It is estimated that by 2050, some 25% of the global population will be African, and in the below 30 age range. For this population to reach a sufficient level of prosperity to fully evolve into a consumer economy with strong GDP growth and trade relationships, a strong focus on infrastructure and economic sustainability is vital. In the recent past, many investments in Africa have not focused on this form of investment and rather on resource extraction. However, this tide has and will continue to shift hopefully.
China’s President Xi Jinping’s made commitments in 2015 that directly relate to this strategy, as it targeted areas like industrialization, and agriculture modernization to poverty programs, and peace security investments. This proposal came with a commitment of $60 billion of new investment.
It follows therefore that there is a history and a reason why China made such a strong agreement, and its easy to see when comparing it’s commitments between US and Chinese Export Import Banks. From 2000 to 2015, China’s Eximbank issued $63bn of loans to 54 countries in Africa, while the US Eximbank made $1.7bn in only 5 countries.
And the investment trend extends to Chinese-owned firms as well. In 2014 alone, Chinese companies signed over $70 billion in construction contracts in Africa that will yield vital infrastructure, provide jobs, and boost the skill set of the local workforce.
However, not all of this activity is positively viewed locally. Some firms and organizations have received negative suspicious as some stories of resource extraction hoarding, immigration inequalities, and predatory loans have been circulated. For the most part these stories tend to be anecdotal and unfounded. The following examples taken from a recent article from Foreign Policy Journal are just some of the many fairly structured investments made from Chinese organizations.
- In Kenya, where a state-owned Chinese company is about to complete a $4bn railway from the Indian Ocean to Nairobi. The line has been criticized for costing too much. However many Kenyans have a positive view of the efficiently built system which will extend transport and support trade.
- Huawei established its West African training school in the Nigerian capital, Abuja. And it assists the skills of local engineers who are now developing cell phone networks that underpin Africa’s telecommunications system.
- Hong Kong-based academics Barry Sautman and Yan Hairong surveyed 400 Chinese companies operating in over 40 African countries. The results showed that while the majority of senior positions remained Chinese, more than 80 percent of workers were local.
Rather than predatory financing terms or resource extraction, the need to hedge financing risk for many countries was a main concern, and one overcome with hedged trade agreements. For example, Ghana secured a $562 million for its Bui Dam from China’s Export-Import Bank, with cocoa from local farmers.
- As for aggressive exporting of agriculture, out of nearly 15 million acres that Chinese companies reportedly acquired, studies found fewer than 700,000 acres being used as such. The largest were used for rubber, sugar, and sisal plantations. None were growing food for export to China.
Clearly there are significant sustainable activities from companies and government agencies China in Africa, however its important to also clarify that the nation has many different organizations acting independently and with varying degrees of influence throughout the continent. It is therefore difficult to generalize their impact and actions.
What is clear however, is that investment institutions tied to archaic and largely ineffective Africa investment models are in danger of missing out on the major returns that successful African investments provide.
It is the hope that the significant and meaningful shift of investment that China has demonstrated can also impact Western organizations that can follow China with significant and sustainable projects, and long term investment strategies.
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