Chinese investment into Africa has been a hot topic over the past decade. State-backed projects from Beijing are rapidly transforming some of the world’s least developed regions in exchange for low-interest credit and favor with local governments.
But what opportunities does Africa offer to individual Chinese businesses? For China, where the barrier between the state and private sector is so often blurred, it can be difficult to know how much of this attention toward Africa is politically motivated, and how much is a search for economic opportunity on behalf of entrepreneurs.
Eric Olander, co-host of the well-known China Africa Project podcast, is a veteran commentator on Sino-African relations. We spoke to him about how he views the nature of private investment into Africa.
CER: What trend do you see with regards to individual enterprises setting up operations in Africa?
E: It’s always difficult to say. I approach all the data I get with a high level of skepticism. The UN, the World Bank, the U.S. government all have pieces of data, but none of them have an accurate snapshot. That is largely because the Chinese lack transparency, but also because the Africans lack it too. The infrastructure to collect good data in Africa simply isn’t there.
Nevertheless, if you talk to [author and former McKinsey consultant] Irene Yuan Sun, whom we had on the podcast, she will say there is an upward swing, and that Chinese manufacturing is looking for lower-cost destinations to operate in because here in China the cost of business is rising significantly, the cost of labor is rising, taxes are rising, all of it’s going up. For example, pollution controls – a friend of mine who runs a furniture factory in Shanghai is receiving pressure from the Shanghai government to either clean up or shut down his factories. This winter in Beijing a lot of the factories were closed because the pollution got too high, and the Chinese middle class are fed up.
Now, most of that money is going to Southeast Asia—Vietnam, Cambodia, those parts—but Africa claims that they are ready to take a lot of that investment. I’m not sold on this, but some commentators definitely make a case that Africa can compete in a space that automation will not obliviate. Irene Yuan Sun will tell you that there will always be a market to make flip-flops, products that even automation can’t beat, so with regards to Chinese entrepreneurs who are going to Africa to find cheap labour, a steady supply of raw materials, or certain goods in very low-tech sectors, there’s still a lot of opportunity there.
A lot of it is to be sold into the African market, but also to gain access to European markets with low tariffs. This may actually accelerate, if we get into a US-China trade dispute with rising tariffs, etc. In this case a back door into the US market may be through Africa via the African Growth and Opportunity Act (AGOA).
There is some research from Barry Sautman in Hong Kong, that shows that Chinese emigration to Africa peaked in 2013-14, and since then there has been a net outflow of workers, which would not portend well for the idea that Africa is attracting Chinese businesses. Africa is a very difficult place now, the economies are not growing as fast as they were about six-seven years ago, when four out of the 10 fastest-growing economies in the world were African. And political instability in these places is making it difficult to make a profit. These guys operate on a 2-3-4 cents per product margin, they just sell a lot. So, if any factor changes in the business climate, this margin can be wiped out very quickly.
CER: What other obstacles do Chinese firms face in Africa that can deter them from investing?
E: They face the same problem that every foreign investor in Africa faces, a lack of reliable power supplies, reliable infrastructure, access to trained, loyal labor. But you also have another factor: China prefers to do a large portion of its investment through state-to-state investment, through State-owned Enterprises (SOEs). Take Ethiopia, which is facing some political questions right now. China has really made its bed with the current government, so if the government changes, then China could be really exposed.
That being said, Zimbabwe was a very interesting case in this respect. I was one of the few that said: if Robert Mugabe goes, then China will be screwed given its decades-long support of the administration, as the Zimbabwean people will not forgive them for supporting Mugabe and any new government will want to cut ties and perhaps orient itself toward the West. However, the fact that China managed to ensure not only continuity but also gain favor with the Mnangagwa government demonstrates the deft diplomatic skills that the Chinese are developing. Mnangagwa now looks to China as his primary partner.
CER: What are the main industries that private industries are getting involved in?
E: In the past, I’ve spoke about five different types of Chinese immigrant in Africa, starting with officials and SOEs, moving right down to traders, who in previous years also went to the US, the UK, all over the world.
For traders, there is nothing unique about what they’re doing in Africa. [They’re] people with low education, low skills, who will go to a country where there exists a Chinese network and open a shop. When I was in Kinshasa (Democratic Republic of Congo), I saw a number of Chinese people who just owned corner shops, just as in America the Chinese opened dry cleaners. They find a need in the market, and fill it. There are hundreds of thousands of this type of emigrant that have just fled Fujian, or Guangdong, looking all over the world, as they have for centuries, for a better opportunity to make a little bit more money, and relief from the pressures of Chinese society. In South Africa, there are the China malls, vendors who are importing low-cost goods from China and selling them for a tiny profit, but really they’re all over the continent as well. These people are always going to be there. They will come and go depending on whether they can make money. So, that’s why on the side of the private sector there probably really is quite a bit going on.
Now, as for a company like Huawei, which is also technically private sector, there is massive investment at the higher end. They are building up the networks, building marine cables, some of it with funding from the Chinese government, but a lot of it just to grow market share. Transsion, with the consumer arm TECNO, is a mobile phone company that has 30% of the African mobile phone market – 30%! It’s incredible. The private sector is revealing itself both on the large scale, and on the entrepreneurial immigrant level as well. It’s a pretty dynamic space.
