China’s growing commercial involvement in Africa has been well documented. However, a new study by McKinsey & Company, titled Dance of the lions and dragons, suggests the number of Chinese businesses in Africa are much greater than previously thought. It estimates there are more than 10,000 Chinese-owned firms in the continent today.
Africa-based Chinese enterprises are making respectable profits. Nearly a quarter recovered their initial investment within 12 months, while 50% reported it took them three years or less. One of the reasons for their success is that Chinese entrepreneurs are prepared to act boldly and swiftly – often at considerable personal risk – to build their businesses.
How we made it in Africa takes a closer look at a few Chinese companies successfully operating on the continent.
Tecno: Products tailored for Africa
McKinsey estimates about 90% of Chinese companies in Africa are privately-owned. These firms work towards their own profit motives, challenging the belief that most Chinese investment in Africa is coordinated through the state. One such private venture is mobile phone brand Tecno, owned by China-based Transsion Holdings, which has achieved market share of as high as 40% in some East African countries, despite the presence of global competitors.
Tecno’s devices are generally affordably-priced, and has features specifically tailored for the African countries where it operates. For instance, it was the first major brand to introduce a keyboard in Amharic (Ethiopia’s official language) and its devices include photo software to batter capture darker skin tones.
Twyford: State-of-the-art factory run by locals
About two hours from Kenya’s capital Nairobi, in a mostly-rural area, stands the Twyford ceramic tile factory, constructed in just eight months in 2015-16. It took the McKinsey team some time to arrange a visit to the Twyford factory, as the managers, like many other Chinese businesspeople in Africa, prefer to keep a low profile. The facility is a joint venture between two Chinese firms: Sunda Group and Keda Clean Energy Company. Sunda started out by importing tiles from China into Nigeria, but has since launched its own manufacturing operations in a number of African countries; its partner, Keda, is a Shanghai-based supplier of industrial machinery.
The majority of this modern factory’s workers, including management, are Kenyan, debunking the myth that Chinese companies don’t employ locals. In fact, 89% of employees at the more than 1,000 companies McKinsey talked to, were African. It is estimated that Chinese-owned businesses already provide work for millions of Africans
Huawei: Transferring technology
Telecommunications company Huawei is an example of a Chinese operator whose technology has enabled African companies to boost their service levels. In 2015, Kenyan mobile operator Safaricom migrated 12.8 million of its M-Pesa mobile money subscribers to Huawei’s platform. The benefits of the new system included faster transaction processing, an open application program interface (API) for third-party integration, and improved security measures.
According to McKinsey’s research, Chinese companies are involved in substantial transfer of technology in Africa – nearly 50% have introduced a new product or service, and over a third have brought in new technology.
Sunshine Group: Multisectoral player
Sunshine Group is an example of a Chinese company which started out in one industry, and expanded into others. Founded in Tanzania in 2012, it initially focused on mining, but has since entered sectors including agriculture, manufacturing and transport. The company has invested around US$100m in projects such as a gold-smelting facility, agri-processing plants, and a card-printing facility that produces bank and phone cards.
StarTimes: Making pay-television accessible
Broadcasting company StarTimes has grown into one of the continent’s top pay-television providers, with about 10 million subscribers and established subsidiaries in more than 30 African countries. It has taken a long-term view by investing in low-cost, digital satellite television. For instance, in Tanzania, StarTimes has lowered the local price of pay-television by up to 90%. And in Kenya, the company has introduced digital satellite television to rural parts of the country that previously had limited access to a television signal.
Bobu Africa: Catering for Chinese tourists
Not all Chinese companies in Africa are large industrial enterprises. Travel agency Bobu Africa was launched by a young Chinese couple to introduce authentic African culture to Chinese tourists, who are showing increasing interest to visit the continent. The founders developed an array of interesting travel routes, including visits to craft workshops, enabling local artisans to boost their incomes.
McKinsey’s research found that Chinese factories in Africa are predominantly serving the domestic market, with 93% of the revenues of the manufacturers it interviewed originating from local or regional sales.
An example of a large business targeting domestic buyers is truck manufacturer FAW. It has invested $50m in an assembly plant in South Africa, which produces about 5,000 vehicles annually for both the South African market and other African countries. In 2013, FAW also partnered with Perfection Motors to assemble and market its trucks in Nigeria.