Africa: China’s Sandbox

By Salem El Tabal

Despite the global economic crisis, Africa’s GDP has been growing rapidly; Africa has been averaging almost 5% growth annually since 2000 and is expected to rise even further in the near future. This growth is not exacerbated just by resource-rich countries, many of which have undergone civil wars and therefore periods of economic instability, but rather 20 states in sub-Saharan Africa, uninvolved in the production of oil have managed to average GDP’s growth rates of 4% or higher between 1998 and 2008 (Devarajan & Fengler, 2013). The continent has also managed to attract an attractive amount of foreign direct investment (FDI), at around $50 billion a year (Devarajan & Fengler, 2013), with this private capital now beginning to exceed foreign aid to the continent; and signaling an era where private corporations are gunning for the continent’s health and future prosperity more than foreign governments. As well as this, the quality of human capital has increased as between the years 2000 and 2008 secondary school enrollment has increased by nearly 50% (Devarajan & Fengler, 2013), driving the efficiency of each individual worker up and motioning a transition from Africa’s traditional agricultural-heavy primary sector economy, making up 60% of the workforce’s business (Devarajan and Fengler, 2013), to a secondary sector economy focusing more on manufacturing of goods. 

China, a country that used to be poor, economically vulnerable, and plagued with famine has transformed its economy and structure, now ranking as the second strongest economy in the world, with huge GDP growth rates that could position it as the strongest economy in the world in years to come. Trade between Africa and China stood at US$166 billion in 2011, with China lending billions of dollars and introducing an expansive credit policy with exceptional facilities and loans often secured by agreements that mortgage the natural resources of borrowing countries. The commitment by China into expanding and owning enterprise in Africa has been seen as attempts at neo-colonialism of the continent as it becomes highly reliant on FDI and support from foreign states. Examples of this FDI include the debt of Angola that has been agreed on by its oil resources, or loans granted to Zimbabwe and the Democratic Republic of the Congo that are conditioned on privileged access to their subsoil, increasing the reliance on Chinese firms (Gakunzi, 2019), with countries such as Djibouti owing up to 77% of their debt to Chinese FDI (Sébastian Seibt, 2021), as well as the utilization of military ports put in place by China. The image becomes clearer of a Chinese-owned Africa. 

However, there is still much progress to be made in Africa. African countries, especially those that are rich in resources, often fall prey to what the economist Daron Acemoglu and the political scientist James Robinson in their book “Why Nations Fail” have termed “extractive institutions”: policies and practices that are designed to capture the wealth and resources of a society for the benefit of a small but politically powerful elite. One result is staggering inequality, the effects of which are often masked by growth statistics, not considering the increasing gap between the richest and the poorest of the continent. 

 Much of Africa’s governments suffer from rampant corruption, and most of its infrastructure is in poor condition, leading to government failure in allocating the scarce resources it has in the most efficient manner. Many governments struggle to provide basic services, with teachers in Tanzania’s public primary schools absent 23% of the time, and government-employed doctors in Senegal spending an average of only 39 minutes a day seeing patients (Devarajan & Fengler, 2013). Such deficiencies will become only more pronounced as Africa’s population booms, but there is still time to target these problems via increased funding and stronger democratization processes. 

China has made inroads to upbuilding the continent and growing its GDP growth, focusing particularly on the construction of infrastructure, creating reliable and stable credit systems, and expanding energy production. Currently, there are over 10,000 Chinese-owned firms (Kartik Jayaram, 2017) operating throughout the African continent, and the value of Chinese business there since 2005 amounts to more than $2 trillion, with $300 billion in investment currently on the table. Beijing announced the $1 billion ‘Belt and Road’ Africa infrastructure development fund in 2018, with President Xi Jinping stating that “inadequate infrastructure was the biggest bottleneck in Africa’s development” (Reuters, 2018). Moreover, President Xi Jinping announced a $60 billion aid package, explaining the partial breakdown as “$20 billion in credit lines, $15 billion in grants, interest-free loans and concessional loans, and $10 billion in investment financing.” (Mariama Sow, 2018). This increase in grants and interest-free loans will help bolster local communities, on condition that these loans are easy for the public to access, allowing for more businesses to operate, as well as creating more jobs and shifting focus away from an agricultural economy – one of the top priorities for the continent if economic growth is to sustain endogenously. 

“Right now you could say that any big project in African cities that is higher than three floors or roads that are longer than three kilometers are most likely being built and engineered by the Chinese. It is ubiquitous,” states Daan Roggeveen, an author of work focusing on the urbanization in China and Africa. The figure above shows the distribution in investment by Chinese state-owned enterprise (SEO), the strong focus on transport and energy, allowing for more trade and stronger social mobility (via stronger infrastructure allowing the free movement of people) with the aim of pushing people up the social ladder and improving living conditions and opportunity. 

China has been able to fill a power vacuum left by retreating old colonial powers through copious amounts of investment and interest. With a desire to obtain raw materials and energy to help sustain their own economic growth in attempts to industrialize the continent and stabilize the economy, the outlook for a Sino-African future of mutual benefit looks hopeful, but unmet political needs must be addressed to ensure that the growth is seen by all, and not just by an elite minority.  

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

Image Source: Unsplash Photo Community @finding_dan 

References: 

Devarajan, S., & Fengler, W. (2013). Africa’s Economic Boom: Why the Pessimists and the Optimists Are Both Right. Foreign Affairs92(3), 68–81. JSTOR. https://www.jstor.org/stable/23526837?ab_segments=0%252FSYC-6061%252Fcontrol&refreqid=excelsior%3Aa324593d09a21b7aa62f226b76a28449 

Gakunzi, D. (2019). Beliefs and Reality. Jewish Political Studies Review30(1/2), 226–229. JSTOR. https://www.jstor.org/stable/26642825?ab_segments=0%252FSYC-6061%252Fcontrol&refreqid=excelsior%3Ae31f4a5dc7efc148266e952f56ec0ba4 

Kartik Jayaram, Omid Kassiri, & Irene Yuan Sun. (2017, June 28). The closest look yet at Chinese economic engagement in Africa. McKinsey & Company; McKinsey & Company. https://www.mckinsey.com/featured-insights/middle-east-and-africa/the-closest-look-yet-at-chinese-economic-engagement-in-africa 

Lutz Goedde, Amandla Ooko-Ombaka, & Pais, G. (2019, February 15). Winning in Africa’s agricultural market. McKinsey & Company; McKinsey & Company. https://www.mckinsey.com/industries/agriculture/our-insights/winning-in-africas-agricultural-market 

Mariama Sow. (2018, September 6). Figures of the week: Chinese investment in Africa. Brookings; Brookings. https://www.brookings.edu/blog/africa-in-focus/2018/09/06/figures-of-the-week-chinese-investment-in-africa/ 

Reuters. (2018, September 3). China is not funding “vanity projects” in Africa, Chinese President Xi Jinping says. CNBC; CNBC. https://www.cnbc.com/2018/09/03/chinas-president-xi-jinping-on-belt-and-road-initiative-in-africa.html 

Sébastian Seibt. (2021, April 9). Djibouti-China marriage “slowly unravelling” as investment project disappoints. France 24; France 24. https://www.france24.com/en/africa/20210409-djibouti-china-marriage-slowly-unravelling-as-investment-project-disappoints 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s