China is rapidly increasing its presence in Africa through private and public investment, economic aid, and trade. It is outdoing the developed world in several respects: size of investments and aid packages, scale of infrastructure-building and resource acquisitions, and the sheer numbers of people involved on the ground.
As a result, China will help to reshape Africa as a competitive environment and as a market. This brief examines drivers of China’s interest and activity in Africa, explores some of the likely outcomes, and analyzes the implications of these changes for businesses and other organizations.
3 KEY FINDINGS
- Economic needs are the dominant force driving China’s African activities.
- China’s presence in Africa has increased rapidly, with trade alone rising about 1,500% in a decade.
- Chinese companies will be increasingly capable competitors in Africa, but also offer partnership opportunities.
Several factors, economic and non-economic, are driving the Chinese push into Africa and shaping how China’s presence there evolves.
- China’s resource needs. China’s rapid growth has greatly increased its need for raw materials of all kinds. Energy is particularly important, and Africa is now the second-largest source of Chinese oil imports after the Middle East. With profit a secondary goal after energy security, China has been willing to overbid for energy access in Africa, giving it an advantage over commercial competitors.
- Chinese capital. China has built up vast foreign reserves, and has been willing to use them to invest around the world, including in Africa. Since 2008, this has contrasted sharply with the position of the developed world, which has curtailed various kinds of aid and investment in the wake of the Great Recession.
- Africa as market. China sees Africa not just as a place for resource extraction but as an important future market for Chinese goods, aiding China’s long-term growth. This attitudinal difference (see below) may be an additional advantage over developed countries.
3 BUSINESS IMPLICATIONS
- Chinese firms may provide an increasingly interesting range of potential partnerships in Africa, in infrastructure, manufacturing, and consumer industries. This is subject to several caveats, noted below.
- The build-out of African infrastructure that China is enabling could change the viability of Africa as a source for raw materials and as a manufacturing center. This may grow more important as China’s own ability to provide low-wage manufacturing continues to decline.
- Following the precedent set by China, investment in Africa by other countries and businesses may increasingly necessitate some secondary investments in tangible projects that improve quality of life, infrastructure, etc.