CER: Do you think that the ‘traders’ are a sustainable source of immigration into Africa, given that living standards, education, wages in China are increasing? Will there be an appetite to move to a continent like Africa?
E: Yes. The Chinese have had a migratory history for millennia. They are an adaptable, resourceful people. There is not a capital city in this world without a Chinese restaurant. As someone who grew up in California, where there has been a large Chinese diaspora for generations, I have no reason to believe that the Chinese won’t continue to leave in large numbers. At the lowest end of the employment scale, those emigrants buy one-way tickets. They are running their business in Africa, and that’s that.
For those that speak Chinese, I recommend looking at groups like QuFeiZhou, social networks for Chinese going to Africa “I live in Togo, looking to hire two more people, who can connect me with this or that, etc.” People work as brokers that connect workers in Fujian with shop owners in some African country. You can see first-hand how the migration is happening and where people are going from these message boards. People will go where they think there is an opportunity. You can’t underestimate how difficult life is in modern China for some people. Costs are rising, competition is fierce, the economy is slowing. And if this economy encounters any major stumbling blocks, I expect that this will spark another exodus from China.
CER: What does all this mean for local African businesses? Are they being crowded out, or is China doing for Africa what, for instance South Korea, Taiwan, and Hong Kong did for China in the 1970s?
E: The same issues that Donald Trump is reacting to in the US, and that Theresa May is reacting to in the UK, of unfair Chinese competition, and Chinese producers competing at prices that locals cannot come close to, are exactly what they are dealing with in Africa. In Nigeria textile makers are being displaced by Chinese imports, in Ghana its kitchen appliance makers who are suffering. Chinese imports are a problem around the world. But they are a godsend for consumers, who get more choice and at lower cost. So, it can’t be a yes-or-no, good-or-bad answer, because it depends on what side of the fence you’re sitting on.
CER: Do you think there is any tension between the goals of the Chinese government and the private sector?
E: A lot. China has a difficult time controlling its diaspora. On the issue of corruption, I firmly believe that if you speak to members of the Chinese government, they will not want Chinese business to be corrupt in places like Africa, because it complicates their narrative of a win-win relationship. It doesn’t do them any favors to have this reputation of corruption plaguing them wherever they go. But Chinese businesses are very adaptable to wherever they are, and they largely operate within the law. So, if they go to a country like the Democratic Republic of Congo, where governance is nowhere near as strong as, say, Singapore, things become more opaque. Chinese companies that take advantage of this and engage in slightly cloudy activity will make the headlines as an example of widespread Chinese corruption. I imagine the people in the foreign ministry rub their foreheads every time they see that.
Poaching is another example of a conflict of interest. The Chinese government is under intense political pressure here to do more with respect to the environment, both in China and overseas. But the demand for ivory, pangolin, all these wildlife products coming from Africa, certainly complicates China’s narrative that their presence benefits the people, who only see that their pangolins are disappearing.
CER: Data from Afrobarometer shows that African consumers have a low opinion of the quality of Chinese products. What does this mean for the future of Chinese brands on the continent?
E: I think sometimes people get very confused. China makes the iPhone. China makes Volvo cars. China makes world-class products. But at the end of the day, you get what you pay for, so if you’re at the bottom end of the consumer pyramid, you get lower-cost products. Now, there is a double-edged sword here – to return to my time in Kinshasa at Mr. Chan’s corner shop. He was providing a very valuable service to people who had very little disposable income but came into the shop to buy cheap earphones, a cheap pair of flip-flops, a cheap shirt, etc. Of course, would they last for very long? No. But credit should be given to the Chinese for actually making these products available.
It’s the same phenomenon that happened in the US with Walmart. The poorest of the working class could suddenly buy things they couldn’t otherwise afford. Is it the same quality that I can buy at Nordstrum’s or at an Apple Store? Of course not. (Though, incidentally, both those companies make their goods in China.) What’s more, companies like Huawei are building a whole suit of product lines that Africans, as they move up the economic food chain, are able to buy into the higher-quality products.
CER: If we look at the higher end of the private sector, then, do you think Chinese companies view Africa as a promising consumer market?
E: It’s important to keep Africa in context. China still does more trade with Germany than with all 54 African countries, which make up just 5% of China’s entire global trade. So, if Africa disappeared today, it’d really just be a rounding error in the whole scheme of things.
But for Chinese businesses, there is something I call a ‘Southern strategy.’ That is, the Chinese realised that they were having difficulties breaking into Europe, Japan and the US, so what they did was go south, to Southeast Asia, Latin America, and Africa. There they were able to build special products and cultivate relationships with consumers in regions that had been almost completely abandoned by the West and Japan. Big brands like Apple and Samsung, and carmakers like GM, were not catering to this market. But as Chinese companies such as Great Wall or Geely make their way in, building factories, selling cars, building products actually designed for these markets, Western brands are starting to think twice. Huawei, for example, built phones with little solar panels on them that make them easier to charge if you’re not around a stable supply of electricity – great ideas!
Remember that the Chinese have the largest developing market in their backyard, so they have been able to perfect distribution strategies, online payment, etc. They have pioneered so many of the new business models that the West and Japan really don’t understand at all. If firms like Tencent ever get their act together and roll out WeChat in places like Africa, it’s going to be enormously popular.
We thank Pippa Morgan of Fudan University for her assistance with and contribution to this interview.