Though the African continent is known for its vast natural resources and human capital, it still accounts for 71.4 percent of the world’s underdeveloped countries (33 out of 46), according to UNCTAD.
This begs the question, why does Africa hold the largest number although it is a continent that only accounts for 16.72 percent (1.4 billion) of the world’s population while at the same time housing 30 percent of the world’s mineral reserves, 40 percent of the world’s gold reserves, 90 percent of the world’s chromium and platinum, 65 percent of the world’s arable land, the largest reserves of cobalt, diamonds, and uranium in the world, and 12 percent of the world’s oil reserves (known as of now)?
So why hasn’t the continent been able to capitalize on these advantages? While Europe is considered to be the least naturally resourceful continent in the world, it is considered to be the most advanced in terms of economic stability and economic freedom. Poor governance, ease of doing business, and a high level of corruption have always been attached to Africa’s shortcomings, but in recent years, Africa seems to be the fastest-growing continent in the world.
It can be contributed to the AIDA initiative (Accelerated Industrial Development for Africa), which is an initiative focused on making Africa an industrialized continent and alleviating poverty while also taking advantage of Africa’s partnerships that would help with the cause, for development and the transfer of technology, and for the establishment of joint industrial enterprises in Africa.
The one country willing to invest in this initiative was China. It is estimated that China has invested in excess of USD 43 billion since the start of the century, mainly for infrastructural developments. I will try to make an objective analysis of whether China’s interests in Africa are good or bad for the continent as a whole in the long run.
First off, how does the Chinese economy work? In order to understand China’s interests in Africa, we have to first understand how the Chinese economy works.
In the late 1970s, after many years of state-controlled production and assets, the Chinese government put forth major reforms to liberalize the economy in an effort to stimulate the quiescent economy.
By doing so, it established a formation of rural enterprises and private businesses, liberalized foreign trade and investment, relaxed state control over some prices, and invested in industrial production and the education of its workforce.
Over the past three decades, China has significantly raised the standard of living for its people and lifted millions out of poverty. Since 1978, China’s GDP has increased tenfold. In 2010, it overtook the United States as the top exporter, and it now has the second-largest economy in the world. China’s rise during the past thirty years has generally been unparalleled in terms of magnitude.
As the world’s most populous country (since 1950), it was able to capitalize on the quantity of its labor force by becoming the world’s most outsourced country. Most of the world’s biggest companies have been outsourcing their production to China, accessing lower wages, lower costs of inputs, and an overall reduction in costs.
Driven by industrial production and manufacturing exports, China’s GDP is actually now the largest in terms of purchasing power parity (PPP) equivalence. But despite this growth, China’s economy remains strictly controlled by its government, where there are accusations of corruption, unfair dealings, and falsified data.
China, once a country with rationing and shortages of consumer goods, is now a consumer paradise for the few who have the means and a taste for luxury goods. China is home to some of the largest shopping centers in the world, and, in addition to wholesale and retail, contributed USD 6.5 trillion to the global GDP.
Companies like Alibaba have given a big boost to retail and e-commerce. Alibaba and JD.com’s combined Singles Day 2021 sale saw a record-breaking USD 139 billion in just one day.
China and Africa
In recent years, China has set its eyes on Africa as a prime destination for its FDI outflows. China’s dominance in the African market has been seen as “negative” by the western world. Should African countries share the concerns of the western world? Or are they just concerns with no sound arguments?
Since China decided to invest billions on infrastructural development in Africa, China’s trade with Africa had multiplied by 20 (breaking USD 200 billion in 2019), and its FDI into Africa had multiplied by 100 (reaching USD 49.1 billion in 2019), according to the World Bank. China’s FDI stock in Africa totaled IUSD 110 billion in 2019, contributing to over 20 percent of Africa’s economic growth. So, the numbers don’t lie.
China is the place where Western companies outsource their manufacturing, but as China becomes increasingly prosperous, the country is now increasingly outsourcing its own production to Africa. China is looking for better alternatives as wages in China and Asia continue to rise.
