Lee-Roy Chetty
Lee-Roy Chetty

The role of China on the African continent

The exponential rate of Chinese investment in Africa over the past few years has been noted with both optimism and scepticism by mainstream media, political commentators and influential role players in the developed and developing world.

Opinions triggered by this new development are deeply polarised.

A positive view of increased and concentrated Chinese investment on the African continent argues that China is facilitating a fundamental role in filling financial and technological gaps for Africa — a role which western countries and corporations have been reluctant to play especially since the 2008 economic crises which crippled most of the developed world.

Conversely, sceptics question the motivation behind Chinese investment and its consequential impact on Africa, nefariously including charges that China is attempting to re-colonialise the African continent.

Subtle criticism of Chinese activity in Africa has also come from the traditional super-power of the world over the last century.

In 2012, the US issued a statement hinting that African countries should consider partnerships with more responsible countries as against countries that just “come in, take out natural resources, pay off leaders and leave” — an unmistakable reference to China.

However, beyond accusations and foreign policy rhetoric, it is important to look at the data when developing a balanced and accurate opinion of Chinese activity in Africa.

On the surface, current data does not justify the level of attention or criticism China’s investment in Africa is receiving. Official data from the ministry of commerce (MOF) on Chinese overseas investment shows total Chinese outbound foreign direct investment (OFDI) in 2011 reached a record high of about US $74.65-billion, but only $1.7-billion, or a mere 2.2%, went to Africa.

Compared against the global foreign direct investment (FDI) flowing to the continent that year, about $42.65-billion according to the United Nations Conference of Trade and Development (UNCTAD 2012) China’s contribution was a mere 4%.

When measured in terms of FDI stocks, Chinese OFDI in Africa appears even more trivial — reportedly standing at $14.7-billion by the end of 2011, or 2.6% of the total $570-billion FDI stock for the whole African continent.

Based on these statistics, why is China’s investment activity in Africa receiving some much attention and scrutiny?

One main reason may be the incredibly pace at which Chinese OFDI has risen in Africa over last few decades.

Until about 15 years ago, China’s capital flow to Africa was almost all government-aid related.

Most noticeably, just as the world FDI outflow plummeted following the 2008 financial crisis, China’s overseas investment more than doubled in 2008, with the portion going to Africa actually more than tripling that year and consistently increasing steadily thereafter.

Keeping in mind the pessimistic prospects for many a western economy; many foreign policy proponents and economists predict that China’s place in the FDI arena — for Africa and the world == is likely to further accelerate in the near future.

Another reason for the critical stance on the role of China in Africa can be seen as more political in agenda.

Critics hold the strong opinion that China’s investment in Africa is predominantly “state investment”. This specifically refers to investment made by government-owned enterprises (SOEs). Critics also emphasise the concentration of investment in oil, gas and mining to meet the ever-growing demand for resources to fuel the startling expansion of China’s domestic economy.

Further to these accusations include China’s growing involvement in Africa has been routinely cast as dependent on deals made at elite political levels — profiting these so called “African elites” — while satisfying China’s ambition for enlarged geopolitical influence.

Finally, Chinese investment is frequently criticised for its lack of transparency and, disputably, for bringing their own workforce from home, thus depriving the host economies of the benefits of job creation.

Conversely, those who are slightly more optimistic about the role that China is playing in Africa have pointed out that the country’s focused interest on the continent’s energy and mineral resources, even if true, is not that different from the FDI traditionally attracted to the continent.

In addition, the point must be made that the net impact of China’s involvement in Africa, especially in the infrastructural development, has been tremendously positive, as investment in transportation and power is exactly what Africa urgently needs.

The fact of the matter is that Chinese investment in Africa is far from monolithic and continues to grow increasingly diverse and dynamic.

This trend has and will continue to have a wide-ranging impact on Africa’s development.

The injection of private capital, technology and entrepreneurial ideas offers host countries significant economic opportunities, especially in early industrialisation and job creation. For these reasons, they are particularly welcome by African countries and governments.

Chinese investment overseas also reflects less the rising economic power of China than China’s integration into the international trade and investment market.

