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Jan 04 2013
Much to celebrate, but much to work on
Along with the rapid development of Sino-Africa relationship, Chinese investments in Africa have attracted huge attentions, which not only contributed to development of both China and Africa, but also induced significant strategic and theoretical implications worldwide. Reached a historical level, it’s urgent to upgrade China’s investment in Africa for promoting its sustainable development.

It has experienced three phases since China began to invest in Africa in the 1980s. In the early days, Chinese businesses relied heavily on government-sponsored assistance projects to gain a presence in local markets. The investment was mainly in the forms of equity joint ventures, cooperative joint ventures and leasing. At the same time, some companies with long-standing trade relations in Africa started setting up factories on the continent. During this period, due to the limited strength of Chinese enterprises, most of their investment projects were small. Between 1979 and 1990, China invested 51.19 million USD in 102 projects in Africa, equivalent to 500,000 USD per project.

China’s investment in Africa witnessed a steady expansion in 1990s under the background of Africa’s improved investment environment and Chinese businesses’ emerging. During the decade, investment was diversified as the targets of funding expanded from textiles, agro-processing and machinery equipment to mining, manufacturing and services. The compostition of investors diversified from a state-owned, private and self-employed businesses, whose investment took the forms of both solely-funded enterprises and joint ventures.

Since 2000, China’s investment in Africa entered into a fast track facilitated by both governmental policies as well as market drivers. There are two main policy frameworks on the policy side. The first and most important one, the Chinese government’s “Going Out” policy, outlined in its 10th Five-Year Plan (FYP, 2001-05) and reaffirmed in the latest 12th FYP (2011-2015), has been a key driver of Chinese SOE investment in Africa. The second and most relavant one, the establishment of Forum on China-Africa Cooperation (FOCAC) in 2000 that created 3 platforms for promoting Chinese investment in Africa, including the China-Africa Development Fund (ADF), the Trade and Economic Cooperation Zones, and Special Loan for African SMEs. On the market drivers, it’s often just a bunch of scrappy, entrepreneurial types typically from southern Chinese provinces like Zhejiang, Fujian, and Guangzhou who set out for Africa initially as small traders, but realize that there are other opportunities where their skills and capacity for hard work can turn into profits. Indeed, entrepreneurs from Fujian, Anhui, Zhejiang have done more for Africa than Bob Geldof, Tony Blair, and Bono put together.

Over the past 30 years, China has made a sizeable investment in Africa. According to the Chinese Ministrial of Commerce, in 2010 China invested $2.1 billion in Africa represents 3.1% growth than 2009 (Figure 1). Africa now has become a major investment destination for Chinese enterprises, where over 2,000 Chinese companies have invested in various sectors ranging from electronics, telecommunications to transport. Chinese investment in Africa represents a small—3 to 4 percent in 2011—but growing piece of total Chinese outward foreign direct investment (OFDI) worldwide. Africa is the third largest recipient of Chinese OFDI behind Asia and Europe. By the end of 2011, the cumulative Chinese direct investment net stock in Africa reached $14.7 billion, jumped 60 percent from 2009.

China’s investment in Africa is not so contrated as other powers and western reported. In fact, Chinese investments reach 49 African countries and regions, the fraction of coverage is about 83%, second to Asia, and much higher than the average rate (71%); this figure is also much higher than other powers in Africa, including USA, EU, India, Brazil, Turkey, and South Korea, etc. For example, in 2010, the top 10 African recipients are South Africa (31.8%), Nigeria (9.3%), Zambia (7.2%), Algeria (7.2%), DRC (4.8%), Sudan(4.7%), Niger (2.9%), Ethiopia (2.8%), Angola (2.7%), and Egypt (2.6%), sharing 76% of all Chinese investment in Africa (Figure 3).

If looking into the America case, the top 10 African recipients are Egypt (22.89%), Mauritius (14.32%), South Africa (12.10%), Algeria (10.35%), Nigeria (9.31%), Angola (8.75%), Libya (5.26%), Ghana (3.97%), Equatorial Guinea (3.81%), and Liberia (1.59%), sharing 92.35% of American total investment in Africa, the rest 44 countries only account 7.65% (Figure 4). While in Chinese case, the rest 39 countries acount 24%.

Most western anylists believe that the main driving force for China’s investment in Africa is for searching African natural resources, which is not so concrete as well, especially when comparing with that of America. Investment strategies of Chinese companies are increasingly diversifying, from agriculture, mining, to manufacturing, service, infrastructure, capability building, human resource training, and so on. According to a report by Carnegie Endowment for International Peace, during the period from 1979 to 2000, 46% of Chinese investment in Africa flowed to manufacture (15% textile industry), mining 28%, service 18%, and agriculture 7%. In 2009, only 29% of Chinese investment goes to mining. For American case, in 2010, 56.6% of American investment in Africa goes to mining sector, then service more than 30%, manufacturing and agricultue together less than 10%.

And finally, it’s not national companies that dominate China’s investment in Africa. With Africa’s rising and Chinese SMEs growing, more and more Chinese SMEs prefer to invest in Africa. Now, SMEs share 85% and more in the total more than 2000 Chinese companies that operate in Africa.

While growing fast, China’s investment in Africa is facing a lot of challenges. The most significant one is there is an urgent need for upgrading Chinese investment in Africa. Yes, China’s investment, espeically those in infrastrure, has contributed a lot to African post-conflict reconstruction and sustainable development fostering. However, most of Chinese investment go to those field with low value-added. In other words, China’s investment in Africa lies in the bottom of the value chain, which means not only low compititiveness when facing international opponents, but also risks of lagging behind once African economy turns to sustainable development phase.

Overseas interest protection is another big challenge for Chinese investment in Africa. The risks derive not only from the market uncertainties, but also from the political and societal unstability and even competitions from other powers. The 2011 “Arab Spring” has proved such a need when Chinese government had to evacuate more than 35,000 Chinese in Lybia.

Investment management is also at risk if the current situation sustaining. With the diversification of actors and interests envolved into China’s Africa policy, especially Chinese investment in Africa, the policy coordination and management are becoming important, considering the sharp criticisms about Chinese “neo-colonism”, the “second scramble for Africa”, Chinese companies’ poor performance in related to coporate social responsibility, Chinese workers and immgrants, etc.

Last but not least, there is a sign of losing spirit of innovation in terms of China’s investment in Africa. Many Chinese businessmen and even official feel quite content to the status quo of China-Africa economic relationship and do not think forward to the future development trends of Sino-Africa relationship.

Thus, to harness and facilitate Chinese investment in Africa, both Chinese government and bussinesses should streamline investment management, strengthen peace and security cooperation with Africa, improve capability of protecting overseas interests, and keep alert to future risks. By doing so, there’s bright future for picking up pace and improving the quality and upgrading the level of Chinese investment in Africa, laying concrete foundations for new strategic partnership between China and Africa.

Source of documents:China Daily (Africa Weekly)