the obstacles and the associated potential risks of China’s engagement with Africa, Sino-Africa partnerships can play an important role in fostering growth and development of African economies. Economic diversification based on high competitiveness through skills and technology transfer would be the main catalyst of China’s contribution to Africa’s transformation. Thus, the infrastructure renaissance brought about by Chinese investment provides expanded opportunities for accelerated economic diversification in Africa.
Thus, building bridges with African firms by promoting their presence in China could be an opportunity for Africans to extend their activities towards new markets. Political and economic governance are as important for Africa as they are for China in fostering inclusiveness. The synergies that may be created from collaboration in these areas could benefit both regions as the world is steadily moving toward a more inclusive approach of economic development.
African countries should also adopt policies aimed at diversifying the future financing of economic growth. A possible slowdown in the Chinese economy could unravel Africa’s growth momentum by constricting financial viability of major projects due to potential tightening trade and investment credit from Chinese banks actively involved in Africa. In this regard, intra-Africa trade and investment financing from regional financial institutions including the African Development Bank may offer an option to stable long-term finance.