China’s Presence in Africa

Zlat Popzlatev, BA program „South, East and Southeast Asia“, Sofia University „St. Kliment Ohridski“

Присъствието на Китай в Африка

Злат Попзлатев, бакалавърска програма „Южна, Източна и Югоизточна Азия“, Софийски университет „Св. Климент Охридски“

Introduction 

Since the beginning of the twenty-first century, Chinahas become a major economic player in Africa due toits interest in the continent’s deposits of raw materials and hydrocarbons. It is also concerned with forging a fruitfulpolitical partnership with Africa, which would give it astronger influence within the international community. China’s presence in Africa can be gauged by the increase inbilateral trade, which went from $12.3 billion in 2002 to$40 billion in 2005 before climbing to $55.5 billion the followingyear and to $72.9 billion in 2007.Criticism of China’s policy in Africa has become commonplace.

China is accused of establishing colonial relationswith Africa by importing the continent’s raw materials while exporting value-added finished products. Chinese businesses also benefit from the situation of the yuan, a currency that is notoriously undervalued, while countries in the franc zone are penalised through the appreciation of the CFA franc, itself linked to the Euro. Chinese companies are also accused of engaging in all-out competition with African countries in third markets such as the European Union. The clothing industry in Morocco (which represents 45 percent of industrial jobs) has been made particularly vulnerablesince cancellation of the Multi-Fibre Arrangement (MFA) on 1 January 2005 liberalised China-EU trade in this area. Similarly, the AGOA Agreements designed to encourage exports, especially of textiles, from African countries to the United States now seem much less attractive.

These are not the only criticisms. Chinese conglomerates are also blamed for the shoddy workmanship of African infrastructure, the mediocre quality of traded goods, and the fact that their workforce is recruited from China and poorly paid. The profits made by Chinese entrepreneurs are also seldom reinvested locally. Beijing grants financial aid in a cavalier fashion without any concern for the solvency of its debtors.

Indeed, during a meeting of G8 Finance Ministers in May 2007, Western countries publicly expressed concern that China’s attitude was a contributing factor in the indebtedness of African states. In the words of German Finance Minister Peer Steinbruck, “We note that China has a growing interest in African resources (…),” which is leading it “to start all over again the very thing we were hoping to put an end to with our debt reduction program, namely, the overindebtedness of African countries.” Finally, Chinese investment gives comfort to autocratic regimes such as those of Jose Dos Santos in Angola or Omar al-Bashir in Sudan. In 2007 these two states accounted for 47 percent of all China’s imports from the African continent. There is no shortage of arguments denouncing the negative impact of China’s presence in Africa.

Neo-colonialism is a term routinely used not only in Europe, but now also by African elites, former South African President Thabo Mbeki being a case in point. A detailed analysis of the situation reveals a somewhat different picture, however. This article does not discuss the motivations the PRC may have for being in Africa, or its investment strategies, which have China in Africa: already been the subject of a number of studies. It does, however, indicate the need for a sense of proportion to understand China’s growing influence in Africa, given that the scope of its economic interests there remains limited.

The whole discourse on “China’s conquest of Africa” must be seen in the context of a common yet largely unhelpful critique of Beijing’s policy, which has little to do with the actual situation. In fact, China’s African policies have subjected it to a barrage of criticism that is not always justified.

China’s place in Africa remains limited

The PRC is today Africa’s third most important trading partner. Since 2000 the amount of trade between Africa and China has increased by 600 percent,

compared with 197 percent for the United States and Africa. The increase in China-Africa exchanges is clearly indisputable, but it falls within a general increase in trade between Africa and the rest of the world (135 percent since 2000). In fact, the place of the PRC in the trade of African countries remains limited. Whilst the PRC is in the top rank of importers for several African nations, notably South Africa and Egypt, China’s share of total imports from Africa

amounted to 9.2 percent in 2006. According to World Trade Organization (WTO) data, in 2007, the PRC purchased 8.6 percent of the exports of African countries (that is, $36.53 billion out of a total of $424 billion), and remains far behind the European Union (38.2 percent) and the United States (22.4 percent). In 2000, the PRC bought 3.7 percent of the exports of African countries against 39 percent for the European Union and 19.7 percent for the United States.

