China in Africa: Good or bad?
Posted on November 28, 2013
I have interacted professionally with Africa for close to three decades. Between 1996 and 2001 I worked on the Chad-Cameroon pipeline. At the time, this $3.5 billion endeavor was the largest private infrastructure project in Africa.
By today’s standard, that’s pocket change.
On November 18, 2013 the South China Morning Post reported that the Chinese central government, including state-owned enterprises such as EXIM bank, would provide one trillion dollars of financing to Africa over the next 12 years. This equates to about $83 per year for each of Africa’s one billion inhabitants. This is on top of billions being invested by the Chinese private sector in manufacturing, natural resources, farming, fishing, real estate, etc.
It will be difficult to monitor true expenditure levels, but even if China were only able to invest half the promised amount, China’s commitment would be colossal and dwarf anything on offer from the West or Multilaterals (e.g., World Bank, African Development Bank).
The World Bank spends less than $6 billion annually in Africa. President Obama’s groundbreaking Power Africa Initiative unveiled last July in South Africa calls for total U.S. government expenditures of $7 billion over five years. A substantial amount but clearly insufficient in a continent where at least 70 percent of the population does not have access to an electric grid.
China’s Interest in Africa
Why is China so involved?
China is in Africa for economic reasons. China is home to more than 19 percent of the world’s population but only six percent of the world’s land area. More than 500 million Chinese live on less than $2.50 a day. The country must remain on a high growth trajectory in order to raise these people to middle-income status. An annual growth rate of seven percent, considered a bare minimum by China, requires enormous quantities of raw materials, including from abroad.
China needs long-term supplies of raw materials and food at reasonable and stable prices. Since 2000, most raw materials and commodities have doubled in price and, despite the Great Recession of 2008, remain historically high. This is thanks to emerging market demand, and production and infrastructure constraints.
China looks at Africa primarily as a source of raw materials; the West, on the other hand, is increasingly looking to market consumer goods to the small but growing African middle class. A sort of division of labor is emerging with Western aid focusing on health, education, rural development and governance, while China specializes in “infrastructure for natural resources” transactions.
China’s foreign reserves — estimated at 3.5 trillion dollars — give it ample room to invest massively abroad. Conveniently, these investments keep Chinese engineering, construction and equipment suppliers busy, while allowing China to diversify away from certain reserve currencies.
A Threat to the West?
Should the West support China’s engagement? On balance the answer has to be yes, especially if it takes the form of improved infrastructure.
There are 54 African states, each with its own characteristics. This breeds an element of complexity. But after a decade of annual continental growth at five percent, most have the institutional strength to negotiate win-win arrangements with China. For those that do not, the Multilaterals can provide assistance.
In any event, the root of most problems with foreign direct investment in Africa lies with host country governance. The best way to ensure that Africa benefits from Chinese investment is to improve local governance. Transparency is a great place to start.
It is not entirely clear where Canada fits in all this but Quebec is trying, in a very modest way, to strengthen its cultural and business ties with francophone Africa. It’s a logical endeavor as many African leaders were educated in Quebec universities. As a result, they should be favorably disposed to doing business with Quebec. One promising area of cooperation is electricity with Hydro-Quebec perhaps acting as investor and catalyst (see my blog of June 5, 2013).
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China in Africa