By Andualem Sisay Gessesse – Official reports show that China has been Africa’s largest trading partner for 12 years, even though bilateral trade declined 10.5% to USD 187 billion in 2019. It is also the fourth-biggest investor in the continent. In this article we look into the focuses, scale, motives, impacts, issues often raised related to these investments, challenges and the future prospects. Before we dive into the investments, let’s briefly the overall economic relation between China and Africa.
China and Africa have a complex and multifaceted economic relationship that has evolved significantly over the years. This relationship encompasses various sectors such as infrastructure development, resource extraction, trade, investment. Both China and African countries have recognized the potential benefits of this partnership, leading to increased cooperation and collaboration in recent decades.
Infrastructure Development
China has played a crucial role in financing and constructing infrastructure projects across Africa. The Belt and Road Initiative (BRI), launched by China in 2013, aims to enhance connectivity and promote economic cooperation between China and countries along the ancient Silk Road routes. As part of this initiative, China has invested heavily in building roads, railways, ports, airports, power plants, and telecommunications networks in Africa.
Examples of major infrastructure projects include the Mombasa-Nairobi Standard Gauge Railway in Kenya and the Addis Ababa-Djibouti Railway in Ethiopia.These infrastructure projects have helped improve transportation networks within African countries and facilitate regional integration.
Resource Extraction
China’s demand for natural resources has driven its engagement in resource extraction activities in Africa. Chinese companies have invested in mining operations for minerals such as copper, cobalt, iron ore, and gold. While this has contributed to economic growth in some African countries, there have been concerns about environmental degradation, labor rights, and the lack of local benefits associated with these extractive industries.
Investments in Energy
China has also invested heavily in the energy sector in Africa. This includes investments in oil and gas exploration and production, as well as renewable energy projects such as solar and wind farms. Chinese companies have secured contracts for oil exploration in countries like Nigeria, Angola, and Sudan. Furthermore, China has been actively involved in financing and constructing hydroelectric power plants in countries like Ethiopia and Zambia.
Investments in Manufacturing
China’s investment in manufacturing industries is another significant aspect of its engagement with Africa. Chinese companies have set up factories and industrial parks across the continent, contributing to job creation and technology transfer. These investments have helped African countries diversify their economies beyond traditional sectors like agriculture and extractive industries.
Examples of Chinese investment in manufacturing sector of Africa include the following:
1. Ethiopia: China has made significant investments in Ethiopia’s manufacturing sector, particularly in textile and garment industries. The Eastern Industrial Zone, located near the capital city Addis Ababa, is a prominent example of Chinese investment. It was established by China’s Jiangsu Sunshine Group and hosts numerous textile and garment factories. Additionally, the Huajian Group, a Chinese shoe manufacturer, has set up a large footwear production facility in Ethiopia.
2. Kenya: Chinese investments in manufacturing in Kenya have focused on sectors such as construction materials, textiles, and automotive assembly. The Export Processing Zones (EPZs) in Athi River and Mombasa have attracted several Chinese companies. For instance, the China Road and Bridge Corporation (CRBC) established a steel plant in Athi River to produce reinforcement bars for infrastructure projects. Furthermore, the Lifan Group, a Chinese motorcycle manufacturer, has established an assembly plant in Nairobi.
3. Nigeria: China has also made substantial investments in Nigeria’s manufacturing sector. One notable example is the Lekki Free Trade Zone (LFTZ) located in Lagos State. The LFTZ hosts several Chinese companies engaged in manufacturing activities such as electronics, automobiles, and textiles. For instance, the TECNO Mobile company, a subsidiary of Transsion Holdings, has set up a mobile phone assembly plant within the LFTZ.
4. South Africa: Although Chinese investments in South Africa’s manufacturing sector are relatively smaller compared to other African countries, there are still notable examples. For instance, Hisense, a Chinese electronics manufacturer, has established a factory in Atlantis near Cape Town to produce televisions and refrigerators for both domestic and export markets. Additionally, the Beijing Automotive Industry Holding Company (BAIC) has invested in an automotive assembly plant in Port Elizabeth.
5. Tanzania: Chinese investments in Tanzania’s manufacturing sector have primarily focused on textile and garment industries. The Export Processing Zone Authority (EPZA) in Dar es Salaam has attracted several Chinese textile companies. For example, the Jiangsu Lianfa Textile Company has established a large-scale textile factory within the EPZA.
Agriculture
China has also been involved in agricultural cooperation with African countries. This includes providing technical assistance, training programs, and agricultural investments aimed at improving food security and promoting sustainable farming practices. China has supported initiatives such as the Africa Agriculture Development Program (AADP) and the Comprehensive African Agriculture Development Program (CAADP) to enhance agricultural productivity and rural development.
Trade
China has become Africa’s largest trading partner since 2009. The trade volume between China and Africa has grown substantially, reaching a peak of $204 billion in 2018. According to data from the General Administration of Customs of China, in 2021, China’s total trade volume with Africa reached $220 billion, representing a year-on-year increase of 27.8%. African countries export a wide range of commodities to China, including oil, minerals, agricultural products, and raw materials. In return, China exports manufactured goods, machinery, electronics, and consumer products to Africa. This trade relationship has been beneficial for both sides, as it helps African countries diversify their export markets and provides China with access to valuable resources.
