August 8, 2017    5 minute read

Here’s Why China Is Betting on Africa

Mutual Benefits    August 8, 2017    5 minute read

Here’s Why China Is Betting on Africa

Africa is a continent that has suffered from monolithic, often negative conceptions, with some even thinking of it as a ‘country’. Separating the fact from the fiction and the rhetoric from the reality reveals Africa as brimming with investment opportunities, with 54 countries representing these opportunities.

Below all the existing negative connotations linked to Africa, data and statistics reveal the realistic potential of investment in Africa. China has taken a pragmatic approach to invest in Africa taking advantage of excellent growth opportunities. According to recent studies, the foreign investment rate of return in Africa is higher than that of any other major developing area in the world.

Chinese FDI into Africa

In 2015, China’s President Xi Jinping announced a plan to invest $60bn in development projects across Africa. The benefits for African nations include the reduction of poverty, increase of health infrastructure and industrialisation.

China’s reasoning for long-term investment in Africa boils down to ambitious growth targets as the world’s premier emerging market. China’s desire for continued economic growth has led the Chinese Communist Party (CPC) to recognise the increasing requirement for natural resources, raw materials and products.

Geopolitical Influence

Geopolitical influence further motivates China as it is able to extend its political influence on the underdeveloped continent of Africa. The direct investment from China in utilities, education and telecommunications has, for example, broken the monopoly of Western telecom giants in Africa as Chinese Telecom Powerhouses Huawei & ZTE joined the African market. China’s engagement only furthers its ability to hold political sway in these African countries.

2017 has shown a rise in confidence of China in the emerging markets of Africa. Total Chinese trade with African countries rose 16.8% to $38.8bn in the first quarter of 2017, its first year-on-year increase since 2015. Mainly as a result of a 46% increase in annual imports from Africa in the first quarter with agricultural imports rising 18%, with Chinese exports falling by 1% on the previous year.

However, some believe that with commodities being the worst-performing asset class in recent years linked with slowing growth on the African content that Chinese interest will become more muted.  Kai Xue, a Beijing-based lawyer and Africa expert at DeHeng Law Offices feels:  (Credit:Reuters)

“There could still be increases (in trade and investment to Africa) every year in a decline scenario, because China’s economy is still expanding quite considerably. But a modest growth figure is not comparable to the peak times in the past.”

In my opinion, there is a resilience in African economies that should not be underestimated, especially as markets continue to diversify.  The continent’s aggregate growth is expected to rise to 3.2% in 2018 and 3.5% in 2019. Africa’s young populations will fuel their labour forces as African countries continue to urbanise and grow with the aid of technological change hoping to unlock Africa’s potential. China has benefited from taking early notice of Africa’s growth fundamentals. Although uncertainty and volatility will remain in the emerging markets of Africa, it’s likely there will be continued mutual benefit between Chinese-African trade.

The Chinese-African relationship is not without flaws as many grow distrustful of Chinese geopolitical influence, even at times describing it as neo-colonialism. The apparent trade of African minerals in return for infrastructure and finance will only further increase African dependence on foreign governments, particularly China. Reluctantly, many do recognise that African nations have reaped rewards from the close relations with the Asian powerhouse.

The Chinese government in 2015 announced the Belt and Road Action Plan aiming to jointly build the Silk Road Economic Belt and 21st-Century Maritime Silk Road as the government aims to battle the slowing global economy, and complex international and regional situations.

Source: Clear IAS

At first glance the Chinese-African relationship seems simple and based on Chinese exploitation of African resources, however the relationship is very complex and multi-layered. In essence, Africa is the experimental ground in China’s pursuit of binding the developing economies of the world together.

As China has done in Africa it will aim to replicate its success through the Silk Road Economic Belt. As China’s July international trade reports indicate less than expected growth, the importance of Chinese economic relations with developing countries such as Africa amplify. The economic importance of developing countries is expected to grow as tensions rise between China and the USA as President Donald Trump is set to hit out against Chinese trade and intellectual property practices.

Conclusion

In conclusion, investment opportunities in Africa remain abundant and ready to be capitalised upon, although political turmoil burdens the African continent. Chinese investment does not simply act as a method to maintain impressive growth figures for China, but also acts as an opportunity for individual African countries to build themselves into strong independent world nations. Ultimately, African nations face many difficulties but can only be empowered through economic stability to ensure barriers to progress are removed.

Get articles like this straight to your inbox each morning with our Breakfast Briefing. Sign up by clicking here!

Log in with your details

or    

Forgot your details?

Create Account

Send this to friend