Mar(k): Travel, Hiking, and "Doing Good"

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China Investment in Africa

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China Investment in Africa:  Bulging pockets require good governance

By Mar Knox

(article published in March 2010 edition of The ADVOCATE)

There has been a lot of press recently about the increased focus that Africa seems to be receiving from China.  For some, this additional investment is welcomed; for others, there is a suspicion that the motives of the Chinese may be geared towards stripping Africa’s natural wealth without adequate compensation.  The trade between Africa and China in 2008 was valued at $106.8 billion which was up by more than 45 per cent from 2007, and the forecast is for this trend to continue.

China has often taken a very long term view of places where it does business.  Here in Africa, perhaps what we are seeing is the beginning of investments that will be around for decades to come.  The strategic partnership between China and Africa has already begun, with the beginning of the year marking a significant visit to five African nations by Chinese Foreign Minister Yang Jiechi.   Additionally, China is funding the new headquarters of the Africa Union in Addis Ababa, which has already cost Beijing more than US$130 million.  But China already has a long history on the continent, which began as early as the 1970’s, when the Tanzania-Zambia Railway was built; fully financed by the People’s Republic of China.  At the time, it was the largest foreign aid project undertaken by China and had a value of US$500 million.

Today, China is not the only country also wanting to woo Africa.  Key power brokers from all world powers have made it clear that they want a presence in Africa.  China of course, is not the only burgeoning country that needs to feed its huge population.  India, too, has had long links with Africa, particularly East Africa.  And it is to Africa that India is also starting to look, for business investment opportunities as well as natural resources like oil, precious metals and land for growing crops.
All of these areas are also being exploited by China.  In reality, the reach of China has only just begun, and already there is evidence that China is interested in, or has already, invested heavily in a diverse range of industries and countries.  These include ICT investment in Egypt, potash in the Congo, banking in Rwanda and fishing and livestock projects in Tanzania.  The largest economy in Africa is South Africa, and its leading trading partner is Beijing.   Here in Ghana, China has the largest number of companies registered in terms of Foreign Direct Investment.  However, the largest value of investments in Ghana is still held by South African companies.

There are, of course, many benefits that the increased interest in Africa can have.  With issues like climate change, China may well be able to offer technological aid and help to fund programs to assist African countries dealing with adaptation strategies necessary due to changing climatic conditions.

Increased demand for labour is another obvious benefit of increased investment in a country.  But China itself has no shortage of labour, and in fact, has imported a number of workers into Africa to lead the efforts in some of its activities.  This has angered some locals, who want to see these jobs given to local people, where unemployment is also a major issue.  However, the investment model to date has often been that China will fund infrastructure initiatives in Africa, but will be free to use its own burgeoning labour force to build it, and with minimum (read: no) interference by the host country.  In exchange for this, China gets virtually unlimited access to Africa’s natural resources.  This is a simplistic analysis, but not terribly far off the mark on investments undertaken to date.  But the times, they say, are a changing….

The gradual opening up of financial institutions within China will invariably lead to changes in its approach to global finance.  Conservative institutions with close links to Beijing, like the China Development Bank, are involved in traditional project finance initiatives as well as the China Africa Development Fund.    Others, like the Industrial and Construction Bank of China (ICBC) which has purchased 20 per cent of South Africa’s Standard Bank are reaching into the realm of retail banking.  This makes good business sense not only for the financial institution, but also for Chinese businesses conducting transactions in Africa, who will feel somehow more “secure” in knowing that they are dealing with a Chinese bank, or a bank that has Chinese affiliations.

As this influence grows, it will naturally evolve that these institutions will want to deal in currency that they are familiar with and it should not surprise us if the Chinese renminbi (yuan) becomes favoured over the U.S. dollar for international transactions.  This of course, will take time; China still needs to internationalise its banking system, but it is certainly moving in that direction and the possibility of the renminbi (yuan) ultimately being freely traded feels far more like a probability.  Little wonder then, that the U.S. is feeling concerned.

Certainly the U.S. have been sceptical, or downright critical of China’s increasing presence in Africa.  Some may have to ask if this is a genuine concern for the wellbeing of Africans, or if Americans are merely protecting “their patch” on African soil.

Such complexities certainly make it challenging for African leaders to know what China’s real intentions are, and what the consequences of alignment may be.   One key difference in today’s investment by China, over the rapid introduction of aid-linked foreign investment of the past, is that today African leaders will play a far more important role, and have far greater power, in determining outcomes for their countries.

If this is so, then civil society will also need to play a key role to ensure that Africa’s leaders are making choices that are in the best interests of the long-term well being of their countries. This will require considerably increased transparency and accountability.  Leaders should be taken to task when the structures for good governance are not in place, and a strong partnership should be forged between civil society organisations and governments.  This will, in turn, allow for a stronger overall voice at the negotiating table across from China, or anybody else wishing to do business here in Africa.


Written by Mar(k)

March 22, 2010 at 12:11 pm

2 Responses

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  1. A balanced and realistic analysis.China is the current rage in the so-called economic development.However this has been a huge drawback for human rights and democracy in Africa.Zimbabwe is one specific case where China’s support is supplanting democratic spaces.

    China’s economic successes are appreciated and beneficial but they must be grounded in respect for fundamental human rights.China must also practise fair labour practices and values to her citizens.

    There is need to change the business-mindset which is focused on exploiting Africa’s natural resources. The focus should be on developing and investing whilst playing by the natural rules of natural justice and fairness.The unreserved employment of Chinese workers only, will in the long term result in political and economic instabilities.Chinese and foreign workers have been subjected to extreme xenophobic and racist attacks,especially in Southern Africa.This may be another political time-bomb waiting to happen. When countries like India and China aspire to be military superpowers we need to be worried.China’s role in supporting beleagured dictorships Burma and Zimbabwe portends a dangerous future for peace.

    Upenyu Giles Chihota

    June 27, 2011 at 3:25 am

    • thanks for reading, and for your comments. indeed, we certainly agree that the rules of engagement when investing anywhere, need to be respect for human rights, as well as fairness and justice, as you correctly point out. best regards, Mar & Mark


      June 27, 2011 at 4:45 pm

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