This increase in China-Africa trade can be explained not only by an increase in the volume of exchanges but also by the nature of Chinese imports, principally comprised of mining products and hydrocarbons, the value of which has sharply risen in recent years. In contrast, purchases made by the European Union are more diversified and include more agricultural products and manufactured goods, the value of which has remained basically stable. In 2006, hydrocarbons and mining products represented 85 percent of the PRC’s imports from Africa against 63 percent for the European Union. Similarly, financial figures indicate a need to put the Chinese presence into an appropriate perspective. In 2006, China’s foreign direct investment (FDI) in Africa amounted to $2.56 billion compared with $49.2 million in 1990 and $491 million in 2003. The growth in China’s investments is clearly substantial, but in terms of stock and financial transfers, these investments remain very much below European and American capital investment in Africa.

In 2005, United States investment stock in Africa amounted to $23 billion dollars, with that of France totalling $15.55 billion. Even in countries where China’s presence is considered to be the most significant, such as Angola or Algeria, China’s FDI remains well below that of the former colonial powers. In 2006, Africa received $36 billion in foreign investment, of which $519 million came from China — that is, 1.4 percent — as against $2.1 billion from the United States. In 2007, there was a real spike in Chinese FDI in Africa, thanks to an exceptional event.

This was the acquisition of 20 percent of the capital of the continent’s leadingbank, the Standard Bank in South Africa, by the Industrial and Commercial Bank of China (ICBC), China’s leadingbank, for $5.46 billion. In 2006, Africa was the destination of 1 percent of Americaninvestments abroad, 2.4 percent of French investment and2.9 percent of China’s (as against 43.4 percent in Asia).

In February 2007, the Chinese Deputy Trade Minister, WeiJianguo, announced that the value of China’s approvedinvestments in Africa now exceeded $6.6 billion. While such a statement gives credence to the view that China has a strangleholdover Africa, it does little to explain how there can besuch discrepancies with respect to the UNCTAD data, which indicate only half that amount. In the first place, investmentsthat are actually committed are not always distinguishedfrom projects that are merely approved. In particular, there is a kind of deliberate blurring of the boundariesbetween the investment of companies (both public and private)and aid money (loans and gifts) vouchsafed by theChinese state, especially through the Export-import Bank.As to the public development aid (PDA) made available byPeking, it was estimated to total some $2.6 billion in 2004, and climbed to $10 billion in 2009. Byway of comparison, the net US aid to Africa was worth$4.5 billion in 2007 (excluding debt relief). PresidentBush announced his intention to increase this aid to $9 billionby 2010.

For its part, the Committee for Development Aid (CDA) of the European Union (that is,15 states) set its contribution at $18.6 billion in 2006. Thatsame year, according to OECD data, Sub-Saharan Africa received $43.3 billion in PDA. Of this sum, $11.4 billionwas for Nigeria, $2 billion for Sudan and $2 billion for theDemocratic Republic of Congo. Some 72.5 percent of thistotal of $43 billion was made up of contributions by CDAmembers for bilateral aid – and this does not include theirparticipation in multilateral aid. China’s aid to Africa thereforeseems weak by comparison. It is not easy, however, toput a precise figure on it, as Beijing does not publish anyofficial statistics and lumps together, under the term “aid,”both zero-interest loans or loans with preferential rates ofinterest and donations. Such assistance is granted by severalinstitutions, such as the China EximBank, the ChinaDevelopment Bank, or the Trade Ministry.

One thing is certain,however: the economic and financial weight of China in Africa remains considerably below that of the former colonialpowers and the United States.China’s policy has also been stigmatized owing to the grantingof loans irrespective of the criteria determined by theOECD countries, in particular the Equator Principles. A case in point is Beijing granting, at the time of Hu Jintao’svisit to Cameroon (30 January-1 February 2007), of severaldonations totaling 2.56 billion FCFA (that is, 3.9 million euros) and three loans amounting to 46.9 billion FCFA(71.5 million euros), half of which allocated to thefinancing of a telecommunications project.However, international institutions and the African press donot fail to point out the risks of this rapprochement withChina.

