China’s Africa

by Serban V.C. Enache

The violence and propaganda of the 20th century left us with a certain way of looking at things. That world affairs orbit around superpowers in their quest for dominance over various parts of the globe. Spheres of influence are carved out by tanks and guns, economic sanctions, coups – but also through diplomacy, material and financial aid, and cultural exports.

In recent decades, we have witnessed the rise of the Dragon. In the case of Africa, unlike previous foreign incursions, the Chinese didn’t arrive with gunboats and an ideology to impose. They instead negotiated entry with financial and technical means to provide the continent with what it required most – an infrastructure.

The Chinese didn’t simply make promises, they delivered on them immediately. And to the amazement of all, they didn’t demand concessions in return, or seek regime change. The West views Chinese investments in Africa in a bad light – a geopolitical game of projecting and expanding influence. In this logic, there has to be a hidden agenda. Oddly enough, (so far, at least) their reasons have been purely commercial. The Chinese are not building military bases, nor are they preaching communism. They wanted resources to fuel their own industries, and the African countries needed cheap goods and lots of infrastructure. Three words. Mutually beneficial trade.

Some say it’s a new type of colonialism, a massive resource grab. But evidence for this is thin. China is now the second largest economy in the world. Though still classified as a developing nation, it has brought more people out of poverty than any other country at any point in history. The Dragon’s feat may spill over into Africa as well. China is familiar with life as a colony under foreign powers. In the 19th century they did battle with the British empire two times. In the Opium Wars of 1839–1842 and 1856–1860, they fought to protect their sovereignty and their ports from the British drug pushers. During the 20th century, China endured a civil war and a Japanese invasion. And after the end of the second World War, it became reacquainted with Western hegemony, when the Americans took over from where the British empire left off.

China’s spectacular rise rested on the logic of making cheap goods to secure an ever higher stake in world markets. It needs trading partners and you cannot trade with a poor nation. If you can help other nations grow their wealth, you also become more prosperous by trading with them. For the last 15 years, the Dragon has secured a thorough presence in Africa from north to south, from east to west. From deluxe shops in city centers to scanty stands deep in the continent’s rural parts, the goods on sale are made in the PRC (People’s Republic of China).

They have engaged in massive projects across the continent. State-of-the-art ports, much needed railway and metro systems, modern highways, transport nodes all over the continent, bridges cast over mighty rivers, skyscrapers, massive power plants, humming factories, telecommunications and mining infrastructure, and housing projects. All of these things transformed the African cityscape. The hallmark of Chinese construction, haste. Speedy funding and fast execution at affordable costs.

As for trade, Chinese buyers are first to bid on African goods – minerals, oil, gas, cotton, leather, hemp, tea, coffee, foodstuffs, and all sorts of meat (including reptiles). Going in the other direction are hundreds of thousands of containers, filled with goods, bound for African soil. Inexpensive toys and textiles, smartphones, computers, television sets, radios, home appliances, spare parts, and medicines.

Due to aspects of the grey economy, a dollar value to all Chinese-related commercial activities in Africa is hard to establish. A significant amount, if not most of the trade, goes under the radar. Estimated figures are at around $100 billion per year, but that could be a gross understatement.

Some insist the real cause of Africa’s sustained growth and the rise of its middle classes is directly linked to trade with China. Oil and mineral exports plus the grey and black economy’s transactions, almost all in cash, have brought increased purchasing power for the average African worker. More and more middle-men are required to handle the ever higher volumes of trade, each taking a small piece of the action along the circuit. Despite the global economic slump and drop in commodity prices, the African states, in aggregate, manifest resilience. Though governments struggle with incompetence and corruption, business is booming.

The official stats don’t offer the true picture, precisely because the data is largely incomplete. For all we don’t know, there are things we do know. More than 10,000 Chinese-owned firms operate in Africa today. Around 90 percent of these firms are privately owned. In contrast, state-owned companies tend to be bigger, especially in the energy and infrastructure sectors. Still, the sheer number of private firms makes Chinese investment in Africa a more market-driven phenomenon than is commonly understood or expected. Almost a third of them are involved in manufacturing, a quarter in services, and around a fifth in commerce, construction, and real estate.

It’s estimated that 12 percent of Africa’s industrial production – worth around $500 billion a year – is already owned by Chinese firms. Their dominance over infrastructure is even more pronounced. The Chinese claim almost 50 percent of Africa’s construction market, which is open to international contractors.

The surveyed Chinese firms were all profitable, nearly a third reported profit margins of over 20 percent for the year 2015. They are quick to adapt and seize new opportunities. Except in a few countries such as Ethiopia, companies are mainly focused on serving Africa’s fast-growing domestic markets rather than on exports. The Chinese have smoothed out the earlier cultural clashes which often brought their staff into conflict with domestic labor. More so, they are now passing on skills to their African workers.

Recently, Beijing introduced oil futures denominated in yuans. At launch, the new oil futures surpassed Brent crude in trading volume. Petro-yuan futures are expected to swiftly become the third global price benchmark alongside Brent and WTI (West Texas Intermediate). By paying for crude oil imports with its own currency instead of US dollars, the Chinese proved they have the know-how and will to play the game right. This doesn’t mean hyperinflation or financial doomsday for the US by any stretch of the imagination. It will just translate into a price adjustment for crude and a new focus by some countries to export to China to earn its currency. Look to the African states to make this move alongside other countries.

People suspicious of Chinese investments in Africa cannot deny the facts. So far, those investments are paying off to both sides.

Serban V.C. Enache is a Romanian journalist and indie author. Though interested in history, politics, and economics, his true passion is for medieval fantasy fiction.