Hence, for example, Ethiopia, with a population exceeding 115 million, offers a huge labor potential. Additionally, monthly factory wages in Ethiopia lie below USD 50, which is less than 10 percent the level in China—which is sad when you think of it, but in this instance, beggars can’t be choosers. In addition to Ethiopia, African countries such as Tanzania, Rwanda, and Senegal are vying to become production bases for labor-intensive products.
“China is now at a stage like that of Japan in the 1960s and the Four Asian Tigers in the 1980s, where it will begin relocating its light manufacturing to other countries because of its rapidly rising labor costs… Africa can become the next manufacturing hub for global markets,” Helen Hai, chief executive of the Made in Africa initiative and a United Nations industrialization ambassador, said.
Therefore, considering this, China has been taking advantage of this opportunity by outsourcing labor to Africa.
The other thing that needs to be considered is that China has not only been outsourcing its labor force to Africa, but it has also been heavily investing in the continent’s infrastructure. Why? For one, the agreement between the Chinese government and African countries is not only to exploit the labor advantage but also to invest in the development of the continent’s economy.
Chinese soft loans have enabled many African governments to avoid pressure from global governance institutions such as the IMF and the World Bank to meet Western norms of accountability and conditionality related to political and economic reforms, such as the infamous “structural adjustment” that does not always serve the interests of Africans.
Then why are western countries concerned with China’s interests in Africa? In Africa, China has four main strategic interests.
First is access to natural resources, especially oil and gas. China currently imports more oil than any other country in the world. China is making significant investments in oil-producing countries like Sudan, Angola, and Nigeria in order to secure future supplies.
The second is the expansion of exports. Investments in Africa could create a large market for Chinese exports, especially considering 1.4 billion people live on the continent, and with the investments made in infrastructural development; we could see China’s expansion of exports to Africa increase in the years to come.
The third point is that rising labor costs in China relative to labor costs in Africa may aid China’s efforts to shift its economy away from labor-intensive sectors by outsourcing labor to African countries.
Fourth, China seeks political legitimacy. The Chinese government believes that enhancing Sino-African ties will increase China’s global power. The “One China” policy of Beijing is endorsed by the majority of African governments, which is a prerequisite for luring Chinese funding and investment.
Finally, in an effort to lessen security-related concerns about China’s economic interests, China has sought a more positive role as a contributor to regional stability for the continent.
All of these factors are worrisome for the US and other global superpowers. Since, these factors are helping China become an unrivaled economic powerhouse and in a world where having the most influence almost guarantees monopoly in political policy – it would be safe to assume China’s efforts would be unappreciated.
The other thing that needs to be considered is that China has never dictated any form of political policy to be implemented in order to provide loan support, while other western organizations have made it clear that certain political requirements need to be met for there to be any form of loan support.
For example, Zimbabwe has been blacklisted by the IMF and other western led financial institutions from providing loans to the country.
As a general rule, the IMF is prohibited from lending to any member country that has arrears to other international financial institutions, and Zimbabwe was excluded when the IMF gave African countries such as South Africa and Zambia millions in loans to help them cushion their economies against the impact of the COVID-19 pandemic. China, on the other hand, has contributed more than USD 13 billion to the country’s infrastructure development.
I am not here to say that Zimbabwe will be able to pay off those debts with ease, because it is obviously struggling to do so, but my point is that China’s loans are better structured with no outside intervention. And if Zimbabwe is not able to pay off those debts, the problem lies on poor governance and an improper allocation of funds instead of China’s willingness to provide those said loans.
I believe there isn’t such a thing as “all good or all bad.” I believe without China’s endeavors in Africa, Africa would have been in far worse shape.
Paul Kagame, during a press briefing in China, once said, “China relates to Africa as an equal. We see ourselves as a people on the road to prosperity. China’s actions demonstrate, that you see us in the same way. This is a revolutionary posture in world affairs, and it is more precious than money.”
(Bekan Bekele is an Economic researcher based in Ethiopia. He can be reached at [email protected])
Contributed by Bekan Bekele
