Business Finance

How China Expands Its African Footprint

Over the past two decades, China has established itself as Africa’s key economic partner. When it comes to trade, infrastructure financing, investment and aid, no other country comes anywhere near. Chinese companies across all sectors are bringing in capital, entrepreneurial spirit and management know-how to accelerate economic progress.

The key factors motivating China to increase its investment in Africa are the need to source raw materials to fuel its economy, the desire to increase global political influence, and the urge to profit from the opportunities presented by Africa’s emerging markets. Oil and mining are still the focus areas of Chinese investment. The East Asian Republic has however continuously invested in other market sectors ranging from food processing to infrastructure. In addition, China has been enhancing its military presence and is competing with the United States over the local supremacy.

China is one of the premier emerging markets and its economic growth has a significant impact on the global economy. It is the world’s most populous nation and as it continues to expand, it requires natural resources to sustain its economic growth. Therefore, the country’s focus on Africa and its rich reserves of natural resources can be considered as the logical step towards continued growth. One third of China’s total foreign direct investment (FDI) is allocated to Africa’s mining sector. This enables China to ensure availability of raw materials needed for sustained growth over the next decades.The extensive Chinese investments in Africa’s infrastructure also partially reveal the nature of China’s political interests. If China manages to reach a position where it can exert control over some of the continent’s essential economic elements like the telecommunications and utility sector, while improving its military influence, it will considerably reinforce its political influence. Chinese investments in Africa increased considerably after the Johannesburg Summit of the Forum on China-Africa Cooperation (FOCAC) in 2015 wherein China committed to a funding of $60 billion to the African continent. The respective investments have been geographically focused on oil-rich countries such as Nigeria and Angola.

About 25 percent of China’s investment in Africa is concentrated around Nigeria and Angola. In recent times, Nigeria has received large contributions from China for the development of two major rail projects. One involves laying a standard-gauge track from Lagos to Kano. The other one is a standard-gauge coastal railway line from Lagos to Calabar. The latter one is aimed at supporting the peacekeeping efforts in the Delta region of River Niger. This, in turn, is expected to improve oil investments in the area.

If the entire continent is considered, China’s investments are largely focused on the energy and transportation sectors. Apart from investing in Nigeria’s railway projects, China is also funding the development of railways in Kenya, Zambia, and Ethiopia. For instance, the Export-Import Bank of China provided the lion’s share of (85 percent) the $475 million Light Rail project in Addis Ababa, which will be of benefit to the four million residents of the city.

China’s investment in the energy sector, despite its main focus on oil and gas, also comprises of investments in clean energy such as hydropower generation. On a global level, the Chinese are leading investors in the development of renewable energy. Last year, China’s investment in renewable energy amounted to $3 for every dollar invested by the United States.

Studies reveal that over 10,000 Chinese-owned firms are operating across the African continent, the majority being privately owned. This raises questions against the notion that China is pursuing a monolithic and state-coordinated investment drive in Africa. Typically, the state-owned enterprises are bigger, specifically in sectors like infrastructure and energy. However, the number of active Chinese-owned private firms, indicates that the country’s African investment is more market-driven than commonly assumed.

It is estimated that 12 percent of Africa’s industrial production (valued at around $500 billion per year) is contributed by Chinese firms. Their dominance in the infrastructure sector is even more evident, and stands at nearly 50 percent of the internationally contracted construction market. At the Chinese firms, the majority of employees are native Africans. Considering the number of Chinese firms operating in the continent, they already offer employment to several million Africans today.

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