This article sets out to provide an overview of Chinese involvement in Africa and an assessment of the various costs, benefits and other effects of that involvement. We begin by laying out some of the high-level evidence for the Chinese presence in Africa – financial, political and otherwise. We then delineate and assess the costs and benefits of this relationship from China’s and then Africa’s perspectives. Next we examine potential dependencies created by the relationship and related issues of trade compatibility and competition. These analyses reveal clear costs and benefits on both sides, which, when taken together, have ambiguous net effects. In conclusion it becomes clear that China is involved in many aspects of African economic and political life, and that involvement has benefited many while costing others on both sides of the relationship. As with most complex issues of international trade and development however there are no clear value judgments or permanent winners and losers at the macro-level, simply complex effects that will continue to develop and change over time.

Intro

China’s role in foreign direct investment and economic growth in Africa is significant and has grown in recent years.  Although in 2007 financial flows from China to Africa were still smaller than those from Europe or the U.S., they were catching up quickly and had reached a meaningful level, over $6bn as compared to the U.S.’s $10bn (Brautigam 2011, 184). China’s involvement in Africa has taken the form of direct investment, but it has also extended to aid and even to direct involvement in the affairs of African governments and intra-continent conflicts.

Chinese investments and economic activity in Africa are significant.  Overall bilateral trade between China and Africa increased from $10bn in 2000 to $166.3bn in 2011 (Brautigam 2013). Over 600 Chinese-funded enterprises were established in Africa between 1995 and 2005 (Alden 2005). And as is often noted, there has been significant Chinese investment in the African energy and natural resources sectors. For example, China National Petroleum Company (CNPC) made a $350m purchase of oil refineries in Algeria in 1993 and purchased the largest share of the Sudanese Greater Nile Petroleum Operating Company in 1996 (Alden 2005). However, Chinese investment in Africa has actually extended far beyond these oft-cited resource-extraction industries and now includes other industries such as information communications technology. The Chinese telecom giant Huawei for example has poured over $1.5bn into fixed assets on the African continent (Huawei 2014). Chinese investment has extended to the financial sector as well, for example when the Industrial and Commercial Bank of China bought a 20% stake in South Africa’s Standard Bank for about $5bn – the single largest investment by a Chinese entity in Africa (Brautigam 2013).

China has also become an important contributor of aid to African countries. China announced its goal to contribute $20bn in aid finance to African countries between 2012 and 2015 (Brautigam 2013). Although this was less than the U.S. average of about $9bn per year it was still considerable and certainly meaningful for African nations. Throughout this paper we will point out areas like this one where China’s involvement in Africa is significant, but still not as great as that of other nations, in order to ground our conclusions in relative, realistic terms.

 

Benefits and Costs for China

China’s presence in Africa has a number of implications for the Chinese state, economy and people. Some are positive, some are negative, and many have ambiguous and as-yet undetermined effects.

First and foremost, China has been and continues to be in great need of natural resources required to fuel rapid economic growth. It first became a net importer of oil as early as 1993 (Brautignam 2011, 78). Since then, Africa has proven itself an important quencher of that demand. The China National Petroleum Company (CNPC) has invested over $15bn in Sudan for example (Michel 2009, 170), and Sudan now provides 6% of China’s oil imports (Alden 2005). Angola provides another 14% (USEIA 2014).

Second, China’s involvement in Africa has enabled it to garner much-needed multilateral support of African delegations at various international organizations. For example, African support at the UN Commission on Human Rights has helped prevent condemnations of China, and China’s winning bid for the 2008 Olympics was certainly aided by votes of African nations (Alden 2005). It is also theorized that African support at the WTO will help China advance its agenda there in the future (Alden 2005). And of course, China’s drive to shore up international allies in support of its bid to have Taiwan recognized as part of China underlies all of China’s relations with other nations.

Africa also serves as an important market for low-cost Chinese consumer goods (Alden 2005), which is positive for Chinese manufacturing industries in need of foreign consumers. This is true even in industrialized South Africa, as we will discuss further in section 6.