From an African perspective, to ensure and cement a large share of the Chinese OFDI, African governments should maintain an open and friendly investment environment by encouraging competition and by providing better infrastructural support.

African governments should in addition further develop policy and strategy to encourage more technology transfer and Chinese-local business integration. Surely the ultimate goal is not just to attract more private Chinese investment but render more benefits from it for the continents national economies.

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    • Momma Cyndi

      Has Africa not learned that being colonised is not a good thing? How many colonisations do we have to go through before we learn our lessons?

    • bernpm

      Chinese FDI will -over time- benefit China. Why invest, if not??

    • http://southafricana.blogspot.com Dave Harris

      Astute observations Lee-Roy.
      History has shown the a rise of the BRICS economic powers is inevitable. We need more diverse global economic systems to mitigate the “too big to fail” emblematic of crony capitalism – the genesis of our world wide recession. btw. The movie Inside Job provides a glimpse into how deregulation of financial controls led to the worst financial abuses in living memory that is still ravaging societies around the world and will be felt by generations to come.

      A new world order is in formation, luckily not the one initially predicted by high priests of globalization. Diversification of trading blocs that are not solely dominated by the ex-colonial powers, is good for a emerging democracies in Africa, Middle East and South America. As Bob Dylan said, “The times they are a-changin”, and competing FDI vying for Africa’s attention is a good thing! 😉

    • Eazyboy Matjila

      The China “saga” is so well said in the media. Home and abroad. Africa needs China more than the western world. What has come of the African continent has been a result of many theoretical activities between the West and Africa. The Chinese are bringing tangible difference to Africa. Two months ago, I met a UN representative in Cairo. This gentleman showed a dismay at what I new and what my opinion was regarding the issue.

      Africans are perceived as barbaric and always needing a guidance of some sort. We are capable of making our own decisions though still lenient on the election of Kleptocrats into governments. The West has generally consumed more than what they were supposed to, and now China should form part of the coalition of the donor countries? Meaning they must join in the destruction of Africa as a continent. I strongly advise anyone who thinks that China should not play a part in Africa to think again.

      Why is there so much worry when another country like any other, engage economically with Africa. What is it that has been wrongly done to Africans, that scares so many countries and statesmen not forgetting business people, about China’s involvement in Africa?

      We stand to see….Thanks for the great article Lee-Roy Chetty. People need to know.

    • erena

      All they want is the minirals and oil, in what country are they ‘helping’ where there is no riches? Givenus an article on those

    • Lennon

      China isn’t in the habit of destabilising / overthrowing African governments or bombing African countries to get what they want… unlike the West and its puppet corporations like the WTO, WB and IMF. As Dave pointed out, de-regulation has only benefitted those at the top. The rest of use are being screwed.

      Frankly I hope BRICS forges ahead and decides on its own reserve currency – one backed by actual gold (not the type loaded with tungsten). Then again, Gadaffi wanted an African reserve currency and that didn’t end too well for him.

    • Mr. Direct

      Perhaps China is singled out because of international reputation on human rights and (supposedly) underhanded influence in global finance. Perhaps China is singled out simply because they are feared by the competition.

      Do we trust the South African government to place the needs of the country over their own personal benefit? Do we trust the South African government to negotiate the best deal for the country?

      Do any of the people of Africa trust their governments to negotiate the best deal for their countries? (I personally do not know the answer to this question but since the article is about Africa in general)

      So, suspect investors, and suspect negotiators. Why would the general population be concerned?

    • Lennon
    • Cde Fanny Mabuso

      China has the highest Gini-coefficient in the world and South Africa the second highest (That means China has the biggest gap between rich and poor and South Africa the second biggest gap in the world).

      No wonder Lee-Roy Chetty is singing the praises of China. Lee-Roy Chetty is only interested furthering the agenda of big money, not of more equal societies that lead to sustainability and harmonious lower crime happier more satisfied and fulfilled populations.

