China Goes to Africa as New Dynamics Emerge

September 21, 2010 Posted by Chris Devonshire-Ellis Reading Time: 4 minutes

Op-Ed Commentary: Chris Devonshire-Ellis

Sept. 21 – A new dynamism in Africa has emerged, according to the China-Africa Dialogue – a think tank and conference held at the Beijing Capital Club last Friday. Speakers including Phillip Karp and Kevin Lu of the World Bank, Professor Xue Lan, Dean at Tsinghua University, Adam Mahamat of Africa Access, and the China Africa Business Council together with representatives of the Chartered Bank were all in attendance to provide insight, observations and debate on China’s presence in Africa and what it means to the development of bilateral trade and the future for the African continent.

Of Chinese total trade in Africa, China invested some US$5.1 billion in 2009 – smaller than the amount of trade conducted with South Korea for example, but still the same as the OECD combined. Of China’s total foreign investment, Africa still only counted for just 5 percent of its total global expenditure.

This amount included representation from some 1,600 Chinese companies – although the vast majority of these were state-owned enterprises. China has also provided a further combined US$10 billion in trade and business loans to African countries, of which 10 percent has been specifically earmarked for the development of SMEs. China’s success in Africa, it was noted, is due to a combination of factors: the expertise in developing infrastructure, an absence of conditionality, and the permitted use of Chinese labor, which tends to be better organized and more efficient than African counterparts. On the negative side is China’s apparent support for oppressive regimes, a lack of transparency, and a lack of environmental considerations.

It was noted that many Africans are growing in disillusionment with Chinese investment, the apparent taking of minerals and other raw commodities without any concern for African labor or the environmental impact. On the other hand, China is providing an inspiration to Africa’s developing infrastructure and is passing on development knowledge. Projects are also being completed in a fast timeline, although it was acknowledged at the conference that much is still needed to be done to truly unite African nations. Of all regions in the world, Africa possesses the highest number of inland countries, and road and rail infrastructure between them is remarkably poor. Opening up Africa’s interior to trade and investment is going to be a major and long term struggle. China’s relationships with Africa tend to be on a bilateral nation by nation basis, and this needs to change in order to promote better and more coordinated projects, particularly in infrastructure. A greater need to train, integrate and develop local labor and management is also needed.

What is interesting to note is the development of sub-Saharan Africa and China – whose GDP growth the past 10 years have been closely aligned. Suggestions were made during Friday’s dialogue that this also signified a de-coupling of Africa from Europe and a reemergence of Africa coupled with Asia. Both China and especially India have long term relationships right across Africa, and these are now dominant. “China and India are leading the long term growth in Africa” was the panel’s conclusion.

Finally, left with just one question to ask – “Where in Africa are the business opportunities?” – Lagos, Nigeria was mentioned as a developing financial and commercial center to rival that of South Africa. The panel acknowledged that South Africa needs regional competition to maintain its edge, while for East Africa and a base for China-India trade, Nairobi, Kenya was mentioned as increasingly viable, especially in the services industry.

Finally, when it comes to my own firm, I may add that I’ve spent some time over the past two years researching opportunities in the services industry in Africa, especially from our perspective in professional services. As our firm has gone westwards and is now in India, it is of importance to note that Nairobi is just a six hour flight from Mumbai. That is less than the flight from Harbin to Sanya in China. The aspects of trade that we need to see as a practice to justify a presence in a region are there in Africa, although it is crucial to determine the differences between nations. Kenya offers a long sea coast, a long history of shipping and trade with Asia, and more recently, a developing legal and business model based on the old British colonial system that is standing up to the tests of time and fair play and trade. Nairobi is also the center for the UNDP, with its massive reach and influence, especially throughout Africa, which would provide immediate access to a solid intellectual base. These, coupled with growing Chinese and Indian bilateral trade and investment as well as a developing set of FDI legal and tax regulations, may well provide us with the ingredients my firm needs to make a considered foothold into the African market. The concept of “Going West” from India and China from now may well refer to Africa in the foreseeable future rather than Europe or the United States.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates, establishing the firm’s China practice in 1992. The firm now has 10 offices in China. For advice over China strategy, trade, investment, legal and tax matters please contact the firm at info@dezshira.com. The firm’s brochure may be downloaded here. Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion