In terms of sheer numbers, as the biggest global investor in the continent, the impact of China on Africa can only be seen as positive….mostly?
So what is the scale?
In two decades China has become Africa’s most important economic partner. In trade terms China is as big as the next three (almost four) countries combined, Foreign Direct Investment (FDI) though is still dwarfed by that from the US, UK and France but is growing far more rapidly and in the area of infrastructure financing they completely dominate (all data from McKinsey).
But there are in fact arguments that Chinese FDI and its greater involvement in the continent as a whole has a less of a benign impact than one might assume.
First, it is important to appreciate the reasons driving this growth. The Chinese working-age (15–64) population has started to decline, as it has in most advanced economies and, being a planned economy, Chinese leaders saw this coming a long time ago.
In sub-Saharan Africa, on the other hand, by 2035 the number of people reaching working age will exceed that of the rest of the world combined (IMF, 2015). Africa and south Asia will be the main sources of labour force growth in the global economy, as workforces elsewhere shrink. That means there is great potential for mutual benefit from foreign investment that flows from the aging economies such as China to younger and more dynamic ones in Africa.
In terms of numbers of businesses established the Chinese ‘invasion’ is fairly widespread as can be seen from the map below, and it is worth pointing out that McKinsey & Co’s recent field research suggests that there are potentially up to four times as many today! Certainly, the range of sectors and scale of FDI is significant, as can be seen from The Economist’s graph.
So is it all positive?
Some argue that the Chinese method of establishing private contractors, to bid for in-country projects and then (state-)subsidising them has put some local firms out of business. Also, there is no doubt there have been some serious issues raised by the Chinese use of ‘aid’ loans (not grants) to, sometimes weak or venal, governments. This can lead in time to these same governments becoming trapped in debt to China.
Earlier this month China pledged another $60bn to Africa including $15 billion of aid, interest-free loans and concessional loans, a credit line of $20 billion, a $10 billion special fund for China-Africa development, and a $5 billion special fund for imports from Africa.
In summary Chinese impact is huge, although not always positive, and will be long-lasting; Africa is the last frontier, according to some, and will play a massive part in the global economy in the decades to come. Opportunities for the newly ‘Brexited’ UK will abound, in contrast to the tight protectionist policies of the EU, and even the US, under its extraordinary current President, is showing signs that interest in the continent is growing.
In short, ‘mostly’ good news for Africa!
By Graham Palfery-Smith, Board Advisor to Executives in Africa