There have been significant costs to Chinese interests in Africa as well. In particular, there have been economic costs associated with troubled investments on the Africa continent, including China Sonangol’s supposed $8bn diamond transaction in Zimbabwe, Chinese finance of $2.3bn for Mozambique’s Mpanda Nkua dam and a $686m railway project in Mauritania. According to the Heritage foundation these are just some of the Chinese bets in Africa that have failed to pay off (Brautigam 2013). Examples like these help to illustrate the difficulty and inherent risk in emerging-market investment projects, especially large-scale ones. China has not been immune to these risks and Chinese enterprises have paid the price.

Chinese involvement in African has created a potential dependency on the region as well – a 2005 survey of 150 Chinese firms with overseas projects revealed that almost 20% were in Africa (Brautignam 2011, 190). This kind of exposure to a single geography means that swings in African investment returns or stability will have a disproportionate effect on China’s portfolio of foreign investments. We will discuss issues of dependency more in section 5.

 

Benefits and Costs for Africa

Chinese involvement in Africa has benefited African governments, economies, and people in a variety of ways. First, Chinese involvement has had a direct impact on the GDPs of many African nations. For example between 1995 and 2005 Chinese demand for commodity goods had  noticeable impact on the GDPs of Angola, Burkina Faso, Sudan, Nigeria, the Congo and Zambia (Peters 2011). Insatiable Chinese demand for natural resources has also helped to drive up prices in Africa and create a market for export. Taking an example from the natural resources sector, we see that nickel peaked at a 13-year high in 2003 and zinc a 7-year high in 2004; Chinese imports of both played a significant role in these fluctuations (Alden 2005).

China is also giving African economies preferential trade status. 440 commodities were given zero-tariff status when exported to China in July 2007. Although an obviously biased source, the Chinese Minister of Commerce’s calculation is still directionally illustrative: he estimated that the zero-tariff program had transferred about $680m to 31 African countries in the period between 2006 and 2008 alone (Brautignam 2011, 96).

Chinese investment in Africa has benefited consumers as well as business. Investments in sectors like telecommunications have delivered new services at scale to Africans across the continent; Huawei and ZTE alone now provide over 300 million Africans with communications services in 50 countries (Marshall 2011). Citizens of African nations now have access to new goods and services like these thanks to China’s involvement on the continent.

African countries have also been added to China’s “approved” list of foreign destinations, a development that has benefited the African tourism industry. Zimbabwe alone experienced a 40% increase in Asian tourist visits since 2003 (Alden 2005).

In addition to commercial economic benefits, there have been direct financial benefits to African governments as well. As part of the China-Africa Cooperation Forum in 2003 China forgave loans of about $1.27bn to 31 African countries (Alden 2005). China’s willingness to forgive African debt signals its commitment to the region and directly benefits debtor nations there.

But African governments have received more than debt relief from China – some also get security and military support. China provided training and uniforms to Mozambique’s military in the 1990s and fighter jets to Zimbabwe (Alden 2005). China has also uncharacteristically involved itself in peacekeeping activities on the continent, sending forces to both Liberia and the Congo (Alden 2005).

There have of course been significant costs to Africa as well. Some are directly measurable, and others are more qualitative and will take longer to fully materialize. For example, there is clear evidence that China has been selling arms into African conflict zones, in one case to the Sudanese government in Khartoum, which used them against the Southern Sudanese. During the Ethiopian-Eritrean War, China sold arms to both sides of the conflict (Alden 2005).

Although the cost of violent conflict is clear, it would be unfair to characterize China’s military involvement as a completely disruptive force on the continent. China was not the only contributor of arms to Sudan (Russia was Sudan’s primary provider of military aircraft and weapons), and it was China that ultimately persuaded Khartoum to permit a peacekeeping force in Darfur. Even President Bush remarked that “China in my view has been very cooperative” (Brautignam 2011, 282). So with this example we see that costs and benefits of Chinese involvement in African are often very mixed and difficult to discern as wholly positive or negative.

An obvious but difficult-to-measure cost is the political restriction many African states experience after involving themselves with China. One of the most powerful examples is China’s insistence that partners adhere to a “One China” policy and cut off relations with Taiwan (Alden 2005). States that want to continue receiving investment and aid from China may feel pressure to kowtow to China’s position on matters of international relations. In this manner states may lose some of their political independence lest they lose out economically.

