Zoning in on Africa

 When President Hu Jintao announced in 2006 that China would establish three to five trade and economic cooperation zones in Africa, the news generated much excitement on the continent.

It’s not hard to see why. Hu’s promise – made during the Beijing Summit of the Forum on China-Africa Cooperation – drew comparisons to China’s own growth, which benefited tremendously from sprawling special economic zones (SEZs) that helped open the nation’s economy in the 1980s. Despite policy changes that have reduced the importance of the SEZs, China still has more than 100 of them – and they continue to contribute to GDP growth.

Over the past four years, Chinese companies have been taking responsibility for designing, building and managing the planned zones: two in Nigeria and others in Egypt, Ethiopia, Mauritius, Zambia, and possibly a sixth in Algeria.

While they are all part of China’s strategy to build more than 50 overseas economic zones, the World Bank announced in December it is also in discussions with Beijing about setting up low-cost factories in the new industrial zones – potentially helping to develop manufacturing bases and reverse Africa’s declining share of global trade.

Beijing is subsidizing part of the start-up costs of these zones, while several agencies involved in China’s own successful zones are advising and investing in the projects in Africa. The US$5 billion China-Africa Development Fund (CAD) has taken equity shares in three of the seven planned zones.

Whether this investment in developing industrial zones in Africa will take off remains to be seen. China’s past success means it has much to offer in terms of expertise, but the vast differences between China and African countries’ infrastructure, governance and marketability mean the latter cannot simply replicate the former’s strategy.

Special economic parking lot

So far, there’s been more talk than action.

 "Much like other literature concerning China in Africa, there is a lot of exaggeration in interpreting what’s actually happening on the ground," said Jeremy Stevens, an international economist at Standard Bank Group based in Johannesburg.

The Zambia-China Economic and Trade Cooperation Zone, which was set up in Chambishi, Copperbelt province, is the only zone that is genuinely up and running at present, Stevens added. 

"Talk about [the Suez Economic and Trade Cooperation Zone] began two or three years ago, but there’s virtually nothing there. If anything, it looks like a large parking lot."

Structural differences

A major challenge for the zones has been limitations in what African governments can provide.

Wei Jianqing is marketing manager of Egypt-TEDA Investment Company. The firm, a Chinese-Egyptian joint venture with investment from Tianjin TEDA Investment Holding and CAD, is responsible for developing the 7 square kilometer Egyptian Suez Economic and Trade Cooperation Zone.

Infrastructure has been an issue for the Suez project, which has investments from 25 companies including China Textile Machinery Corporation, Brilliance China Automotive Holdings and an oil equipment industrial cluster.

"For all its industrial parks, the Chinese government played a leading role and put a lot of money into infrastructure construction," Wei said.

"But in Egypt, there’s a different philosophy. The government gives [the task of infrastructure development] to the private developers and believes they should be responsible for the industrial park."

 Standard Bank’s Stevens also pointed out that as China’s industrialists look to mitigate rising labor costs at home and move up the manufacturing value chain, the more obvious relocation choices are in their own backyard – including emerging manufacturing bases like Bangladesh or Vietnam.

Why Africa?

Though China is often criticized for its perceived resource grab, the new African industrial zones show another picture: China is in for the long haul.

Chinese firms investing in African economic zones will have specific reasons for doing so, including a desire

to get closer to the continent’s natural resources and their surrounding industry clusters.

"There have to be additional reasons to bring your business to African industrial zones, such as resource investments, preferential access to export markets or betting on the growth of the African consumer market," said Chris Alden, an international relations professor at the London School of Economics and an expert in Sino-African relations.

Still, if successful, China’s work in developing industrial zones in Africa could be a platform for future economic growth. More business in the zones could mean increased employment opportunities, plus a skills and technology transfer for Africans over time. The capital, infrastructure and externalities related to the industrial zones could also have a long-term multiplier effect on the continent’s economies.

"China’s development experience is very important [for Africa]. It’s much more grounded than some advice coming from an old industrialized country," Alden said.

"Only getting policies right – which is what World Bank told African governments – is insufficient to generate real income growth. You need to have good infrastructure and human capital as prerequisites, and China understands that."

Beijing has not been reticent about congratulating itself for its understanding of economic development, or in proselytizing its applicability in other developing countries, and therein lies the risk. For years, China has had an easy time playing Africa’s best friend. But now that it is more deeply involved in the African economy – building projects that are supposed to raise standards of living on the continent – it will have to do better than building empty parking lots.