Firing Up the Industry

The China-Africa Business Council (CABC) released a report on the investment of Chinese enterprises in Africa in Beijing on August 26. According to the CABC, the report is based on the study of more than 50 Chinese and foreign experts on around 750 Chinese companies investing in Africa. Titled Report on Chinese Investment in Africa: Market Power and Role of the Private Sector, it details for the first time the history, achievements and trends of investment of Chinese firms, particularly private enterprises, in Africa.

“China’s investment in Africa is expanding at a rapid pace, trailing only France, the Netherlands, and the United Kingdom. This is not just a case of quantitative expansion, but also of quality advancement: a significant contribution to Africa’s industrialization, urbanization, and ecological and peaceful development,” said Yao Guimei, research fellow and Director of the Center of Southern African Studies of the Beijing-based China-Africa Institute.

Significant accomplishments

China’s direct investment into Africa has grown at a rate of more than 25 percent each year since 2000. Following a period of successful trading in Africa, many Chinese firms, particularly small and medium-size enterprises (SMEs), attempted to invest and establish factories locally in the hope of saving on customs and shipping expenses, as well as shortening procurement cycles.

China’s direct investment stock in Africa was $47.35 billion by the end of 2020, according to the Chinese Ministry of Commerce (MOFCOM). Chinese private firms accounted for around 70 percent of Chinese companies’ investments in Africa in 2019, according to MOFCOM, both in terms of quantity and value. One-third of the private firms are engaged in manufacturing and the majority are small businesses.

At the global level, Africa’s industry is insignificant. According to the United Nations Conference on Trade and Development, the African manufacturing sector’s value added accounts for less than 3 percent of global total value added, while manufacturing exports account for only 0.8 percent.

On the continent, private firms are increasingly driving investment in this sector. They are market sensitive and have a lot of flexibility in their company selections.

China’s private companies are increasingly prevalent in several African nations with excellent growth prospects. According to the report, Kenya is home to 396 Chinese firms, with 80 percent of them being private and 44 percent working in manufacturing.

In recent years, Chinese private firms have moved some of the labor-intensive production chain to Africa, progressively stimulating the growth of associated industrial chains and supporting the formation of a significant number of upstream and downstream enterprises. “Chinese firms provide technology, managerial expertise, cash, and other resources to African countries,” says Akinwumi Adesina, President of the African Development Bank.

“Chinese firms are playing an increasingly crucial role in Africa’s industrialization. In certain African countries, industrial chains have been developed, such as the oil sector in Sudan and Chad. Chinese enterprises are also investing heavily in Africa’s renewable energy sources, such as hydro, wind, and solar electricity. Private firms carry out a large portion of these operations.” Yao told ChinAfrica.

According to the McKinsey research, Chinese businesses employ local people at a rate of 89 percent, and two thirds of them give training and technical mentoring to their African staff. Chinese firms’ investments in Africa have considerably boosted local people’s income levels while also increasing jobs. African textile workers at Ethiopia’s Eastern Industrial Park, for example, are paid roughly 50 percent more than their Ethiopian counterparts.

In parallel, the CABC conducted a special reinvestment study in June and July, finding that roughly 30 percent of its major member firms had reinvested in Africa. Taking into consideration the fact that certain firms are not registered with the MOFCOM and that corporate reinvestments are not included in statistics, this research estimates that by the end of 2020, Chinese enterprises have invested at least $56 billion.

New styles emerging

Private firms made intermittent investments in Africa at first. Many company executives took the risk, guided by a pioneering and entrepreneurial attitude. However, as the industry has gotten more competitive, investing in Africa has necessitated superior strategic vision and market flexibility. This circumstance has also brought to light some of the disadvantages of a lack of cohesiveness (poor efficiency, high risk, etc.), leading to the development of a collaborative and symbiotic paradigm. Enterprises, chambers of commerce, international organizations, local African businesses, and others are collaborating to create a clear and effective framework that builds on their unique strengths.

Aside from conventional investment sectors (textiles and apparel, catering, etc.), Chinese firms are focusing on new industries such as hi-tech, medical and pharmaceutical items, the Internet economy, and aviation. According to the report, almost half of Chinese private firms have invested in new goods and services in Africa, and more than one-third have invested in new technologies, such as Huawei’s 4G network in Kenya and East Africa.

“Africa needs long-term investments that may aid in the development of local supply chains and skills for young people. It has to be a win-win situation.” stated Adesina.

China’s top 500 private firms have become more interested in growth and investment in Africa in recent years. They are distinguished from SMEs by their money, technology, skill, and globalization advantages, as well as their market sensitivity. There are now 60 Top 500 companies investing in Africa, which is higher than the number of corporations investing in South America (36) and Oceania (46).

Despite the health crisis, the global economic recession, trade protectionism, and African debt, Chinese businesses remain hopeful and eager to invest in Africa. They are doing everything they can to integrate, including adhering to African cultural peculiarities, regulations, and policies, in order to further explore collaboration, establish long-term projects, and contribute to African economic and social growth.