    • BryanM

      Interesting the article did not mention the biggest problem I see. Really I don’t care who makes investments (even if they are in oil and/or mining) because any kind of investment will benefit the growth of the economy and ultimately raise standards of living. The biggest problem I have seen is the often reported failure to employ local citizens even for unskilled labour. I have been shocked to find Chinese road workers and Chinese bricklayers being employed in countries starved of employment opportunities. Since most other investors find it impossible to use expatriates even in specialist skills areas, there is also a worrying lack of transparency in the process followed to a) get these contracts, and b) get these labours’ visas.

    • Mariana de Leuca

      @ BryanM

      I have seen that happen in Cape Town. In 2010 visas were granted to more than 50 construction workers from China to build new premises for the Chinese Consulate in CT. The reason given by the Dept of Home Affairs was that the land on which they were building is technically Chinese territory, however our local labour unions complained saying that “it is about cheap labour and exploitation”.

      Within a 10 km radius of the area in which I live three large “Chinatown” malls have been built within a period of about five years, all selling the same ultra cheap and poorly manufactured products, mainly shoes and clothing. In the meantime our local clothing and footwear manufacturers are closing down and more than 30,000 jobs in the industry have been lost over the past two decades.

    • http://necrofiles.blogspot.com Garg Unzola

      Is foreign investment an appropriate measure in this case? As such, it could mean that if this figure is low, Chinese confidence in African-based ventures is low. Perhaps the fact that China is Africa’s second largest trading partner is more significant, but just as telling as the fact that the Chinese are shy to invest here.

    • Eazyboy Matjila

      I would really like to reiterate this issue. “The Chinese in South Africa” should spark an element of education to the masses. China has a lot of counterfeit products. However, we should treat the Chinese as they are treated in other countries. It is just that South Africa is too lenient in term of tightening their grip on what comes into the country.

      The Chinese have been around South Africa for a long time now. We know of low paid workers who are working in the so-called China towns, spiraling across the country. People should be taught that even genuine products from France, Britain and the USA produced in China, will not bare the Made in China label. Genuine product will bare the made in PRC label.

      Let us just agree to regulate what the Chinese do in our country, who they hire and at what rate. I think this will be some of the issue we need to discuss. However, that should not take us to a conclusion of not allowing them to bring constructive contribution to our country.

    • Lesego

      Mariana de Leuca #

      “I have seen that happen in Cape Town. In 2010 visas were granted to more than 50 construction workers from China to build new premises for the Chinese Consulate in CT. ”

      What does that have to do with Bryan’s point? I mean its their consulate building not South African?

      “Within a 10 km radius of the area in which I live three large “Chinatown” malls have been built within a period of about five years, all selling the same ultra cheap and poorly manufactured products, mainly shoes and clothing. In the meantime our local clothing and footwear manufacturers are closing down and more than 30,000 jobs in the industry have been lost over the past two decades.”

      Yah maybe you should wonder if they cant come up with more competitive prices so they wont have to close down. And youre saying cheap manufactured clothes? If you didn’t know, all the clothes you wear and gadgets you use are made in China that even the “made in america” stickers are also made in China.

    • Zeph

      I say China is justified in their approach. Oil in Sudan? What choice do they have; all other markets are sown up by the USA and Europe. Besides, they are latecomers and they are only doing what the West itself did. Whether correct with our so called New World Consciousness is debatable.

    • http://AMROi.org AMROi

      Great insite except this time it’s on Africa’s terms. We do need to keep a watchful eye on inferior products flooding our markets. If China can stem this harmful trend perhaps it would clarify intentions.

    • naive …..

      We are all very very naive if we think China or any other nation for that matter, is investing if Africa to help us. Its a dog-eat-dog world and China is the top dog at the moment. A massive population that it can’t sustain, very limited natural resources for power generation, zero culture of human rights and environmental consciousness. there is little to get excited about. You figure it out – China has put countless South African’s out of work and while we have such a corrupt governemnt we will never stem the tide. Chinese labour is its greatest resource, and the fact that they speak one language give them the advantage of not having to navigate many cultures and languages in their domestic policy. They see Africans as backward and they choose not to mix with other cultures. I have tried to buy South African or even other national brands, but I am finding it increasingly difficult to find any other than Chinese, especially shoes and clothes. It is depressing. Where is opur national pride and entrepreneurship?

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    • coetzeegisela

      Time to try to stop complaining about China?