Chinese Foreign Investment in Africa

Investment

Chinese investment in Africa has increased dramatically, which according to Ernst & Young’s (EY) latest Africa Attractiveness report, makes the country the single largest contributor of Foreign
Directive Investment (FDI) capital and jobs in Africa in 2016.

Reasons for Investment

Primary motivations that lie behind China’s push toward increased investments in African
nations include but not limited to:

  • the desire to secure a solid base of raw materials such as oil and minerals to fuel China’s
    own rapidly growing economy. China is also the world’s largest consumer of steel,
    copper, coal and platinum
  •  the desire to increase China’s geopolitical influence (China’s push into African economies
    puts it in direct competition for influence with the United States, and as of 2015, China
    has the upper hand)
  • exploiting the major growth opportunity presented by emerging market economies in
    Africa.

Positives

China is the second-largest economy and it is also Africa’s largest trading partner whose
investments have been expediting African economic growth. There are numerous benefits to
Chinese investment in Africa, such as improvements in infrastructure and economic
development. As economies grow, poverty decreases and populations become better educated
and more politically involved, leading to better governance.
African countries are benefiting from the growing investment from China, especially advanced
technologies brought into Africa by more and more Chinese enterprises. Furthermore, thanks to
billions of dollars from China, new roads, bridges, stadiums and other projects are being built all
over Africa. Even the building of the $200 million headquarters of the African Union was funded
entirely by the Chinese. China is also making industrial investments all over the continent,
running mining and oil firms. As a result, China has now become Africa’s most important trading
partner, surpassing the United States.

Negatives

Chinese investment in Africa seems to be motivated solely by the prospects of Chinese economic
gains, leading to the utter disregard of the state of democracy, rule of law and respect for human
rights in countries they invest in. The Chinese are looking for the opportunity to extract raw
materials and sell manufactured products to the African market, a scenario that somewhat
resembles Africa’s colonial past. Many Chinese investments also involve the use of extensive
Chinese labour, which creates problems for local unemployment.
Furthermore, it must be noted that the costs of China’s contribution to African infrastructure
may exceed the benefits. Chinese investment transfers limited and sometimes inferior
technology, skills, and employment to Africa. African countries need to be warry of bilateral trade
relations with China that leave them heavily indebted to the latter. A case in point is that of Sri
Lanka, that handed over one of its strategic ports to China.

Debt

Debt-Trap Diplomacy: In a reminder of how Chinese loans are collateralised by strategically 
important physical assets, Sri Lanka handed over the Hambantota port to China on a 99-year
lease because it is not able to repay its onerous debt to Beijing.
Are members of the African Diaspora investing enough?
For the most part, the diaspora’s contribution to development has been viewed only in terms of
remittances that go primarily to support families. However, the African diaspora represents a
huge reservoir of human and financial capital and an important bridge between African and
developed countries.

 

Over the last few years, the African Union and many African countries that were once suspicious
of the diaspora have begun to realize the promising role the diaspora can play in development.
Many countries are exploring approaches to engagement. Nigeria has set up the Nigerians in the
Diaspora Organisation (NIDO) in various countries throughout the world. Rwanda recently
started a solidarity fund, in which the diaspora can contribute to the development of their
country. The World Bank and the African Development Bank, as well as foreign governments
have highlighted the role that the diaspora can play in the development of the continent,
possibly tapping into areas in which the Chinese are investing.
While it is too early to assess the success of these African initiatives, there is hope that they will
help contribute to the broader development of the region.

By Laswet Savadye