Industrialisation, Immigration and Free Trade Zones: The Future of the Sino-African Axis

African_GDP

In August last year the Chinese State Council published its white paper on China – Africa relations. Fifteen years ago this would have been an obscure text read by a handful of bureaucrats and academics. Now it is widely scrutinised by political analysts and economists the world over, and with good reason, Chinese engagement with the continent has soared beyond all expectations, bilateral trade reaching $196 billion in 2012 and cumulative investment topping $43 billion according to the Chinese authorities, with other organisations such as Aiddata placing this figure even higher. This explosive growth in trade and investment has made China the continent’s single biggest economic partner, and their relationship is one of the major geo-political stories of the decade. Despite all this the Sino-African relationship remains widely misunderstood.

Chinese investment is still perceived as focused on the extractive industries, building mines to obtain copper and coal, felling trees for timber and drilling for oil all in order to help sustain China’s manufacturing boom and drive the country’s unprecedented urbanisation. Natural resources are a crucial element of the China – Africa axis and the impetus behind the last decade or so of increasing trade and investment. Chinese firms have been investing in Zambian copper mines, Sudanese oil fields and securing South African platinum supplies, all part of Beijing’s long term strategy of ensuring a steady supply of raw materials for the country’s industry. But what is much less well reported is how Chinese firms are increasingly investing in the construction, finance and manufacturing sectors across Africa.

While the Western media often focus on China’s thirst for commodities, Chinese businesses see Africa as much more than a source of natural resources, but as a huge untapped business opportunity, neglected by the west, where there is huge demand for Chinese expertise in infrastructure, consumer products and finance, all of which the Chinese are willing and able to provide. China can see a whole continent of infrastructure to build, consumers to sell to and credit to be extended across. This mind-set places the Chinese apart from the West, who have viewed Africa as problem to be solved, rather than a business opportunity to be taken.

Chinese contractors have won $30 billion in infrastructure contracts across Africa, and are active in thousands of projects, building new roads in Angolan, railroads across the deserts of Algeria and dams in in the rivers of Mozambique. The vast majority of these projects are commercially orientated rather than aid or “bribes” from Beijing in return for diplomatic support. This construction boom has helped to shift the commodities that China and the rest of the world need, but it has also benefited Africans, who have battled with potholed or non-existent roads, decrepit rail systems and intermittent power for so long. While there have been complaints of shoddy work, on the whole Chinese companies provide value for money, completing jobs quickly and efficiently.

How is this paid for? Chinese banks are highly active in the continent; the Chinese Export Import EXIM Bank and the China Development Bank provide much of the financing to African governments and the Chinese state owned enterprises (SOEs) which dominate the country’s overseas activities. At the same time the Industrial and Commercial Bank of China (ICBC) and Bank of China have made partnerships with Standard and Nedbank respectively, the deals aim to fuse Chinese balance sheets with African branch networks and local knowledge.

Perhaps the sector with the most promise and reward, but biggest risk and controversy is the growth of Chinese manufacturing investment in the continent. This development has the potential to industrialise Africa and help move it away from the commodities which have come to characterise African exports. Dependence on commodities creates a one dimensional economy, dangerously exposed to international fluctuations in demand and it is not a sector that creates a great of employment. The State Council White paper highlighted increasing Chinese investment in African industries such as a Malian sugar refinery and a pipe manufacturer in Uganda, estimating that direct investment in manufacturing across Africa rose from $1.33 billion in 2009 to $3.43 billion in 2012.

The Chinese government has backed six special economic zones in Zambia, Ethiopia, Egypt, Zambia and two in Nigeria which are partly modelled on the Shenzhen free trade zone, which helped to kick-start the Chinese exporting miracle a generation ago. At the same time Chinese industrial wages have been rising making the country much less competitive, meaning that factory owners are casting their eye across the Indian Ocean looking for new and cheaper centres to produce goods, Africa is attractive as many of the countries there have preferential access to European and US markets through measures such as the US Africa Growth and Opportunity Act (AGOA) and EU backed Cotonou agreement.

Those countries which are able to provide a supportive environment for entrepreneurs along with improved infrastructure and a skilled work force, and can attract companies seeking more competitively priced locations will see manufacturing take-off. If these factories go to Africa en-masse then we could see the continent industrialising, starting with low-tech products such as textiles and clothing, emulating the countries in South East Asia and of course China itself. Manufacturing is a high intensity employer, particularly in comparison to mining. Not only are large numbers employed by factories, but centres of industry create local business linkages providing supplies to factories, which in turn provide much needed job creation. China has already been the catalyst for growth on the continent, but if it can be instrumental in kick-starting manufacturing then it could help sustain African growth and help it move beyond dependency on fluctuating commodities.

The social and environmental costs of industrialisation can be devastating, long hours for low pay and poisoned rivers and lakes are the price China paid for rapid economic development, perhaps now there is more sustainable path and African nations can avoid this trap, but governments should think carefully before taking this route. Chinese companies are often accused of undercutting African employment by bringing over Chinese workers who do not try and integrate in African society and are perceived to be taking jobs that Africans could be doing. There truth in this; Chinese workers have moved over to Africa in large numbers, particularly in managerial and technical roles. African governments have to help ensure skills are transferred to African workers and opportunities open up for their own citizens.

A story which flies under the radar of many official reports is the stream of Chinese immigrants to the continent, no one knows the real number of Chinese people who have made the long journey to Africa, it is estimated at between half a million to a million or possibly more.  Like immigrants the world over they have moved to seek a better life away from the overcrowding, hyper competition and pollution of Chinese cities. While some are working temporarily on construction projects, many others have made a permanent home, setting up small businesses. One such entrepreneur was the wholesaler I visited in the Quartier Chinoise in Casablanca, who explained to me in a mixture of French, Mandarin and English how he brought shoes by the container load over from China, then sold them out of a shop in tiny side street to local Moroccan and Chinese traders. The shoes were then sold across the country, often undercutting local producers to their annoyance, but the cheap prices are evidently pleased with the low prices.

With Chinese growth slowing, there is a lot of speculation that it will hit African growth through lower demand for natural resources and investment flows. But other factors will allow the continuation of African growth; China has been a catalyst which has opened the door for other rising powers such as India, Turkey and Brazil which have all stepped up their economic and political engagement in the wake of Chinese investment. The economic slowdown in China will perhaps accelerate the rate of manufacturers relocating to more competitive priced countries, which will increase employment, helping to sustain long term economic growth in the continent and crucially move it away from the dependence on commodities which have stymied development there for so long.

If successful Chinese investment in manufacturing could help catapult Africa up the economic ladder, but if African countries are not able or willing to do this, companies will move to other low cost centres, like India, Bangladesh and Pakistan, and the continent could miss out on a once in a generation economic opportunity.



Categories: China - Africa, China Goes Global

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2 replies

  1. So thorough, thanks for posting it

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