Chinese Investments in Africa
China’s investments in Africa have witnessed significant growth in recent years. Chinese companies have invested heavily in sectors such as infrastructure development, telecommunications, energy, manufacturing, and agriculture. These investments have contributed to job creation, technology transfer, and economic development in many African countries. However, there have been concerns about the nature of these investments, with some critics arguing that they primarily benefit Chinese companies rather than local communities.
Chinese investment in Africa has been a significant and rapidly growing phenomenon over the past two decades. China’s engagement with Africa has been driven by various factors, including its quest for natural resources, access to new markets, geopolitical interests, and the desire to enhance its global influence. This comprehensive response will delve into the various aspects of Chinese investment in Africa, including its scale, sectors of investment, motivations, impacts, criticisms, and future prospects.
Scale of Chinese Investment in Africa
Chinese investment in Africa has witnessed exponential growth since the early 2000s. According to data from the China-Africa Research Initiative (CARI) at Johns Hopkins University, Chinese firms have invested over $300 billion in Africa between 2005 and 2018. The investments cover a wide range of sectors such as infrastructure development, energy and mining, manufacturing, agriculture, telecommunications, and finance.
Sectors of Chinese Investment
Infrastructure development has been a major focus of Chinese investment in Africa. China has financed and constructed numerous projects including roads, railways, ports, airports, power plants, and telecommunications networks across the continent. These infrastructure projects aim to improve connectivity within Africa and facilitate trade and economic development.
Energy and mining are also key sectors attracting Chinese investment. China’s demand for natural resources has led to investments in African countries rich in oil, gas, minerals, and metals. Chinese companies have engaged in oil exploration and production activities in countries like Angola, Nigeria, Sudan, and Equatorial Guinea. Additionally, Chinese firms have invested heavily in mining operations for copper, iron ore, gold, and other minerals in countries such as Zambia, Democratic Republic of Congo (DRC), South Africa, and Zimbabwe.
Manufacturing is another sector where Chinese companies have made significant investments. They have established factories and industrial parks across Africa to take advantage of lower labor costs and gain access to regional markets. These investments have contributed to job creation and technology transfer in countries like Ethiopia, Kenya, and Tanzania.
Agriculture has also attracted Chinese investment, primarily focused on large-scale farming and agribusiness. Chinese companies have leased or acquired vast tracts of land in countries like Mozambique, Zambia, and Ethiopia to cultivate crops for export or to meet domestic food demand.
Motivations for Chinese Investment
China’s investment in Africa is driven by a combination of economic, political, and strategic motivations. Economically, China seeks to secure access to Africa’s abundant natural resources to fuel its growing economy. The continent’s oil, gas, minerals, and agricultural products are crucial for China’s energy security and industrial production.
Politically, China aims to strengthen diplomatic ties with African nations through investment and aid. This strategy helps China gain support in international forums and secure access to African markets for its goods and services. China has also used investment as a tool to counter Taiwan’s influence in Africa by encouraging countries to sever diplomatic ties with Taipei in favor of Beijing.
Strategically, Chinese investment in Africa is part of its broader global ambitions. By expanding its presence in Africa, China aims to enhance its geopolitical influence and challenge the dominance of Western powers on the continent. It also seeks to establish a favorable environment for its Belt and Road Initiative (BRI), which aims to create a network of trade routes connecting Asia, Europe, and Africa.
Impacts of Chinese Investment
Chinese investment in Africa has had both positive and negative impacts on the continent. On the positive side, Chinese investments have contributed to infrastructure development, job creation, technology transfer, and economic growth in many African countries. The construction of roads, railways, ports, and power plants has improved connectivity within Africa and facilitated trade. Chinese investments have also created employment opportunities across various sectors such as manufacturing and agriculture.
Moreover, Chinese companies have transferred technology and skills to African workers through training programs and knowledge exchange initiatives. This has helped build local capacity and fostered the development of industries in sectors like manufacturing and telecommunications.
However, Chinese investment in Africa has also faced criticism and raised concerns. One major criticism is the lack of transparency and accountability in some investment deals. There have been instances where Chinese companies have been accused of engaging in corrupt practices, environmental degradation, and labor rights violations.
Another concern is the potential negative impact on local industries. Chinese imports, often subsidized by the Chinese government, have flooded African markets, leading to the decline of domestic industries in some cases. This has raised questions about the long-term sustainability of African economies and their ability to compete with cheap Chinese goods.
When it comes to country-level, one of the key challenges in the China-Africa business relationship is the issue of debt sustainability. Some African countries have accumulated significant debt from Chinese loans used for infrastructure projects. Concerns have been raised about the ability of these countries to repay their debts and the potential impact on their economies. However, it is important to note that not all Chinese loans are problematic, and some projects have delivered positive outcomes for African countries.
Debt Concerns
Future Prospects
The future prospects of Chinese investment in Africa are likely to be influenced by various factors. China’s economic slowdown and shifting priorities may lead to a more cautious approach towards investment in Africa. Additionally, concerns over debt sustainability and environmental impacts may prompt African governments to negotiate more favorable terms for investment deals.
However, China’s commitment to its BRI initiative suggests that it will continue to invest in Africa as part of its broader global strategy. The ongoing COVID-19 pandemic has also highlighted the importance of diversifying supply chains, which could further drive Chinese investment in Africa’s manufacturing sector.
In conclusion, the economic relationship between China and Africa is characterized by trade, investment, infrastructure development, resource extraction, and agricultural cooperation. While this partnership has brought benefits to both sides, there are also challenges that need to be addressed to ensure sustainable and equitable development.