China, one of the world’s largest ’emerging’ investors, is ramping up investment in Sub Saharan Africa as it searches for natural resources, but whether the benefits are mutually beneficial is questionable.
China’s economic growth has been a key narrative in the story of economic miracle over the past two decades. (Its foreign direct investment) FDI in particular has played a prominent role in economic interactions with many developing countries. Once a major recipient of FDI, it’s now one of the largest ’emerging’ investors, especially in Sub Saharan Africa countries, it has investments being in Nigeria, Sudan, South Africa and Angola among others.
The Asian economic super power is in pursuit of oil, gas, precious metals and mining to diversify its energy resource import’s pool; it requires other resources to sustain its manufacturing capabilities. Africa can offer all of these things to the world’s second largest economy: about 40 percent of global reserves of natural resources, 60 percent of uncultivated agricultural land, a billion people with rising purchasing power and a potential army of low-wage workers.
A fast-growing market
Like many emerging markets, African countries are one of the fastest growing markets and profitable outlets for exported manufactured goods. In the past, the U.K. and France were the prime trade partners for Africa, however, today, China is Africa top bi-lateral trading partner with trade volume exceeding $166 billion. Between years 2003 and 2011, its FDI in the continent has increased thirty fold from $491 million to $14.7 billion.
This is more than just a trend.
Not a long time ago, China eyed areas in Africa where resources were abundant and easy to extract. It focused on resource-rich countries such as Algeria, Nigeria, South Africa, Sudan and Zambia. Today, Sino-African investment focus has become broader. China is branching out into non-resource-rich investments, focusing on countries such as Ethiopia and Congo. Higher margins have attracted many state-owned enterprises and private companies to compete on gaining dominion in the vast continent. Oil, gas, metals and minerals constitute three-quarters of African-exports to China. Chinese Imports to Africa are more diverse, mostly comprised of manufactured goods.
To illustrate, China has made considerable investments in the fields of infrastructure targeting key sectors including ports refurbishments, telecommunications, transport, construction and water disposal categorically. Geographically speaking, China has become an important partner of East Africa with some of its biggest projects in Uganda with an estimated total investment of $596 million in 2012 alone.
Development concerns
China’s increased presence in East Africa has gradually raised concerns about the economic development of these countries as well as the environmental and social sustainability of their natural resources; what remains unclear is whether China’s recent foray in East Africa has any real intention in helping to promote economic growth and development in these countries.
China’s rush for natural resources in Africa’s energy and mineral resources wealth has driven the prices of these commodities. In recent times, China has undertaken multiple investments in Sub Saharan Africa that most people believe are due its search for natural resources to feed its industrial output. But it has not always been the case. Recently, the Bilateral Sino-African partnership has not yielded much competitiveness to Africa. There was no significant skill set development, nor adequate technological transfer or any measurable upgrade to the productivity levels in Africa.
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The dark reality is that the Chinese entry to the African market has collapsed the already frail and small and medium enterprises under increasing pressure from cheap Chinese Imports. According to one recent study, the Chinese growing presence in Africa has accrued a cost to the South Africa’s economy in the range of 75,000 jobs in the years 2000-2011.
Mutual benefit?
Until a decade ago, China’s influence in Africa was very limited. Between the 1980’s and 1990’s, there was a great economic change in the East African region as a result of the adoption of economic liberalization policies. These changes were brought about by the governments of various countries in the region resolving to use the private sector as its main catalyst for economic development. Since allowing access, China’s involvement in Africa has increased significantly.
In recent times then, China’s economic reawakening – especially in foreign markets – has demonstrated that the epicentre of what used to be the geopolitics of the region had shifted.
Given the impressive scale and scope of its engagement, China’s return to Africa may turn out to be one of the most significant catalysts for developments for the region.
Indeed, China’s relationship with Africa has always been a controversial topic of discussion among world leaders. China’s relationship with Africa has often been described as “colonial”, in which most of the benefits are far from mutual and often accrued to China. FDI, if allocated properly, is a method of financing domestic investments especially for countries that have inadequate capital. It also promotes advanced technology and management that indirectly stimulate growth in an economy.
But whether China’s recent investment activities have had a positive impact on the selected East African countries is perhaps debatable. Arguments have been made for and against this growing trade and investment relationship between China and Africa. In some cases, China has seemingly created a dependency for the African countries, without providing real structural help to show integration in the local communities. Exploitation of labor, protectionism of technologies and distance from the interests of a real wish for inclusion, the current activities of China in Africa, raise pressing doubts.
Terence Tse is an Associate Professor in Finance at ESCP Europe Business School in London. Mark Esposito, Associate Professor of Business & Economics, Grenoble School of Management & Harvard University Extension School. Merit Al-Sayed is an economist and Strategic Projects Implementation Manager at the Arab African International Bank in Cairo.
