Although the African continent is known for its vast natural resources and human capital, it still accounts for 71.4% of the world’s underdeveloped countries (33 out of 46), according to UNCTAD.
This begs the question: why does Africa hold the largest number when it is a continent that accounts for only 16.72% (1.4 billion) of the world’s population while being home to same time 30% of the world’s mineral reserves, 40% of the world’s gold reserves, 90% of the world’s chromium and platinum, 65% of the world’s arable land, the largest reserves of cobalt, diamonds and uranium in the world and 12% of world oil reserves (currently known)?
So why has the continent not been able to capitalize on these advantages? While Europe is considered the least resource-rich continent in the world, it is considered the most advanced in terms of economic stability and economic freedom. Poor governance, ease of doing business and a high level of corruption have always been linked to Africa’s shortcomings, but in recent years Africa appears to be the fastest growing continent in the world.
It can be contributed to the AIDA (Accelerated Industrial Development for Africa) initiative, which is an initiative aimed at making Africa an industrialized continent and reducing poverty while taking advantage of Africa’s partnerships that would help to the cause, to the development and transfer of technology and for the creation of joint industrial enterprises in Africa.
The only country willing to invest in this initiative was China. It is estimated that China has invested over $43 billion since the turn of the century, mostly for infrastructure development. I will try to make an objective analysis of whether China’s interests in Africa are good or bad for the continent as a whole in the long term.
First, how does the Chinese economy work? In order to understand China’s interests in Africa, we must first understand how the Chinese economy works.
In the late 1970s, after many years of state-controlled production and assets, the Chinese government implemented major reforms to liberalize the economy in an effort to stimulate the dormant economy.
In doing so, he created a formation of rural enterprises and private enterprises, liberalized foreign trade and investment, relaxed state control over certain prices, and invested in industrial production and the training of its workforce. ‘work.
Over the past three decades, China has dramatically raised the standard of living of its people and lifted millions out of poverty. Since 1978, China’s GDP has increased tenfold. In 2010, it overtook the United States as the top exporter, and it now has the second largest economy in the world. China’s rise over the past thirty years has generally been unprecedented in scale.
As the most populous country in the world (since 1950), it has been able to capitalize on the quantity of its workforce by becoming the most outsourced country in the world. Most of the world’s largest companies have outsourced their production to China, benefiting from lower wages, lower input costs and an overall reduction in costs.
Driven by industrial production and exports of manufactured goods, China’s GDP is currently the largest in terms of purchasing power parity (PPP) equivalence. But despite this growth, the Chinese economy remains tightly controlled by its government, where there are accusations of corruption, unfair dealings and falsified data.
China, once a country of rationing and scarcity of consumer goods, is now a consumer’s paradise for the few who can afford and taste luxury. China is home to some of the largest shopping malls in the world, and in addition to wholesale and retail trade, it has contributed $6.5 trillion to global GDP.
Companies like Alibaba have given retail and e-commerce a big boost. Alibaba and JD.com’s combined Singles Day 2021 sales hit a record $139 billion in a single day.
China and Africa
In recent years, China has cast its eyes on Africa as a destination of choice for its outward FDI. China’s dominance in the African market has been seen as “negative” by the Western world. Should African countries share the concerns of the Western world? Or are they just worries without valid arguments?
Since China decided to invest billions in infrastructure development in Africa, China’s trade with Africa has increased 20 times (passing USD 200 billion in 2019) and its FDI in Africa has multiplied per 100 (reaching USD 49.1 billion in 2019), according to the World Bank. China’s FDI stock in Africa stood at US$110 billion in 2019, contributing over 20% of Africa’s economic growth. So the numbers don’t lie.
China is where Western companies outsource their manufacturing, but as China becomes more and more prosperous, the country is increasingly outsourcing its own production to Africa. China is looking for better alternatives as wages in China and Asia continue to rise.