Although Chinese investment spurs growth in African economies, these investments have had ambiguous effects on job creation. At the center of the conflict is China’s use of imported Chinese labor. For example, in Sudan the number of Chinese workers rose from 24,000 in 1996 to 74,000 by 2005 (Alden 2005). Observers have often used examples like these to cite the negative effect China is having on the potential development of local manufacturing sectors across Africa – by 2000 Chinese companies had invested in 230 manufacturing projects across the continent (Brautignam 2011, 190). Chinese companies of course paint a different picture – for example Huawei claims to have trained 12,000 local engineers (Marshall 2011). In other sources the company claims to have created over 10,000 jobs in Africa (Huawei 2014). It is important that the benefits of Chinese industrial and commercial development in Africa be weighed against what may be a disproportionately small or at least ambiguous impact on local African job creation.

Finally, China’s involvement in Africa poses a real, albeit difficult-to-measure political cost to citizens of many African nations. Because it does not come with the strings of foreign aid and investment, it is argued that Chinese investment can help prop up chronic human rights-violating regimes that can no longer receive aid or support from Western governments (Alden 2005). This is one of the main criticisms leveled by the West against China’s mostly hands-off style of aid and investment – that it does not take into account the behavior of local governments and regimes and thereby creates very real costs for the people who must live under them.

    

Potential Dependency Issues and Other Risks

In delineating the various costs and benefits of Chinese involvement in Africa we began to examine potential dependencies. However, as with most complex issues of international trade and development, these dependencies may not be all that they seem.

For example, we have examined the heavy use of imported Chinese labor and the claim that it will prevent local manufacturing from developing, thereby making African business dependent on Chinese involvement and support. In Lesotho for example, the largest private-sector employer is the textiles industry, and after ten years of operation there are still no local owners – 21 Taiwanese and two Chinese producers dominate the market (England 2013). However, nascent sectors can be jumpstarted when those with more experience take the lead. So Chinese-led projects, even ones that employ Chinese labor, can create “spillover” effects and spur local development. As Brautignam points out in her book, initial Chinese-led manufacturing in Nigeria and Tanzania has led to a growing automotive parts manufacturing industry there with diverse owners and operators – including Africans (Brautignam 2011, 209). So the seeming dependency of African industry on Chinese expertise may actually be a less problematic in the long-run than it seems in the short-run. Although African business may be dependent on Chinese involvement in the short-term, nations like Nigeria and Tanzania have shown that over a longer time horizon local independence can develop.

As we have seen, China’s involvement in Africa can also create political dependencies. African nations are pressured to support Chinese positions, such as the “One China” policy at international organizations like the U.N., lest they lose out on valuable aid and investment in the future. This effect and influence is very real. In 2011 it appeared in the most developed country in Africa, when South Africa refused a visa for the Dalai Lama to attend Archbishop Desmond Tutu’s 80th birthday celebration (Russell 2013). As Africa emerges and its nations, industries and companies increasingly operate on the global stage, their success may be partially dependent on African governments’ willingness to acquiesce to Chinese political positions.

On the flipside, Chinese involvement in Africa is creating dependencies of China on Africa as well. Africa has fueled China’s seemingly insatiable need for resources – most importantly oil – but that supply comes at the potential cost of energy security. As of 2009 Africa was supplying 30% of all Chinese oil, as compared to 15% of the U.S.’s (Michel 2009, 178). As previously mentioned, Sudan is a significant contributor, and as the only African country that has allowed China to develop its own oil facilities there (Michel 2009, 176), an important example of a potential dependency at work. China’s control of the Sudanese oil industry creates a kind of mutual dependency – in this case Sudan is reliant on the Chinese to develop their oil reserves and little local expertise is developed. On the other hand China grows increasingly dependent on oil imports, and although it has attempted to protect energy security by developing its own production facilities in Sudan, it is still reliant on these offshore capabilities for a major share of its energy production. In no case is this risk more apparent than in Sudan and South Sudan, whose oil exports to China had dropped to virtually zero barrels in 2012 after production ceased due to political strife and violence (USEIA 2014). In part due to this conflict, Africa’s 30% share of Chinese oil imports had dropped to around 20% by 2013 (USEIA 2014). This is an important dependency at work. The greater share of oil imports China receives from Africa, the more dependent it is on the security of that region.

Rapid growth and intensive investment in African business also potentially exposes other Chinese industries and companies to Africa-specific risk. For example, the Chinese telecom giants Huawei and ZTE now generate 12-13% and 11% of total revenue from Africa respectively (Marshall 2011). For world-stage aspirants like Huawei and ZTE, excessive exposure to Africa has the potential to create a dependency on growth there.

