The search for China’s true intentions in Africa has received significant media attention as of late. While many pundits have seen China as a genuine partner to Africa in its development, others believe its engagement is largely exploitative – a parasitic relationship, driven primarily by China’s interest in Africa’s resources. In reality, however, the nature of Sino-African relations is complex, ambiguous, and difficult to define as predatory or mutually beneficial.
The Chinese government has been investing in African countries since the 1950s, but Chinese involvement in the region first attracted international attention in the 1990s, when China was faced with economic sanctions from the West and political isolation after the crackdown in Tiananmen Square in 1989. Thereafter, the Sino-African relationship saw notable improvements in trade, investment, development assistance, technology transfer, and training. Both private and state-owned enterprises (SOEs) from China increased their investments in Africa.
Between 1980 and 2009, trade between China and African countries increased from $10 million to more than $160 billion, and in 2012, investments peaked at an extraordinary $199 billion, marking a growth rate that is twice that of total foreign trade in China. Chinese investment has, in turn, enabled Africa to achieve a record economic growth rate of 5.8 percent in 2007 alone. So, it is clear, despite recent criticism, that Chinese investments have contributed significantly to Africa’s development.
But is China genuinely interested in contributing to African development? To answer this question, we must address a number of key misconceptions about China’s interests in African natural resources.
Many have erroneously attributed China’s involvement in Africa purely to the latter’s abundance of natural resources, which helps fuel Chinese businesses. However, there are other driving factors that are often overlooked in analyses of the Sino-African relationship. While it is true that the rapid growth of the Chinese manufacturing sector has created increased demand for natural resources, Chinese businesses view Africa as an excellent potential market for Chinese products. Chinese investments are the result of economic reform in many African countries, where newly liberalized markets have increased economic activities with foreign countries. The privatization of SOE’s in China over the past few decades has also required businesses to scout for new investment opportunities outside of the country to complete their transition, thereby fuelling China’s outward-facing orientation.
A second popular misconception is that China mostly imports primary goods from Africa and invests mostly in the extractive sector. On the contrary, Chinese SOE’s and private companies are investing in more than they are extracting from Africa. The scale of investment, however, varies widely by sector and country. In 2012, both Chinese state-owned enterprises and private sector firms invested $14.7 billion in foreign direct investment in Africa, and overall, Chinese foreign direct investment in the region has exceeded $40 billion.
To this end, China’s imports of crude oil from Africa have been subject to controversy, leading many to conclude that China disregards the environmental consequences of natural resource extraction. 62 percent of China’s crude oil is sourced from the Middle East, whereas only 9 percent comes from Africa. In comparison, the United States and Europe import 32 and 33 percent of their crude oil from Africa, respectively. China also holds less than 2 percent of Africa’s known reserves. Of all the international oil corporations operating in Africa, more than 65 percent of them are Western-based firms. Thus, we see that China’s national oil corporations have had a much smaller impact on the region than other international oil companies.
Having addressed these two major misconceptions, it is important to understand why Sino-African relations have strengthened over the years. For one thing, the Chinese government imposes no political conditions on African governments before signing contracts either for extraction or other economic activities. This is reflective of the fact that Chinese firms are simply willing to invest where western companies are not. Western aid agencies have been reluctant to underwrite industrial, agricultural, and physical infrastructure projects. The United States Agency for International Development (USAID), for instance, has not funded heavy infrastructure projects in Africa since the late 1970s. In the 1990s, the World Bank and USAID reduced support for agriculture by as much as 90 percent.
Recently, in fact, the World Bank pulled its support for palm oil farmers in Africa because of (misguided) pressure from environmental NGOs. These bank loans, which have been humanitarian and economic triumphs for the revival of the palm oil industry, have given many countries hope that their economies will not be forever hostage to a particular sector or product. Unfortunately, the World Bank and other western organizations have wavered in their mission to reduce poverty by these means and are increasingly focusing on achieving more fashionable political and social goals. The recent dearth of western involvement in the region has further opened up the opportunity for Chinese firms to invest. Finally, China’s demand for minerals and other extractives has increased the global prices of commodities, such as copper and aluminium. This demand for minerals has helped reverse the age-long decline in prices and give African governments a much-needed revenue source and economic boost.
With China’s foreign direct investment in Africa increasing at an unprecedented rate, the impact of these investments on host countries cannot be easily described as either purely beneficial or detrimental. The truth is more complex. Most critics of Chinese investment have glossed over the fact that African countries have different comparative advantages and export potentials that cannot produce equal gain in the context of the global market. The impact that Chinese investment will have on host economies is therefore dependent on four important factors: the motives of the investing firms, the time horizon of the investment, the extent of the host country’s linkages to other firms, and the capacity of local firms to absorb spill-over and face competition. That means that given the comparative advantage and availability of resources, different African countries would benefit to varying degrees from greater trade with China.
There are two conditions under which a country can benefit from Chinese investment. First, an African country that exports a product that is then imported by China stands to gain from an economic relationship with Chinese firms. Export-oriented trade stimulates growth in the domestic economy. Second, the consumers in an African country that import products from China may gain from trade to the extent that Chinese goods are associated with lower prices. At the same time, African exporters are likely to suffer economic losses caused by lower prices and reduced market share as a result of Chinese entry. Moreover, African countries that import goods that are also imported by China are likely to incur trade-related loss, as they will face rising prices due to increased competition from Chinese exporters.
As a whole, Africa has historically benefited from Chinese investments, with significant gains in infrastructural development, investment, trade, and human capital development. Increased imports from African countries have enabled African commodity producers, for instance, to command higher prices. Nevertheless, the Sino-African engagement also imposes considerable challenges to African countries, particularly to those that do not have diversified economies. For such countries, Chinese investment in a specific industry would limit the growth of other sectors in the country. Therefore, African countries must strive to leverage Chinese engagement for maximum benefit by taking into account their own economic contexts.
This means that African leaders and governments must play their political cards well – not only as leaders of individual countries, but also through the collective mechanism of the African Union. African governments, the African Union, and civil society must work together to establish a constructive policy framework to ensure that Chinese foreign direct investment makes a positive net contribution to their economies and societies. If this engagement is poorly managed, Africa risks missing a unique opportunity to advance its political, economic, and social development.