Chinese Investments in Africa

CHINESE INVESTMENTS IN AFRICA AND THEIR IMPACTS ON THE CONTINENT’S ECONOMIES

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Introduction

New government data shows that China has maintained its heavy investment in Africa throughout the pandemic (Donou-Adonsou and Lim., 2018, pp 63). The contracts with Chinese companies are being scrutinized by certain African countries, though.

According to a government report, China has set up 25 economic and trade cooperation zones in 16 African countries. During the COVID-19 pandemic, China invested a lot of money across the continent. It claims that by the end of 2022, 623 companies will have invested $735 billion in zones registered with China's Ministry of Commerce. This is according to the annual report on China-Africa economic and trade ties (Hu, You and Esiyok., 2021, n.d).

According to Zakari and Khan (2021, pp 4) China's investment in Africa is increasing, even as COVID-19 has rattled the global economy and alarmed many investors who are unsure how long the crisis will persist. In 2019, China invested $2.9 billion in Africa, a 9.5% increase over the previous year. Non-financial direct investment accounted for almost the entire sum ($2.66 billion).

According to the 108-page report, the trend will keep going in 2022. A record amount of money was invested in Africa by foreigners in the first seven months of 2021. That's more money than was invested there before there was a pandemic (Xia., 2020, pp 31).

Despite a fall of 10.5% to USD 187 billion in bilateral trade in 2019, China has been Africa's top commercial partner for the past 12 years. Also, it is one of the continent's largest investors, ranking as the fourth largest (Wang, Pearson and McCauley., 2021, n.d).

For example, China has invested a lot of money in the service industry in Africa. New investments in subsectors like scientific research and technology services (SRT), transportation warehousing, and postal services grew by more than double in 2021 (PWS). While trade in goods declined by 20% to USD 8.66 billion, services trade between the two countries was down by 20% (Were., 2018, n.d).

African Countries reevaluate Chinese investment in their countries

According to Dendere (2020, n.d) China's contracted projects in Africa generated US$383.3 billion in revenue in 2020, a 16.7 percent decrease from the previous year. Although the value of newly signed contracts for African projects grew more than 21% to USD 67.9 billion, "showing that African countries still have a substantial demand for infrastructure," the report states it was the sixth consecutive yearly decline.

Africa is reconsidering its ties with China, though, and some countries have suspended or scrutinized contracts with Chinese enterprises. African governments are canceling contracts with Chinese corporations because the work is "shoddy" or there is little transparency, according to reports by (Donou-Adonsou and Lim., 2018, pp 72). Several projects in Beijing's ambitious Belt and Road Initiative have been canceled.

When a Kenyan high court ruled that Kenya's state-run railways had violated procurement laws by signing a contract with China for the building of the Standard Gauge Railway, it sparked a national debate about the legality of the project.

China's Beijing Everyway Traffic and Lighting Tech business, which was awarded a USD 236 million contract by Ghana last year to construct an intelligent traffic management system, is currently examining a USD 6 billion mining agreement in the Democratic Republic of Congo.

A report from Johns Hopkins University's China–Africa Research Initiative says that between 2000 and 2019, 1,141 loan agreements worth a total of USD 153 billion were signed by Chinese investors with African governments and state-owned businesses. This is based on data from the report. Many of the Belt and Road Initiative's projects are being put on hold or scrapped because African countries can't pay back their loans.

Factors influencing the flow of Chinese private foreign investment (FDI) into Africa

The labor premium in China has is no more

The population of China is aging rapidly. The average person will be 51 years old by the year 2050. Expected numbers will be 43 for USA and 47 for Europe (Carmody, Kragelund and Reboredo., 2020, n.d). As much as a third of Chinese inhabitants will be above the age of 65 by 2060, making China the world's oldest nation.

This entire means that China ages before it becomes wealthy. According to Hu, You and Esiyok., 2021, n.d) the average GDP per person in the United States, Japan, and South Korea was $24,000 when the population over the age of 60 accounted for 12.6% of the population. Chinese GDP per capita at the same age level was $10,000.

Africa's labor force is expected to overtake China and India's combined by 2034, according to projections. The African continent's population is anticipated to reach 2.5 billion people by 2050, whereas China's will dwindle to less than 1 billion people. For China's labor-intensive factories, Africa's youthful labor pool is exactly what they're looking for today (Carmody, Kragelund and Reboredo., 2020, n.d).

China is no longer low-cost

When the GDP per person reached $11,000 in 2020, China was well above the middle-income threshold and on the verge of becoming a high-income country. There is no longer the labor cost efficiency that is needed for moderate to low-end global supply chains. In 2019, the GDP per person in Sub-Saharan Africa was $1,596.

As a result, Chinese businesses are moving production around the world to areas that have the same size and capacity as China, like ASEAN and Africa. People who work for the SANY Group, a Chinese industrial equipment company that employs 60% of Africans, have 12,000 heavy excavators on African soil and are working with the Kenyan government to build 35,000 homes in 2019. Given the high labor and logistics expenses in China, the company believes that producing in Africa for Africa will be more cost-effective overall.

Previously a major producer of agricultural products, China is now the world's largest importer of these goods. 

Between 2019 and 2020, Chinese pork prices rose by 112 percent, while food prices remained in the double digits for much of the year. While urbanization is destroying much of China's fertile land, rural dwellers are fleeing to the cities in search of better pay and a better quality of life. Structured agricultural inadequacy in China poses a national security risk due to the predicted rise of the middle class from 400 million to 800 million by 2030 (Addis, and Zuping., 2019, pp 241).

Many African agricultural products, from cereals to red wine, are sold in China, and many of them come from Africa. People in the United States and China are getting angrier at each other. As a result, China's economy is moving more food from the United States to other countries. In both geopolitics and business, African trade with China and China’s agritech investment in Africa has both.

The consumer market in Africa is rapidly expanding.

Africa has a middle-class population of 350 million, which is roughly the same as China's 400 million middle-class population (Martuscelli., 2020, pp 286). In 2019, 40.7 percent of Africans lived in urban areas, compared to 55 percent in China, which had the same pace of urbanization in 2019.

People in Africa want smart cities and energy that is used more efficiently. They also want more educatio