All the aforementioned economic dependency issues must be taken with an additional grain of salt however: China’s financial involvement in Africa is still outpaced by Europe’s. While this fact does not in and of itself disprove arguments for dependency, it does mean that we should be wary of putting too much emphasis on China’s involvement in Africa; after all, other regions, namely Europe, create similar issues of dependency. In fact, a 2013 Ernst and Young report revealed that one of the largest investors in Africa is now Africa itself, as African nations invest in projects in other African nations. South Africa for example was the largest foreign investor on the continent as measured by new projects, with 75 investment projects opened abroad (Fortin 2013).

Trade Compatibility and Competition

In one of the sectors that has been most critical to China’s economic involvement in Africa, oil, there is certainly more trade compatibility than competition. China is now the largest energy consumer and producer in the world, and is set to surpass the United States as the largest net oil importer by the end of 2014 (USEIA 2014). China needs oil to augment its largely coal-driven energy sector and Africa is providing a significant portion of that demand.

As we have discussed, Africa is also proving a valuable market for inexpensive, low-quality Chinese manufactured goods. So here there is some compatibility as well. There is also great competition however, as has been seen in South Africa. There, domestic manufacturing and exports to other sub-Saharan countries has been threatened by Chinese imports (Jenkins 2012). And in 2012 South Africa still carried a trade deficit with China, importing about R112bn from China and exporting just R89bn (England 2013). These kinds of trade imbalances are being seen across Africa as China extracts natural resources and floods African markets with cheap consumer goods (England 2013).

On the other hand, it is imaginable that in the long-term the development of indigenous African manufacturing could pose a competitive threat to China as well. Although China is far ahead of Africa, there could come a time when Africa’s proximity to Europe and the U.S. makes its manufacturing and exporting of low-cost consumer goods a threat to Chinese producers.

Issues of trade compatibility and competition are complex, and seemingly contradictory effects must be studied carefully. In a free market, all trade is voluntary, and therefore makes both parties better off. However, in the case of China and Africa other coercive effects may be involved in specific arrangements or deals, for example when the threat of revoking Chinese political or financial support is involved. Assessment of trade compatibility and competition between China and Africa must therefore not jump to the conclusion that because trade takes places it benefits both parties, African countries for example may feel pressure to service certain Chinese demands in order to reap benefits in other areas.

Conclusion

As we have seen, China’s involvement in Africa is increasing, and has reached meaningful scale for both sides in matters of trade, investment, aid and even political involvement. And while we must be careful not to overstate China’s influence as compared to that of Europe, the U.S., other Asian nations and African nations themselves, it is clear that both sides have benefited greatly. China has gained access to critical natural resources, has amassed additional international support for its political agenda, and has also gained a valuable export market for consumer goods. On the other hand, Africa has gained a valuable export market of its own, has seen valuable economic growth thanks to Chinese investment, and governments have received considerable aid and even military and political support. GDP growth in sub-Saharan Africa is expected to exceed 6% in 2014, greater than the expected global average of 4% (Fortin 2013). African consumers have also been given access to new goods and services thanks to Chinese expansion on the continent.

The benefits have not been without costs however. Many investments have cost China dearly, as illustrated by numerous large, failed infrastructure and development projects. And although African economies have grown, they now face issues of indigenous industry development, job creation, and political dependency thanks to China’s considerable involvement. China is now dependent on Africa for a significant portion of imported oil, and African industry, especially manufacturing, is dependent, at least for the short-term, on Chinese ownership and expertise. African nations are increasingly beholden to China on the world stage, experiencing pressure to support its political agenda and priorities.

So what are the implications of China’s involvement in Africa? As we have shown, there are many which are positive, and many which are potentially negative. Examining any particular issue with a careful enough lens reveals there are both benefits AND costs. China is clearly contributing to African economic growth, but the long-term side-effects and sustainability of that contribution are still unclear. African nations should continue to make sure they benefit from China’s need for resources and export markets, and attempt to get all they can from Chinese investment and aid. They should be careful in doing so however, and be on the lookout for political and other dependencies which could threaten their self-interest in the long-term. For its part, China should continue to invest in Africa so long as the economic and political benefits of doing so outweigh the costs.

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