Chinese Investment in Africa
Chinese investment in Africa has become a cornerstone of economic development and cooperation, with its strategic initiatives spanning various sectors and regions. As Chinese investors and companies increasingly engage with the continent, their impact on infrastructure, trade, and job creation underscores the evolving landscape of Sino-African relations.
This article includes insights from the dialogue with the Director of the African Chamber in China, Jilles Djon, providing valuable perspectives on the motivations and strategies of Chinese investors and companies.
When considering Africa, how do Chinese investors and corporations perceive the continent?
Engaging in conversations with ten different chief executive officers (CEOs) yields a diverse array of experiences and might vary based on the country in which they are conducting business or the specific industry to which they belong. Some CEOs perceive Africa as a region with significant potential, a land of opportunities, characterised by a promising outlook for the future. However, others may emphasise the challenges that may arise from the complexity of bureaucratic procedures, the presence of corruption, and the potential difficulties in ensuring security. Therefore, a comprehensive consensus or understanding of Africa may not be easy to come by.
However, there exists another perspective, namely the younger generation, who perceive Africa as a potential avenue for growth and development, viewing it as a new and promising prospect. Numerous students in China now wish to travel to Africa and are acquiring proficiency in the French, English, and Swahili languages with the intention of visiting Africa. In a manner reminiscent of Europeans venturing into the untamed American Wild West, Africa holds a similar allure as a destination where one may go to accumulate great wealth.
Several acquaintances of mine relocated from China to Congo approximately two years ago and have since achieved notable success in their entrepreneurial endeavours. This narrative pertains to the ongoing development of the Sino-African relations, which continues to strengthen. Over the course of the past two decades, there has been a prevailing focus on one draw being the ‘chocolate city’. Currently, there exists a scenario wherein Chinese individuals are increasingly venturing into the African continent due to the current geopolitical dynamics. There is a growing trend among businesses to direct their attention towards Africa as a more favourable, secure, and financially advantageous investment destination.
How are Chinese enterprises operating in Africa? When Chinese companies engage in business operations with Africa, do they consider economic blocs or do they prefer to make investments on a state-by-state approach, with a specific focus on individual target countries?
The simple response is state-by-state. By the 1990s, a significant majority of construction and infrastructure projects in Africa were being undertaken by Western businesses, accounting for approximately 85 percent of the total. The Chinese government's prioritisation of Africa as a region of focus for opportunity and investment commenced in the 2000s. During that period, they initiated investments with regards to market access and potential. However, targeting a certain bloc and navigating to that particular region would have posed significant challenges for the Chinese due to the arrangement of several regions, such as the western part of Africa, which is commonly referred to as the French part of Africa. The primary approach therefore was state-by-state, since it facilitated the establishment of bilateral agreements with respective governments to secure opportunities. This served as a model for subsequent implementation in other countries. This is the rationale behind Ethiopia emerging as a prominent destination for substantial investments in the early 2000s, alongside South Africa and Angola. The countries of interest for oil and gas exploration included Angola, mineral extraction was a focus in Congo, and Ethiopia was primarily regarded as a land for project implementation. In summary, state-by-state is how Chinese companies operate in Africa.
However, a notable development is occurring as a result of the current geopolitical situation and economic factors. The investment practises of the present era differ significantly from those observed in the 2000s. During the 2000s, the prevailing model utilised in various industries was the Engineering, Procurement, and Construction (EPC) approach. The companies would await the bidding process initiated by governments, often with financial support from institutions such as the International Monetary Fund (IMF) or African Development Bank. Subsequently, they would submit their expertise and in the majority of instances, they will win.
Subsequently, they proceeded to the EPC+F model in 2010. In this case they began investing, adding an additional step, engineering, procurement, construction, and financing. This model only existed for the duration of approximately five to six years after which the Belt and Road Initiative was introduced. It became increasingly difficult due to the corruption strategy whereby during the period spanning 2013-2015, President Xi initiated an extensive anti-corruption campaign. Chinese individuals encountered significant challenges when attempting to initiate a project, as their sole avenue for progress was through the act of submission. It was also in 2016 when President Donald Trump initiated a robust policy stance towards China. Consequently, it became necessary for them to alter their strategic approach in order to maintain competitiveness within an exceedingly brutal ecosystem.
Following this, a new method was adopted, currently referred to as integrated investment construction and operation. This implies that the entity in question will allocate resources towards investment and construction activities, while also engaging in operational endeavours with the aim of attaining optimal financial gains. During the 2010s, there was a notable emphasis on investment and financing projects, primarily focused on infrastructure projects. However, it is worth noting that a significant proportion of these projects incurred substantial losses without generating any returns. In order to ensure the profitability of a project, the focus is now on effectively managing the infrastructure being constructed. The current situation observed in numerous African nations is as follows.
Which African blocs are currently considered significant by Chinese investors, or which economic regions hold the greatest importance for China?
The most economically significant region in Africa remains the East African bloc. China has made a substantial investment of 170 billion dollars in Africa over the course of the last two decades. Among this amount, 80 billion dollars has been allocated to a specific group of countries, including Egypt, which may be categorised as part of the Eastern region. The Eastern region encompasses Ethiopia, Kenya, Sudan, Mozambique, Congo, and Tanzania, all of which are considered part of the East African bloc. The geographical location of these countries holds significant strategic importance for several reasons. The proximity of the port to China is greater when considering ports from Dar es Salaam or Mombasa in comparison to the western region of Africa.
In recent years, the last five to eight years, there has been a noticeable surge in interest regarding the western region of Africa. As seen by Burkina Faso opening the diplomatic relationship with China in 2018. This is in contrast to the previous period, during which the focus was mostly centred on Nigeria, where Nigeria was almost the sole recipient of Chinese FDI in that part of Africa. Niger and Senegal present promising prospects, particularly in the domains of grain and food production, thereby establishing the western region of Africa as an emerging Chinese breadbasket. Countries such as Mauritania are known for their substantial fish exports, which are mostly directed towards the Chinese market. This part of Africa is becoming increasingly important and a new trend.
The southern region of Africa has been challenging due to the currency. Historically, South Africa was the preferred destination for Chinese enterprises seeking to establish their corporate headquarters. However, due to the prevailing currency challenges, the preceding years have been characterised by significant difficulties. Therefore, East Africa continues to be regarded as the top destination.