In the last 15 years, the trickle of Chinese economic migration into Africa has become an increasingly stronger stream. Now, with new policies in play and fewer barriers in place, the stream is turning into a veritable flood.
While the world focuses on investments by state-owned enterprises (SOEs) in resource-rich African nations, Chinese entrepreneurs are spread across the continent looking for business opportunities.
There are virtually no reliable statistics to pinpoint the number of Chinese working in Africa but experts claim it is well over 750,000 – the number given by the official Xinhua News Agency last year. In South Africa alone, the Chinese community has grown from about 120,000 to 300,000-400,000 in 15 years.
Chinese populations are also expanding rapidly in countries like Angola, Sudan, Nigeria and Zambia.
“Each environment offers different barriers and different opportunities and the Chinese communities respond to that,” said Chris Alden, a lecturer at the London School of Economics who has written several books on the economic ties between Asia and Africa.
There are over 900 Chinese enterprises doing business in Africa but, according to a report by Jian-Ye Wang, an economist with the International Monetary Fund, only 100 of these are state owned.
“The rest are private businesses with interests ranging from trade, manufacturing and processing, services, and communications to agriculture and natural resource development,” Wang wrote.
Many of these entrepreneurs are thriving in places where Westerners fear to tread. They are often the only ones willing to open restaurants, shops or small manufacturing bases virtually anywhere with the smallest possibility of customers.
“They are out there in obscure places. You go to the outer reaches of rural Namibia and Angola and you’ll see shops set up that weren’t there a few years ago,” said Alden. “They are bringing low cost items to rural areas for low prices but apparently enough to make a little money.”
With a number of African economies posting respectable growth in recent years, there are more African people with the means to buy goods at prices only Chinese traders can offer. Their competitive advantage comes via vertically-integrated supply chains that rely on networks of friends and family.
“They can reach back into China in a seamless way,” said Joshua Eisenman, a fellow in Asia Studies at the American Foreign Policy Council who tracks Chinese investment in Africa. “We met a Chinese trader in Nigeria who told us that he has a brother in Botswana, a sister in Kenya, and an uncle who owns a textile factory in Fujian and supplies them all.”
There may not be a single small manufactured product – transistor radio, mobile phone, bicycles, flashlights, cigarette lighters – that cannot be made cheaper and possibly better in China than Africa. Even with the cost of shipping included, Chinese-made products are often still more cost effective and, as a result, more attractive to local customers.
African traders who also look to source from China are often thwarted by the language barrier. They end up purchasing in Hong Kong where they pay a premium on products made in the mainland. A general mistrust of Africans among Chinese does not help.
“Even if they get to China it’s difficult for West Africans to just turn up in Fujian and do business. The Chinese don’t have those barriers: In China because they are Chinese and in Africa because a low cost product speaks for itself,” Eisenman added.
The commercial dynamism of the Chinese traders exacerbates the core problem for African business – a lack of competitiveness. African exports account for 2% of global trade, according to the World Bank, but most telling are the internal barriers. Only 10% of those exports stay within the continent but about 70% of the tariffs paid by Africans go to other African countries.
These numbers belie a common fallacy in China-Africa relations: “China-Africa” may be a nice catchphrase and Beijing may have a pan-African macro strategy, but there is not such thing as a cohesive African entity.
Egypt is entirely different from South Africa. Ethiopia has less in common with Liberia than India does with Japan. The economies and politics of Kenya, Sudan and Sierra Leone are so different that comparisons – much less groupings – are meaningless. Africans often look at each other with mutual distrust, and consequently, trade between one African country and another can be more difficult than between an African nation and a country in Europe, the Americas or Asia. Sub-Saharan African countries are three times more likely to impose non-tariff barriers than developed countries, according to the World Bank.
What’s more, about 40% of African capital may have fled the continent, sent abroad by rich Africans themselves.
For Chinese traders, this lack of cohesion represents an opportunity: If Africans won’t provide for themselves, the Chinese are happy to step in. This sets the stage for conflict that has never been there before, as Chinese businesspeople interact more closely with African populations, becoming part of the fabric of society.
Problems have already surfaced. Last year, mass protests in Zambia against Chinese employers followed a fire at a Chinese-run explosives factory that serviced a Chinese-run mine.
“A lot of the discontent … was related to the behaviour of Chinese retailers, Chinese investment in agriculture, buying up land, things like that,” said Alden.
And the media, which rarely dwells on complicated topics, may not be painting an accurate picture of the nuances of this emerging relationship.
“The media attention on China-Africa has been very alarmist, very sensationalist. Chinese people, people with Confucian values, running around Africa is a new image. People never imagined it would happen,” said Dirk Kotze, general manager at The Beijing Axis, a consultancy that focuses on China-Africa trade.
“It’s a very good news story. ”
Much of the spotlight has been on China’s infrastructure investments and on its policy of non-interference in internal politics. There has also been some debate about how China is changing Africa. But Kotze believes the relationship between the two will develop naturally, exhibiting the ups and downs of any multi-faceted relationship between complex entities.
This natural development does not come without a certain amount of risk – particularly political risk that could jeopardize the goodwill China is eager to build in the continent.
In years gone by, when trade between China and African countries was dominated by SOEs, Beijing had a considerable amount of control. Now, local embassies often don’t know how many Chinese are in their particular countries or what business they are operating.