So, for example, Ethiopia, with a population of over 115 million, offers enormous labor potential. Also, monthly factory wages in Ethiopia are less than $50, less than 10% of the level in China, which is sad when you think about it, but in this case beggars can’t choose. In addition to Ethiopia, African countries such as Tanzania, Rwanda, and Senegal are vying to become production bases for labor-intensive products.
“China is now at a stage like Japan in the 1960s and the Four Asian Tigers in the 1980s, where it will begin to relocate its light industry to other countries due to its rapidly rising production costs. workforce… Africa can become the next manufacturing hub for global markets,” said Helen Hai, Managing Director of the Made in Africa Initiative and United Nations Industrialization Ambassador.
Therefore, in view of this, China has taken advantage of this opportunity by outsourcing labor to Africa.
The other thing that needs to be taken into account is that China has not only outsourced its workforce to Africa, but has also invested heavily in infrastructure on the continent. Why? On the one hand, the agreement between the Chinese government and African countries is not only to exploit the labor advantage but also to invest in the development of the continent’s economy.
Chinese subsidized loans have enabled many African governments to avoid pressure from global governance institutions such as the IMF and World Bank to conform to Western standards of accountability and conditionality related to political and economic reforms, such as the infamous “structural adjustment” that doesn’t always work. serve the interests of Africans.
So why do Western countries care about China’s interests in Africa? In Africa, China has four main strategic interests.
First, access to natural resources, especially oil and gas. China currently imports more oil than any other country in the world. China is making significant investments in oil-producing countries like Sudan, Angola and Nigeria to secure future supplies.
The second is export expansion. Investments in Africa could create a big market for Chinese exports, especially as 1.4 billion people live on the continent, and with investments made in infrastructure development; we could see the expansion of China’s exports to Africa increase in the coming years.
The third point is that rising labor costs in China relative to labor costs in Africa can help China’s efforts to shift its economy away from labor-intensive sectors. work by outsourcing labor to African countries.
Fourth, China seeks political legitimacy. The Chinese government believes that strengthening China-Africa ties will increase China’s global power. Beijing’s “One China” policy is endorsed by the majority of African governments, which is a prerequisite for attracting Chinese finance and investment.
Finally, in an effort to alleviate security concerns about China’s economic interests, China has sought to play a more positive role as a contributor to regional stability on the continent.
All of these factors are worrisome for the United States and other global superpowers. Since then, these factors have helped China become an unrivaled economic power and in a world where having the most influence almost guarantees the monopoly of political politics – it would be safe to assume that China’s efforts would go unappreciated.
The other thing to consider is that China has never dictated any form of political policy to be implemented in order to provide loan support, while other western organizations have made it clear that certain political requirements must be met for there to be a loan assistance form.
For example, Zimbabwe has been blacklisted by the IMF and other Western-run financial institutions not to lend to the country.
As a general rule, the IMF is prohibited from lending to any member country that is in arrears with other international financial institutions, and Zimbabwe was excluded when the IMF granted African countries such as South Africa and Zambia millions in loans to help them protect their economies from the impact of the COVID-19 pandemic. China, on the other hand, has contributed more than $13 billion to the country’s infrastructure development.
I’m not here to say that Zimbabwe will be able to repay these debts easily, because it obviously has a hard time doing so, but what I’m saying is that China’s loans are better structured without intervention exterior. And if Zimbabwe is unable to repay these debts, the problem lies in poor governance and misallocation of funds instead of China’s willingness to provide these loans.
I believe that there is no “all good or all bad”. I believe that without China’s efforts in Africa, Africa would have been in a much worse state.
Paul Kagame, during a press briefing in China, once said: “China considers Africa as an equal. We see ourselves as a people on the road to prosperity. China’s actions demonstrate that you see us the same way. It’s a revolutionary posture in global affairs, and it’s more valuable than money.
(Bekan Bekele is an economics researcher based in Ethiopia. He can be contacted at [email protected])
Contributed by Bekan Bekele