Aubrey Hruby is a nonresident senior fellow at the Atlantic Council and co-author of The Next Africa: An Emerging Continent Becomes a Global Powerhouse. This piece is part of a special RCW series on the U.S.-China geopolitical relationship. The views expressed here are the author’s own.
The much-discussed and controversial China-Africa relationship has evolved greatly over the past few years, but common perceptions have not kept pace with changing realities. China has become Africa’s largest and fastest-growing trading partner, pledging $60 billion-worth of funding to the continent in 2015. It has been cast as an exploitative “neo-colonial” business partner over the past two decades -- one with little interest in forging genuine win-win deals with African nations. This view has some merit given the opaque, government-to-government nature of China’s relationship with the continent. There are, however, indications that China and African countries are developing commercial ties that are more balanced, diversified, and beneficial to both regions. China and the African continent collectively contain a third of the global population and have recorded the fastest growth rates in the world over the past 15 years.
Roots of the Relationship
Loans or grants from Chinese government agencies to African counterparts have traditionally outweighed foreign direct investment, comprising more than $86 billion between 2000 and 2014 and nearly $18 billion in 2013 alone, according to the China Africa Research Initiative. African governments typically agree to long-term concessionary loans from the Export Import Bank of China to fund major infrastructure projects such as the $500 million seaport at Kribi in Cameroon, and the $1 billion-plus railway between Addis Ababa and Djibouti. They do so because other sources of financing are lacking or are too slow to meet immediate infrastructure needs. The loans are tied to the use of Chinese contractors on the projects and offices of companies such as the China Communications Construction Company and the China Railway Construction Corporation, and others have sprung up in dozens of African countries.
The capital flows behind this system of infrastructure financing are regularly grouped into general discussion of investment in African markets, often resulting in illogical comparisons between U.S., European, and Chinese forms of investment in the region. The behind-closed-doors, government-to-government approach of the Chinese state entities lacks transparency and often feeds corruption, and it has therefore been criticized for compromising the expected economic and social benefits of such deals for African countries. Wenjie Chen, an economist in the African Department of the International Monetary Fund, has found that China’s commercial engagement is uncorrelated with rule of law in African markets: “Whereas Western investment favors the better governance environments. Chinese investment in strong and weak governance environments is about the same, but its share of foreign investment is higher in the weak governance states.”
More Active African States
African nations, increasingly aware of the shortcomings of infrastructure deals with the Chinese, have become better negotiators on behalf of their people. There is a persistent impression of Chinese projects across the African continent that are solely staffed by Chinese workers, even though African labor is often cheaper than its Chinese equivalent. Chen comments that “the reason the Chinese go [to Africa] is because of cheap labor, since labor costs in China itself are rising.” Requirements for hiring local labor, using local materials, and checking cost projections are gradually becoming the norm in government-to-government negotiations. Some governments -- such as Mali in 2013 -- have gone so far as to cancel contracts that they claim fail to represent their national interest. While there is still much to do in the way of strengthening the capacity of African governments to perform robust oversight, quality control, and life-cycle costing, many African states -- including Cote d’Ivoire, Ethiopia, Kenya, and others -- have dramatically improved the terms of the contracts that they sign with the Chinese.
A Stronger Chinese Private Sector
The Chinese government is far from the only national actor carrying out activities in Africa. Rather, more Chinese multinationals and small and medium-sized enterprises are entering African markets without Chinese government support and are directly partnering with local businesses. Chinese companies such as Huawei, Xiaomi, Tecno Mobile, and ZTE are looking for better ways of doing business in Africa and penetrating the market with businesses that are a departure from their historical expertise in commodities and infrastructure. As Chinese government initiatives are offset by Chinese corporate interests such as the Huajian shoe factory in Ethiopia, the developmental impact becomes more complex and comparable to that of traditional investors in the region -- the American and European players.
Technology & Telecoms: China's new frontier in Africa?
The mobile and digital revolution in Africa has provided new grounds for the expansion of Chinese companies and is laying the groundwork for future partnerships. After establishing its first business in the African continent in Kenya in 1998, Huawei now operates in more than 40 countries across Africa, and it is listed among the top three telecom companies on the continent. Initially manufacturing low-quality products, Huawei not only has offices and retail stores in Africa but has also established R&D centers in South Africa, Angola, Nigeria, and elsewhere. Huawei has also shown great effort in its recruitment policy in Africa, with an estimated 5,800 employees across the region. It is now a common sight to see Africa’s brightest entrepreneurs using Huawei smartphones instead of Apple or Samsung.
It is only a matter of years before Chinese venture capital and e-commerce players build off of Huawei’s success and enter African markets in a big way. Jack Ma, founder of global giant Alibaba, has been keeping his eye on Nigeria and all the financial technology companies beginning to reach economic sustainability. As he noted in 2014 when asked about the country, “I’m so excited by Nigeria, so many young people using mobile.” There are more than 150 million mobile subscribers in Nigeria alone.
Companies such as Alibaba entering African markets in a big way will certainly affect the innovation landscape in the region. Alibaba grew to become a $285 billion powerhouse in developing countries largely thanks to its dominance in the informal, cash-dependent, mobile-first markets often found across much of Africa. The company had to innovate around developmental challenges and remain nimble enough to navigate a rapidly growing economy, giving it a comparative advantage over many Western players. But Alibaba’s success in Africa is not guaranteed, as there will be international and homegrown competition. The myth of Chinese commercial hegemony in Africa needs to permanently dispelled -- especially in a world in which globalization has offered African players myriad opportunities to partner with companies from Turkey, Brazil, South Korea, and other countries in the region such as Morocco and South Africa. While the world continues to focus in on China’s One Belt, One Road strategy, which includes several African markets, a fresher eye and more inquisitive spirit is required to properly understand the growing complexity in Chinese-African relations. Chinese businesses -- both large and small -- are finding success in African markets, and their Western competitors will have to accept this new reality.