“It is really a different type of phenomenon that will produce different outcomes,” said Alden. “Their behaviour often can affect the general relationship between China and a particular country.”
Anecdotal evidence suggests Chinese entrepreneurs tend to export employment conditions along with cheap mobile phones. This often means paying the least possible wage for the most possible work, with little in the way of incentives or job security. Workers’ rights legislation is seen as an inconvenience that is easy to avoid.
“I think this is where China will come to realize that grandiose statements and large loans alone will not do it for them. If they engage a country, they not only engage a government – the guy across the table – they actually engage an entire people,” Kotze said.
The issue bubbled up briefly last November when Li Ruogu, the head of China’s Export-Import Bank (Exim Bank) said China was willing to fund farmers looking to relocate to Africa.
“There’s no harm in allowing farmers to leave the country to become farm owners,” he said during a speech in Chong-qing that was picked up by major media from around the world.
There are already a handful of programs in place that provide funds to unemployed Chinese farmers to buy land in Africa. A number of local and provincial-level organizations also help workers – farmers, traders, cooks and so on – relocate to Africa where they can earn enough money to live and save.
This begs the question as to what will be the impact of Chinese migration on Africa’s economy and society, particularly considering that farming and landowning can be sensitive topics in Africa.
Speaking to Reuters last year, Xing Houyan, director of multinational business at the Chinese Academy of International Trade and Economic Cooperation, noted that the potential for a backlash against China grows alongside trade.
“In a broad sense, as Chinese companies flood into Africa, there is a big risk of disorderliness,” he said. “There’s a big risk that unfavourable incidents could turn hearts and minds against China.”
While the Chinese government may be looking towards Africa to build goodwill and find new political allies in the global arena, these small entrepreneurs are simply looking to earn a living. But their actions could have wider repercussions, as seen in Zambia.
“All of this happens under the radar and it’s growing and introducing new dynamics,” said Alden. “Chinese communities are growing cheek-to-jowl with African communities. We don’t know the social dynamics that produces.
“We have examples from the past where it produced friction; in other cases they’ve lived happily. But it is definitely changing Africa.”
Tough terrain: The rise of Standard Bank
Through its investment in Standard Bank, Industrial and Commercial Bank of China (ICBC) may be able to tap into a rare mix of developed-world financial savvy and developing-country smarts.
ICBC’s new partner was once part of Standard Chartered bank, but when the UK lender sold off its remaining interest in 1987, Standard Bank made a home for itself in South Africa, a small country with less than 1% of the world’s GDP.
“We couldn’t aspire to grow in Europe or America. We had to focus on more challenging markets, where our skill-set might be able to add value,” said Jacko Maree, Standard’s CEO. “That’s what got us into Africa.”
In the late 1980s, apartheid was still a hot topic and it was during these times of sanctions and barriers – It wasn’t easy to operate where “we weren’t particularly welcome,” Maree recalls – that Standard Bank learned to rough it.
“We started dealing in challenging environments – that became a bit of our hallmark,” Maree said. “And I guess that was a bit of the attraction that ICBC saw in us.”
Although large, ICBC lacks the sophistication and global footprint to compete with more diversified global banks.
A tie-up with Standard Bank, with its strong focus on developing markets like countries in Africa, Brazil (it owns a metals trading venture), Russia (a commodities trading practice) and Argentina (it bought the local operations of BankBoston) among others, makes sense.
Announcing the acquisition of an 80% stake in Macau’s Seng Heng Bank in January, ICBC chairman Jiang Jianqing stressed that overseas activities must fit in with the bank’s overall development strategy, of which expansion in developing markets is a key part.
“We’re not so concerned about whether a bank is just cheap,” Jiang said.
Smoke and mirrors
The number of Chinese incentives to encourage African business grows every year. Beijing provides billions in infrastructure grants and the list of products that can be imported tariff-free from Africa’s poorest nations has grown to 540.
However, despite the positive spin, there are questions about whether African countries are seeing benefits.
Grants often go directly from a Chinese bank to a Chinese contractor, while most loans are just that – interest-bearing cash in exchange for access. Most African firms don’t really have the ability, savvy or size to produce goods that can compete in China. As such, bilateral trade is driven by investments in energy and natural resources that China needs and exports of Chinese manufactured goods that African consumers crave.
Despite talk of Beijing’s new way of engaging Africa with no strings attached, the Chinese may be just as near-sighted as their Western counterparts.
“There is an element of short-term thinking: ‘I need the copper now, and will do whatever needs to be done to get it’,” said Dirk Kotze, a Beijing-based South African consultant who focuses on China-Africa trade. “This may lead to a situation in 30 years where you have a lot of resentment against Chinese investors.”
The situation isn’t helped by a growing disconnect between stated government goals of building goodwill and the practices of private entrepreneurs looking to make their fortunes.
However, it may be impossible to categorize China’s growing commercial interests in Africa as “good” or “bad.” The question is fundamentally unfair: Africa is too varied, the contexts too diverse and the players far too numerous for a single, overarching answer.
It is a point Chris Alden, a lecturer in international relations at the London School of Economics, often struggles to get across to people.
“You introduce the finer points and then the question in the audience [is] ‘Okay, so are they good or are they bad?’” he said. “Perhaps 10 years ago you could have given a simple answer: Limited investment in a few countries, pariah states, that sort of thing. Now, with the diversity … there is no single picture.”
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