Corporate Africa | Corporate Africa News
Corporate Africa | Corporate Africa News
CHANGCHUN – Delegates from African countries are hoping to attract more Chinese investment at the ongoing 11th China-Northeast Asia Expo in Changchun, capital of northeastern Jilin province.
Representatives from Ethiopia, Kenya, Zambia and Mozambique presented a variety of collaborative projects at the expo, ranging from grain and dairy processing, light manufacturing, to machinery and construction, in the hope of finding Chinese counterparts to invest in their countries.
Ethiopia has set up a one-stop service system to simplify the approval process for business licenses for overseas enterprises, said Sisay Tsegaye Zelek, from the Ethiopian Investment Commission.
“Eligible companies will get their business license approved in a day,” Zelek said.
Over the past decade China has become an important investor in Africa, with a total investment of more than $100 billion, ranging from infrastructure, mining, telecommunications to agriculture and manufacturing.
Chinese companies have been involved in the manufacturing of auto parts, food and electronic products in Kenya, and the country hopes Chinese companies will expand their presence into the processing of agricultural products and light manufacturing, according to Susan Njoba from Kenya Investment Authority.
“Our data shows Chinese-invested projects generate more job opportunities than companies from other countries,” Njoba said.
A McKinsey report indicated Sino-African relations witnessed remarkable growth over the past decade, with bilateral trade up 20 percent and direct investment rising 40 percent annually.
Statistics from China’s Ministry of Commerce showed trade between China and African countries reached $85.3 billion in the first half of 2017, while China’s non-financial investment in Africa surged 22 percent to $1.6 billion during the same period.
China and African countries are highly complementary in resources and technology and new cooperation platforms such as the Forum on China-Africa Cooperation have injected impetus into bilateral economic collaboration, according to Chen Zhou, vice chairman of China Council for the Promotion of International Trade.
“We can also work to maximize the synergy between China’s Belt and Road Initiative and Africa’s industrialization strategy to benefit businesses from both sides,” said Zhang Yuzhong, an official from China Investment Promotion Agency.
The 11th China-Northeast Asia Expo, which runs from Sept 1 to 5, serves as a platform for regional cooperation in Northeast Asia and beyond. The expo has representatives from China, Russia, Mongolia, the Democratic People’s Republic of Korea, the Republic of Korea and Japan, as well as attracting global dignitaries and enterprises in pursuit of economic and regional cooperation.
Since the expo started in 2005, it has produced trade deals valued at more than $8 billion.
In two decades, China has become Africa’s most important economic partner. Across trade, investment, infrastructure financing, and aid, no other country has such depth and breadth of engagement in Africa. Chinese “dragons”—firms of all sizes and sectors—are bringing capital investment, management know-how, and entrepreneurial energy to every corner of the continent. In doing so they are helping to accelerate the progress of Africa’s economies.
Africa’s largest economic partner
In the past two decades, China has catapulted from being a relatively small investor in the continent to becoming Africa’s largest economic partner. And since the turn of the millennium, Africa–China trade has been growing at approximately 20 percent per year. Foreign direct investment has grown even faster over the past decade, with a breakneck annual growth rate of 40 percent.2 Yet even this number understates the true picture: we found that China’s financial flows to Africa are around 15 percent larger than official figures when nontraditional flows are included. China is also a large and fast-growing source of aid and the largest source of construction financing; these contributions have supported many of Africa’s most ambitious infrastructure developments in recent years.
Behind these macro numbers are thousands of previously uncounted Chinese firms operating across Africa. In the eight African countries on which we focused, the number of Chinese-owned firms we identified was between two and nine times the number registered by China’s Ministry of Commerce, until now the largest database of Chinese firms in Africa.
Around 90 percent of these firms are privately owned—calling into question the notion of a monolithic, state-coordinated investment drive by “China, Inc.” Although state-owned enterprises tend to be bigger, particularly in specific sectors such as energy and infrastructure, the sheer number of private Chinese firms working toward their own profit motives suggests that Chinese investment in Africa is a more market-driven phenomenon than is commonly understood.
Chinese firms operate across many sectors of the African economy. Nearly a third are involved in manufacturing, a quarter in services, and around a fifth each in trade and in construction and real estate. In manufacturing, we estimate that 12 percent of Africa’s industrial production—valued at some $500 billion a year in total—is already handled by Chinese firms. In infrastructure, Chinese firms’ dominance is even more pronounced, and they claim nearly 50 percent of Africa’s internationally contracted construction market.
The Chinese firms we talked to are mostly profitable. Nearly one-third reported 2015 profit margins of more than 20 percent. They are also agile and quick to adapt to new opportunities. Except in a few countries such as Ethiopia, they are primarily focused on serving the needs of Africa’s fast-growing markets rather than on exports. An overwhelming 74 percent said they feel optimistic about the future. Reflecting this, most Chinese firms have made investments that represent a long-term commitment to Africa rather than trading or contracting activities.
Impact in African economies
At the Chinese companies we talked to, 89 percent of employees were African, adding up to nearly 300,000 jobs for African workers. Scaled up across all 10,000 Chinese firms in Africa, this suggests that Chinese-owned business employ several million Africans. Moreover, nearly two-thirds of Chinese employers provided some kind of skills training. In companies engaged in construction and manufacturing, where skilled labor is a necessity, half offer apprenticeship training.
Half of Chinese firms had introduced a new product or service to the local market, and one-third had introduced a new technology. In some cases, Chinese firms had lowered prices for existing products and services by as much as 40 percent through improved technology and efficiencies of scale. African government officials overseeing infrastructure development for their countries cited Chinese firms’ efficient cost structures and speedy delivery as major value adds.
On balance, we believe that China’s growing involvement is strongly positive for Africa’s economies, governments, and workers. However, there are areas for significant improvement:
By value, only 47 percent of the Chinese firms’ sourcing was from local African firms, representing a lost opportunity for local firms to benefit from Chinese investment.
Only 44 percent of local managers at the Chinese-owned companies we surveyed were African, though some Chinese firms have driven their local managerial employment above 80 percent. Other firms could follow suit.
There have been instances of labor and environmental violations by Chinese-owned businesses. These range from inhumane working conditions to illegal extraction of natural resources including timber and fish.