Globalization and International Development 
Any time a country as economically influential and hegemonic as China intervenes in a lesser developed nation, the motives may appear questionable, and it is imperative that their impact on the poorer region be assessed. In many ways, this Sino-African partnership seems little more than a way for China to exploit African resources, all the while failing to “providing real structural help to show integration in the local communities”. On the other hand, China’s involvement in Africa could potentially yield positive outcomes, such as job growth in the region. As Aneel Karnani points out in “Employment, not Microcredit, is the Solution”, a lack employment opportunities is one of Africa’s major economic shortcomings. He argues that rather than loaning small amounts to the poor, large amounts should be given to true entrepreneurs who can then employ these people. Could China’s partnership with Africa could increase in employment, helping Africans rise out of poverty? Additionally, foreign direct investment has been a factor proven to boost GDP. China’s direct investments in the country could stimulate growth. As the article describes, this relationship could have many flaws, but it also may be one of Africa’s only options at having a “significant catalyst for development”, something that the continent desperately needs. Another potential positive outcome that comes to mind is reminiscent of Danesh D’souza’s “Two Cheers for Colonialism”, in which he describes how the intervention of hegemonic nations in LDCs is not always a bad thing, and can actually lead to development and global integration. Ultimately, I think this article raised important questions that it did not necessarily answer. I believe monitoring China’s activity in the region is important, and that enough data should be collected before it can be determined whether or not this Sino-African relationship is mutualistic, or parasitic.
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Upon first glance, this article automatically made me think of Alexis Rawlinson’s article and the manipulation of ethnicity in Africa for political gains by tribal leaders. Rawlinson says that because of the societal situation, economic development has been slow, and Africa is in danger of being left behind in the international economy. Because of the division, instability, and lack of nationalism in Africa in the post-colonial era, the country is ripe for a superpower like China to come in to exploit the situation for their benefit.
With the Chinese businessmen coming in and utilizing the natural resources and labor of Africa, it resembles a neo-colonialist environment where they are the ones who are benefitting from the relationship, even though they proclaim to be helping Africa as well. It is unfortunate that the Western powers that colonized Africa until the 1950’s took short cuts to create tribal leaders and ethnically superior races that have persisted after their independence, because it has resulted in an ironic full-circle where Africa may begin to find themselves under a new, potentially worse, type of colonial rule.
It will be interesting to see what kind of impact that China will have on the African economy and culture, as there are some innate cultural differences. We can only hope that the Chinese have learned from the mistakes of others and when they eventually leave the region, they will leave it in a more stable place that will promote future African development.
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I question whether China’s participation in Africa is even the least bit humanitarian. Once the resources have been exploited, should we believe that China will leave Africa better off than they found it? This reminds me of the mining craze in my home state of Colorado. Yes, both the mine owners and the miners made a lot of money–houses, banks and businesses thrived–but, when the ore was gone, all that was left were major environmental problems. Did anyone see the pictures of the Animas River this summer flowing through Durango? China’s humanitarian and environmental record leaves much to be desired. Should we believe that China has come to Africa for the mutual benefit of both countries? I have doubts…
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China is attempting to “re-colonize Africa” without actually trying to get involved in governmental affairs of individual states. China is emerging as one of the largest FDI contributors in the world, and most of that is sent to Sub-Saharan Africa…in hopes that China will see a return in the form of the natural resources it lacks geographically at home. From 2003-2011, China has increased its FDI in Africa from $491 million to $14.7 billion but critics question whether that money is actually going towards key structural development in the countries or if it is going towards developing the industries that support natural resource exportation. According to Shao “the Chinese entry to the African market has collapsed the already frail and small and medium enterprises under increasing pressure from cheap Chinese imports.” China has seemingly created a dependency complex in Africa, giving them money they so desperately need to build up non-sustainable industries so that if African countries stop spending the money the way the Chinese want them to, they will have nothing at all to pull them out of poverty.
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As always happens when examining a relationship between a clearly stronger and a clearly weaker player, we have a tendency to look at it too much in favor of the weaker player with the assumption that it is being taken advantage of. However, this isn’t always the correct way to look at things. It is important to acknowledge that China is a sovereign nation-state and the corporations based there have the freedom to seek out economically beneficial opportunities, just as their African counterparts do. In looking at this, I am inclined to look at an applied version of Hardin’s lifeboat ethics. If African businessmen are not able to reach deals that are equitable and beneficial for themselves, that is not China’s problem. It is not China’s responsibility to make room on the metaphorical lifeboat for an economy that is not capable of sustaining itself. As harsh as that may sound, it is the current reality of any business world. If China wished to provide aid to African economies, that would be one thing but otherwise, I see no fault in their investments.
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Being that I wrote my final paper on Foreign Aid to Africa this article interested me very much. Like other have stated, I too question China’s involvement in Africa. Furthermore, I do not believe China will make Africa better off than it was in the first place. On the other hand, I am certain that after resources have been used up China will leave Africa worse off then they were to begin with. From what we are seeing, China has made Africa dependent on them, giving them money that they know they need. (This specifically reminded me of the foreign aid the U.S. also provides to them.) In the end, I do not believe China has come to Africa for the mutual benefit of both countries.
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Although I can see both sides to the argument, I worry about the long term effects of such endeavors. Although these areas of economic exploit could “boom” in the short run, what benefit does China have to maintain a presence in these countries once the resources are gone? Like Magenta said, once the resource is gone, that boomtown mentality disappears and all that’s left is environmental problems that in this case Africa, is forced to deal with. Also, I question whether the flow of money from such an endeavor would really flow throughout African society or simply be siphoned into the pockets of these Chinese businessmen. It’s all very Neocolonial.
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