China in Africa
China in Africa, What’s really going on?
For much of modern history, the African continent has been the perfect hunting ground for all kinds of exploiters, criminals and racketeers. Some of the culprits have been indigenous, others foreign, but both with an eye for opportunity and an insatiable appetite for plunder. The Arab and trans-Atlantic slave trade, European colonialism, post-independence kleptocractic governments, and La Françafrique are all but a few illustrative examples. But according to some, the People’s Republic of China is the new villain in the tumultuous African story.
Over the last couple of decades, China has steadily increased its economic ties with Africa and is now one of the continent’s single most important economic partners. From roads, to railways, energy infrastructure and manufacturing plants, Chinese money and resources are flowing into the African continent like never before. Chinese firms of all sizes are bringing serious capital investment, technical know-how, and entrepreneurial energy to every corner of the African continent. According to the China Investment Global Tracker, Chinese investments and contracts in sub-Saharan Africa over the period spanning 2005 to 2018 amounted to a total of $299 billion, with the Chinese president Xi Jinping also recently pledging to invest a further $60 billion into African projects over the next few years.
But many are suspicious of Beijing’s true intentions. The primary accusation levied against China is that its seemingly benevolent attitude towards Africa is actually just a façade to mask a sinister long-term plan to bring the continent into subjugation and strip it of its resources. As expected, the Chinese government has strongly denied these accusations, reiterating numerous times that its activities in Africa are motivated solely by a desire for mutual benefit and co-operation.
But if it sounds too good to be true, it probably is, right? In this particular case… maybe not.
You see Chinese engagement in Africa extends far beyond the actions of the Chinese government. A recent McKinsey study (See here: https://www.mckinsey.com/featured-insights/middle-east-and-africa/the-closest-look-yet-at-chinese-economic-engagement-in-africa) found that there are over 10,000 Chinese firms currently operating in Africa and around 90 percent of them are privately owned. With such a large number of private Chinese businesses operating across a wide range of sectors, it becomes clear that the China-Africa relationship has a more significant free-market/capitalist element than is commonly assumed.
According to the same study, Chinese firms are responsible for about 12 percent of Africa’s total industrial output — amounting to a total of $500 billion a year. Nearly a third of these companies operate in the manufacturing sector, a quarter deliver professional services such as health care and IT consulting, and a fifth of them operate in construction and real estate. However, when it comes to infrastructure, Chinese market-share is even more pronounced, with nearly half of all African internationally advertised construction contracts going to Chinese companies.
Contrary to popular belief, the study also estimated that natives accounted for an average of 89% of the workforce in Chinese firms operating in Africa. Furthermore, for companies engaged in construction and manufacturing, over half of them were found to have offered some form of apprenticeship training and/or introduced a new technology, product or service to the local market. In many instances, the entry of Chinese firms into the local economy was found to have lowered prices for existing goods and services by as much as 40 percent thanks to improved technology and greater economies of scale.
Notwithstanding the many positive findings, the study did also find that when it came to managerial-level jobs at Chinese firms, the employment rate for indigenous Africans was a brow raising 44%. Some Chinese employers were also found to subject workers to poor working conditions and engage in the illegal over-production of delicate resources like timber and fish.
Chinese businesses in Africa may still have a long way to go ethically and morally but there is no denying that the sheer scale of Chinese economic engagement in Africa, means that a significant portion of the recent surges in national GDP growth across the continent can be traced all the way back to Beijing.
For the skeptics however, any talk about GDP growth, job creation and infrastructure development is nothing more than a smokescreen to cover what is really going on. Primarily a western phenomenon, the cynical view of China-Africa relations can be summarised by a recent statement by US National Security Adviser, John Bolton. According to Mr Bolton: “China uses bribes, opaque agreements, and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands”. He also went on to describe these actions as sub-components of a long-term Chinese world domination plan comprising of Chinese military expansion as well as the ‘One Belt, One Road’ project through which Beijing will oversee the development of strategic trade routes leading to and from China.
But how do Africans themselves see the China-Africa partnership?
Much to the disappointment of the western establishment, it would appear that the majority of African leaders and academics consider China to be a trustworthy ally with a genuine interest in the continent’s prosperity. A recent statement by South African President Cyril Ramaphosa summarizes the position perfectly “[we refute] the view that a new colonialism is taking hold in Africa as our detractors would have us believe.”
The general perception seems to be that the Chinese are kindred spirits with a first-hand understanding of the continent’s struggles. As with most African Countries, China has also had to overcome foreign imperialism and been confronted with the colossal task of lifting millions of its own citizens out of poverty. Rightly or wrongly, China is perceived by the African elite as a nation that respects the culture and sovereignty of the African nations it engages with — in sharp contrast to the western approach which has generally been viewed as paternalistic at best and disrespectful at worse.
But are the detractors right afterall? Are African leaders ignorantly sleepwalking their way into some seriously muddy waters?
One very solid argument put forward by the skeptics is the idea that African governments are selling away their futures by falling for China’s “debt-trap diplomacy”. According to those in the know, the Chinese government employs a simple 4 stage process in its ploy to entrap its African partners:
1. Identify an African government that needs funding for a large infrastructure project but is hindered by it’s poor credit rating;
2. Offer to fund and execute the infrastructure project on the basis that the African government puts forward the infrastructure itself and/or some of its natural resources as security for the loan;
3. Execute the infrastructure project using Chinese labour and expertise; and
4. Claim ownership of the completed infrastructure along with any collateral natural resources when the African government inevitably fails to pay back the loan.
The interesting thing is that the first, second and third stages of this debt trap theory are all well documented and openly accepted facts. The only bone of contention is whether or not the Chinese government actually issues the loans with the hope that its African partners default on the loans, and thereby grant it right to seize control of the valuable resources put forward as collateral. Naturally, the Chinese would argue that given the poor credit history of the African nations it engages with, the use of resource backed loans is the only reasonable way for it to protect its interests. However, one has to question why China would even issue loans to un-creditworthy nations in the first place. Would any reasonable creditor issue a loan knowing from the start that the borrower is almost certainly going to default on the loan? Quite understandably, many observers have examined the facts and concluded that China is simply using these infrastructure loans as a means of gaining ownership of key African resources.
Nevertheless, African leaders such as Rwanda’s Paul Kagame have pushed back on this theory, arguing that the outcome of these loans will ultimately depend on how seriously African governments take on the responsibility of ensuring that the each infrastructure project generates sufficient returns to ensure the loans are repaid. The sad reality is that the bad credit history of most African governments mean that they simply have no other choice but to accept Chinese funding on Chinese terms.
Playing devil’s advocate, one might even argue that unlike in a traditional loan agreement, the serious risk of losing valuable resources means that African governments will be more motivated to ensure that they generate enough returns on investment to ensure that their debts to China are paid in full and on time. The Chinese resource-backed loan structure does not offer African governments any easy way out — they either get their acts together or pay the painful price. But whether or not these governments can, or will rise to the occasion remains to be seen.
Our view is that if (and that is a big If), African governments can defy expectations and step up to the plate, then the China-Africa relationship might turn out to be the key to sustainable development on the continent. Chinese investment capital will continue to provide African governments with a viable alternative to traditional lenders like the IMF and the World Bank. Having only recently escaped the shackles of colonialism in the 20th century, one would expect African leaders to be under no illusions as to the inherent risks in their dealings with China.
