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Chinese Investments And Business Interests In Africa Economics Essay

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Published: Mon, 5 Dec 2016

During past 25 years Chinese economy has changed a lot, from being a closed economy to the international trade towards being a market oriented economy. China is rapidly growing in private sector and is a major economical force in the Global economy nowadays. This transformation and increase in the efficiency has boosted the Chinese economy and its GDP has grown ten times since 1978. In 2004, China was the 5th largest economy in the world but at the 129th position with respect to the per capita income (WORLD DEVELOPMENT INDICATORS, 2006). In 2009, China was the second largest economy after US in just 5 years. As time passes by role of China has grown in the global economy. For example, China is now a patron nation. In the year 2006, China released a policy i.e. China Africa Policy, which was meant to strengthen the very old China-Africa relationship.

China had been involved with Africa since 1960’s but now this involvement has increased many folds and is totally different. Earlier the reasons were mainly democratic but now the reasons are resources such as oil, minerals, cheap labor and new market. China needs these things for continuous growth because if that doesn’t happen then it would be facing increase in unemployment levels. But its not like China is just exploiting Africa; it is contributing to African economy’s growth too. Since 2004, Africa’s economy has grown by 6% on an average. [1] China has invested lavishly in the development of infrastructure in Africa like the Olympic style stadium and railroad in Tanzania. China provides technical expertise, doctors and various forms of aid to Africa. Right now more then 900 Chinese doctors are working in Africa.

In 1980’s China was not able to compete with western aid programs in Africa but in the 21st century China returns to Africa with loads of cash to play the game radically and effectively.

CHINA’S RISE IN Africa:

In 2006 Beijing was busy hosting delegates from 48 African states for the Summit. This summit was focused on new strategic partnership and the strengthening of economic cooperation with African countries. Since the Beijing Summit’ 2006 China has doubled the aid to Africa, increase the finance for trade and infrastructure and allow duty-free entry for many African exports. This summit pulled the attention of the west because China was on the way of becoming African continent’s biggest trading partner. This situation was perfect for China because there was consumer in desperate need of goods and the supplier with loads of it.

IMAGE SOURCE: http://images.fastcompany.com/magazine/126/the-race-for-raw-materials.gif

From the year 1998 to 2006, Africa’s export to China grew by 2126%. Critics say that China is dumping low prices cheap goods in Africa and exploiting its resources and is ignoring humanitarian concerns but this is also true that since 2004, African economy had grown by 6% on an average. Almost 1000 companies have invested in Africa since then – in factories and farms and retail and oil wells. Chambishi copper mine in Zambia is non-functional for ten years and then came the CNMC i.e. China Non-Ferrous Metals Corporation in 1998 and bought 85% for $20 million and investing another $130 million for its rehabilitation [2] .

Why is it China and not USA?

Over past few years China has become the major investor in Sudan’s oil industry and related transport and infrastructure projects. China was able to do this because earlier lots of western firms were forced to withdraw due to Sudan’s civil war and charges of discrimination and use of slavery against the people of south. This proves that China came to Africa with a complete package of strong monetary support, technical expertise and strong influence in organizations such as UN Security Council to protect Africa from international sanctions. China and Malaysia replaced all western firms and made Sudan a net exporter of crude oil and now China is its biggest customer.

West coast of Africa is the largest producer of oil on the continent and China has emerged as the major player in this region. West coast of Africa provides US with huge supply of oil. Nigeria and Angola are the major producers and China has become active in both the countries. Angola has been pressurized by IMF and western countries to make its oil sector more transparent and to make other reforms as preface to a considered donor’s conference. However Angola hasn’t been considered about making these reforms and Chinese loans and aid is seen as having had an influence.

WHY AFRICA PREFERS CHINA OVER WESTERN COUNTRIES?

China built hydro power station in Nigeria and as an incentive to that it won a license to operate four of Nigeria’s oil blocs. China has invested $7 billion in Nigeria [3] and $170 million in Zambia in past few years. China has been active in the Democratic Republic of Congo, a country gripped by civil war and instability. Instead of these unstable conditions, China has been investing in cobalt and copper mines, begun work on roads to assist export of natural resources and assisted power projects as well. In Uganda, a Chinese pharmaceutical company introduced a new anti-malaria drug. China is also supplying Mugabe with planes and arms and in return Mugabe has offered Chinese companies almost anything they want, regardless of payback.

If African countries accept loans from the IMF, then IMF will tell them to lower the wages, employ less number of teachers or doctors but China would not do that. China would not tell Africa what to do and what not to do. Due to the presence of China in Africa, the prices of minerals have increased. Due to the rising economy of China and other Asian countries there is a subsequent growth in demand, which is good for Africa. China is also investing in the areas which were ignored by other western nation till now like industry, agriculture and physical infrastructure, education and health etc [4] . Africa surely gains something from all this. Prices of commodities have sky rocketed due to huge demand from China and other Asian nations. After a low in 2001, copper prices have gone up to $8000 per ton and prices for platinum have tripled [5] .

WHY CHINA IS IN Africa?

RESOURCE EXPLOITATION OR MUTUAL BENEFIT:

In the year 2008, China Eximbank was negotiating with the Democratic Republic of Congo and the package was ultimately approved by the Congo’s parliament was astoundingly huge. China Eximbank agreed to pay $6 billion for the infrastructure development and the collateral for this was just a single cobalt and copper mining joint venture. But one thing which became very clear after the two years of studies and research about the environmental issues and the feasibility about the project that the mining would not start before the year 2010.

This proves one point that the African nations don’t have to wait for improving the infrastructure until they have the money because of China’s approach i.e. if a country has the resources to secure the loans China will provide them with loans. At that time no one was willing to invest in the countries like Democratic Republic of Congo and they needed the infrastructure development to catch the latest train of Globalization or we may say the last train of globalization for the African continent. It can not attract much aid from the donors and with all these limitations China came to help them but of course with their terms and conditions. Major part of the Chinese investment in Africa is through state-owned companies, which need not be profitable in their individual investments if they serve the Chinese objectives. For example, a representative of a construction firm in Ethiopia can bid low for tenders without even worrying for profits because China’s long term objective in Africa is not to gain profit in construction projects but to get access to the vast natural resources. China can use its technical expertise and strong financials to ignore the short term losses and get long term gains. Likewise in Kenya, ZTE, a Chinese telecom manufacturer gifted equipment worth 144 million Kenyan Shillings to Telkom Kenya [6] .

YIN AND YANG RELATIONSHIP:

The relationship between China and Africa can be called as a Yin and Yang relationship because with all the advantages there are few repercussions of the deal. When Africa accepts resource backed loans from China, they mortgage their future revenues and this decreases Africa’s flexibility in utilizing those revenues. The same Chinese companies would be involved in extracting and exporting the resources and building the infrastructure. Therefore there would be no international and transparent tenders. So no one would be able to make sure that Africa gets real value for its resources and exports.

China doesn’t attach clear state of affairs to their loans but that doesn’t mean that they do not have any preconditions. For example, when CATIC (China National Aero-Technology Import

and Export Corporation) entered in a public-private partnership with the government of Zimbabwe to start a new coral fired power plant from scratch they had their preconditions i.e. CATIC asked the government to raise electricity tariffs to cost effective levels. Chinese goods are flooding African markets similar to US markets, therefore now there is concern among the countries regarding the effect on the local industry. Also if we take a look into the textile industry Chinese export of textiles to South Africa grew from 40% to 80% by the end of 2004 and due to this reason lots of people have lost there jobs.

But its not like China has invaded Africa; it is the African leaders who has opened up the continent for the investment.

CONCLUSION:

Now we can see that the main reason for China being in Africa is that China needs to continue its growth. Therefore they need to find new source for raw materials and natural resources. Also China needs new markets for its finished goods. The rate at which consumption of oil increasing in China, its oil reserves will vanish in nest 20 years [7] . Hence China needs new resources for its hunger of oil and other resources. Western countries have already tapped into other big oil resources such as Iraq and Saudi Arabia. So that option is closed for China, after that only option left for them is the African sub-continent. Therefore China targeted the less developed and weaker countries of Africa with huge oil reserves such as Sudan with its 6 billion barrels of reserve and more to be found. Due to this deep interest of China in Sudan’s oil reserves last year they received 3 billion pounds. Right now Africa has worlds 90% of cobalt and platinum and 50% of gold [8] . This is another reason why China is so deeply interested in Africa.

China is simply adapting an economic model which worked best for the west i.e. resource exploitation, taking advantage of countries which are not strong enough. African markets are filled with Chinese goods and most of the projects are funded by China including the Chinese workers. Chinese are the major buyers of copper and cobalt in Zambia and of timber from Gabon, Cameroon, Mozambique and Liberia. They have helped in pushing up the prices of other minerals also like iron, coal and platinum which has increased the in flow of cash into Africa.

China has entered the areas in which Western firms never ventured like the areas with political instability, corruption problems, and ethical issues or due to lower profit margins. All this for long term benefits i.e. resource exploitation or we can say sucking up the nectar from the African fruit. All the infrastructure improvements are backed by raw material contracts. In Angola where government neglected the poverty problems China promised to invest $2 billion as aid but in return of oil rights. It’s certain that trade between China and Africa has increased. They surely are selling and trading but they are not manufacturing locally which is the main reason of concern. Due to this there is a high level of dissatisfaction among the citizens and increasing level of unemployment.

China is trying to establish a firm control over Africa’s natural resources. According to a World Bank study “most Chinese government funded projects in Sub-Saharan Africa are ultimately aimed at securing a flow of Sub-Saharan Africa’s natural resources for export to China” [9] .


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