Africa & China: Open for Business

Fri, 20 Nov 2009 10:28

"Africa's growth has been underwritten by China and China's growth has become increasingly dependent on Africa's ability to supply it with resources. It is not colonialism; we should really call it foreign direct investment."
Martyn Davies

The shift is upon us, triggered by a global recession. The Western powers, on unsteady legs, try to find their feet while rethinking the very foundations of their economies. Across the oceans, a misunderstood nation is gathering considerable momentum. How does China, in the first quarter of 2009, in the depths of the financial crisis, achieve 6.8% growth? Following that, in the second quarter of 2009, 7.9% growth? Is this the crisis resistant economy?

30 years ago, the economies of China and many African countries were on the same starting block, but since then it's been a one horse race. China's growth has been stratospheric. The question is this - to what degree does China depend on Africa for its future growth?

Africa is increasingly being seen as the final frontier in global trade as foreign countries, especially China, look to Africa to sustain their growth. The formula is very simple. Africa is incredibly rich in raw materials, and is in dire need of key infrastructure financing. China is growing at an alarming clip, and wants to secure energy and commodity resources at the source. Thus, the bedrock of a mutually beneficial partnership is born.

Traditional "assistance' was, and is, awash in highly stringent conditions and all manner of donor requirements. Looking back, Western aid has done very little to alleviate poverty, create opportunity or motivate sustainable African growth. The tide is turning, and no longer are the voices of reason calling for aid; they call for trade. Infrastructure enables trade, and through far more pragmatic business models, the East is feeding the new age of African infrastructure development. China is deep into Africa, more so than any other nation on earth - how Africa manages this relationship will determine her future.

Declaring Intent

The growth of China's domestic construction industry is a fundamental piece in the African puzzle. After a century of war and colonisation at the hands of Europe and Japan, the People's Republic of China (PRC) was born in 1949. Since then, the Government has rebuilt the nation through big infrastructure and heavy industry, and China now commands the largest construction market in the world.

Research undertaken by Stellenbosch University's Centre for Chinese Studies in 2006 illustrated that between 1999 and 2003, annual industry growth of 20% had resulted in just under 50 000 construction enterprises operating in China, employing nearly 25 million people. By 2004, the industry accounted for only 7% of Chinese Gross Domestic Product (GDP), yet the sector's corollary industries drove 50% of the countries economic activities. By the end of that year, volume through contracted overseas projects totalled $114 billion, while its total volume, inside and out, stood at $156 billion. Consider those figures for a moment.

The privatisation of state-owned enterprises (SOEs) and the rise of private business have given the market healthy diversity, and have prompted strong growth in Research and Development (R&D), which was a miniscule function only 10 years ago. Leaps and bounds of R&D progress have been catalytic in the global context, and, most notably, in an African one.

Modern historical ties between China and Africa date back nearly 55 years, when Afro-Asian economic and cultural co-operation was promoted at the Bandung Conference. Consequent diplomatic tours throughout the 60's and 70's prompted Chinese aid into Africa's infrastructure and development. While Mao Tse Tung's death in 1976 caused China to turn inward through the 80's, the China-Africa partnership has grown exponentially since - to the tune of more than 700%, reaching $107 billion last year.

Looking ahead, current Chinese President, Hu Jintao, declared that six pillars guide Sino-African relations:

• Non-interference
• African ownership in dealing with problems
• Mutual trust and co-operation
• Increasing economic assistance with limited political conditions
• Lobbying for the international community to pay more attention to Africa
• Promoting an international environment more conducive to Africa's development

As one can imagine, African leaders have warmed to this approach, and China is now driving growth in 52 of 53 African countries.

The Chinese Footprint

Speaking at a recent conference in China, Martyn Davies, CEO of Frontier Advisory, illustrated that all African economies, bar South Africa, will grow in 2009 because of the Chinese demand for raw materials.

The Chinese footprint spreads across the entire continent. The key areas are Angola, Zambia, the Democratic Republic of Congo, and potentially Nigeria (based on an enormous rail development project that has recently been put on hold). These are all aligned to extraction industries, many of which are linked by belts and development corridors.

Martyn adds, "The China - Africa relationship at play is still in very early days. There will be some enormous announcements at the Forum for China Africa Summit in November. China has a series of three-year plans as far as Africa is concerned. We'll see significant commitments and investments, focussing primarily on infrastructure and agriculture, as well as the usual skills development, training and technology transfers.

We could have this conversation again 10 years from now, and might still be trying to figure out what is going on! Don't think for a second that this will start dissipating - this is long-term strategy for China, and for a multitude of reasons.

It's a new approach, and especially in this country of ours, we tend to look at China through a very political lens. There has never been a political obstruction to Chinese investment in Africa. You must see China for what it is - an incredibly strong state, but with a political model that may not sit comfortably with many in the Western world. At the same time, one cannot deny their achievements; uplifting 400 million people out of poverty (approaching middle-class status), and a phenomenal accumulation of capital in a very short space of time.

In 1994, we became a broad-based democracy. In 1994, 15 years ago, China created its first stock market. Today China has the second largest market capitalisation. That is a staggering achievement.

As a developmental economist - as someone who cares about the development of Africa - we must focus on what China has done right commercially. We cannot allow political arguments to detract from its economic achievements."

Society is quick to align politics and business, and there is much doubt surrounding China's dark historical tactics. But make no mistake, China is here and Africa is open for business. Africa could use some capitalism - less aid, more trade, and the Chinese are certainly trading. Africa must take ownership of this scenario; when the growth of the new world order hinges on what you have in your back garden, best you manage that exchange very carefully.

There is an innate wisdom in traditional African culture, a wisdom widely revered and sincerely respected. Only, it seems to get lost sometimes, between the money and the greed, the temptation and the power. The sustainable growth of the African continent depends largely on how its leaders capitalise on its (resource-driven) opportunities.

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