Chinese investment spurs economic growth in Africa
In an age of austerity in mature economies and slower growth in many of the world’s emerging markets, China’s importance as an international investor is greater than ever before. In Africa – the region with the world’s fastest-growing population and youngest demographic profile – China is playing an increasingly transformative and visible role that is extending beyond that of a distant investor.
Chinese support, while relatively invisible to the ordinary person, has been building for more than a decade. Diplomatic ties have grown considerably. The Forum on China-Africa Cooperation (FOCAC) has developed relations between Africa and China over 16 years since its inception, facilitating trade, political and cultural ties between China and 48 African countries. The commitments that have come out of FOCAC’s meetings include human development, technical assistance, infrastructure investments, information-sharing, increasing trade, credit lines and other forms of development aid.
The extensive work that China has put into building social and political ties represents the country’s strategic goal of leaving a legacy that goes beyond capital investment, making a positive, meaningful impact on the lives of ordinary Africans. This is China’s opportunity to avoid the mistakes of the past where some multinationals have swooped in and plundered Africa’s natural resources while not investing in the African people.
Over recent years China has demonstrated its commitment to its own legacy. On April 25, 2015, Chinese and Kenyan investors launched a technology transfer and training center to promote the development of solar lighting systems to meet the growing demand for solar energy in the East African nation. This is much more than an “investment” for China. The center provides an environment for Kenyan technicians to get up to speed with the latest solar solutions. They can learn how to assemble affordable solar energy systems that can be easily set up in rural areas and slums. This kind of social enterprise has many multiplier effects, including the transfer of skills and knowledge, higher living standards for some of the poorest in society and help for innovators to build a viable business.
It is, however, through sustainable, long-term investments that China can create significant economic opportunities. Major infrastructure works that can improve trade across the region are crucial in helping to deliver these opportunities, particularly in nations that are historically oil-reliant or have a dearth of business-critical infrastructure.
Like other major African economies, much of Angola’s economy is reliant on oil and 60 percent of that comes from the northern Province of Cabinda – some 900,000 barrels per day. Yet Cabinda is one of the poorest provinces in the country. Investment from the Export-Import Bank of China (Eximbank) has injected approximately $600 million for the construction of Angola’s first deep-sea port in the province, which is strategically important due to its proximity to the Republic of Congo and the Democratic Republic of Congo. This major infrastructure development, located 9 kilometers north of the City of Cabinda is a public-private-partnership (Angola’s first) that will reshape local, national and regional trade. The location also means that the balance of trade will shift toward Cabinda, creating knock-on opportunities in sectors such as hospitality and tourism.
Accompanied by a Special Economic Zone and the new Futila Industrial Park, Porto de Caio will reinvigorate the entire local supply chain and help to stimulate even more innovation and enterprise across the province. The economic zones – some designated for international companies, others for domestic and international companies – will provide new products and services for Angolans and new markets for their goods. This new gateway between global trade and African markets is a game changer, leaving the lasting legacy that Chinese companies are searching for in today’s increasingly challenging global markets.
Companies such as the Bank of China, Huawei Technologies, the China Road and Bridge Corp and Chuanshan International Mining Co are some of the companies on an extensive list operating in Africa. Major Chinese companies have an increasing brand presence in the region, which provides growth for Chinese products while also creating local jobs and contributing to the local supply chain.
For example, Angola’s Porto de Caio project is projected to create more than indirect 30,000 jobs (it has already created approximately 1,800 direct jobs), reducing the unemployment rate and contributing to the nation’s GDP through expanded exports and increased tax revenue.
Major public works supported by China will make a great long-term impact as well, with history showing us that it has already done so. The SAIS China Africa Research Initiative at the Johns Hopkins University’s School of Advanced International Studies looked back in a January 2017 CNN story at the five largest China-backed railways in Africa.
As far back as the 1970s, China helped to build one of Africa’s longest railways – the 1,860-kilometer Tazara railway from Tanzania to Zambia. The railway, which ended landlocked Zambia’s economic dependence on Rhodesia (now Zimbabwe) and South Africa, created the only route for bulk trade from Zambia’s copper belt to the sea. Still fully operational – and maintained with the support of Chinese investment – it is perhaps telling that the Tazara Railway became affectionately known as “The Great Uhuru Railway.” Uhuru is the Swahili word for freedom.
Smart sovereign investors such as China’s Eximbank have proven to policymakers and wider stakeholders that the country is in Africa for the long term. It has built diverse, lowrisk portfolios during recent years and those assets remain in place. Many do not provide China with a quick return because they are long-term investments in roads and airports, schools, hospitals and ports. China’s faith in Africa as a long-term interest is also borne out in the country’s approach to investments – an approach that is having immediate social impact on the lives of Africans while offering a future of solid investment returns and increased economic development.
China’s faith in Africa as a long-term interest is also borne out in the country’s approach to investments.