As the weekly “Reperes” pointed out, Beijing’sfinancial assistance sets up a mechanism for perpetualindebtedness. Cameroon had managed to fulfill the objectivesimposed by international financial institutions, and by2006 had reached the end point of the HIPC initiative. In partnership with its creditors, Yaounde had undertaken efforts to partially discharge its public foreign debt, whichhad gone from 110.2 percent of GDP in 1997 to 60.2 percentin 2004. But the PRC’s concern proved to be dangerous, since according to the OECD report AfricanEconomic Outlook, Cameroon’s debt is expected to haveclimbed from 4.8 percent of GDP in 2007 to 6 percent in2009. These charges laid against Beijing seem justifiedgiven that, unlike members of the CDA, the PRC prefersto give loans rather than donations. These loans are granted according to certain economic requirements, such as having a Chinese firm carry out the work. Nonetheless, it is not clear that such criticisms are well founded, since Beijing also regularly cancels debts owed to it, and for some debtors experiencing a significant increase in their GDP, the burdenof servicing the debt is reduced. In March 2004, the PRC gave a loan of $2 billion to Angola, which was mainly designed to finance infrastructure provided by Chinese firms. This loan represented 10 percent of Angola’s GDP at the time. Five years later, the amount of the loan, already partially reimbursed, represented only 2.27 percent of the country’s GDP.

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 $1.5 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 $9 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.One of the deals that China signed was a 20 billion dollar mining deal with the tiny West African nation of Guinea, to tap in to one of the world’s biggest reserves of iron ore.

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. 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 $13 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.

Problems for Africa:

The projects are dependent on deals made at the highest political levels. They lack competitive and transparent bidding processes, and most of the work force employed at these ventures has been Chinese, and not African. Promises of job creation have not been fulfilled. Further, when Africans ARE hired, local rules and regulations are often disregarded, 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 percent of Nigerian companies in this industry to close.Whereas China buys from Africa mainly natural resources—minerals and metals—African countries import primarily the finished results, ranging from machinery and electrical goods to plastics and rubber.Such an arrangement could benefit both parties, but it’s more often seen as China exploiting Africa’s natural resources to feed its need for industrial output. At the same time, by exporting cheap—and often badly—manufactured goods to African countries, local companies not only become less competitive but they also grow increasingly dependent on China.Recent research has also suggested that the Chinese presence has failed to bring significant skill developments, adequate technological transfer or any measurable upgrade to the productivity levels to this part of the world.

In this year’s China-Africa forum, for example, the Middle Kingdom is believed to be making efforts to mitigate the broad criticisms of its “mercantilist” approach toward Africa by, among other things, offering more access to capital for local companies. The fact is that China’s Export-Import Bank extended $62.7 billion in loans to African countries from 2001 to 2010, some $12.5 billion more than the World Bank.

Chinese competition greatlyweakens local African capitalism. In particular, China’s presenceis evident through the thousands of its nationals livingin Africa (thought to be around 750,000), well above thenumber of Westerners; it is estimated that in December2007 about 155,000 French nationals were settled in Africa,half of whom were in Algeria, Morocco, and Tunisia, whilein 2006, 22,000 Chinese were living in Angola, most ofthem working for a Chinese company. China’s presence inAfrica is indisputable, but it must be properly understood.

Sources:

1. Cf. in particular Chris Alden, China in Africa, Partner, Competitor or Hegemon? ZedBooks, 2007.

2. World Bank Report, “International Trade Statistics,” 2007 and 2000.

3. Mofcom, “Statistical Bulletin of China’s Outward Foreign Direct Investment,” 2006, p. 54

4. Joshua Kurlantzick, “Beijing’s Safari: China’s Move into Africa and its Implications forAid, Development and Governance,” in Carnegie Endowment Policy Outlook No. 29,November 2006.

  1. Mark Esposito, Terence Tse “China Is Expanding Its Economic Influence in Africa. What Is Africa Getting Out of It? “

http://www.slate.com/blogs/moneybox/2015/11/24/china_s_role_in_africa_is_exciting_for_china_but_is_it_as_great_for_africa.html

6. African Development Bank Group: The Expansion of Chinese Influence in Africa – Opportunities and Risks http://www.afdb.org/en/blogs/afdb-championing-inclusive-growth-across-africa/post/the-expansion-of-chinese-influence-in-africa-opportunities-and-risks-9612/