China's Slowdown is Good for Africa
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China's Slowdown is Good for Africa
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By Isaac Kwaku Fokuo, Founder and Principal, Botho Emerging Markets Group
December 10, 2015
China's economic influence across Africa is as controversial as it is irrefutable. On Friday 4 December, president Xi Jinping announced a three-year plan to boost cooperation with the African continent. The $60bn package includes 10 major projects that extend from poverty reduction to trade facilitation.
It is investments of this size that have enabled China to become, in 2013, sub-Saharan Africa's largest export and development partner in 2013. But its engagement has not been free from criticism, with international and African voices alike citing instances of exploitation, environmental damage and a disproportionate focus on extractive activities. The row over the Chinese-owned Collum Coal Mining Industries in Zambia being a case in point.
It is interesting to reflect on the motivations for this new partnership deal. In his own words, Xi says: "China strongly believes that Africa belongs to the African people and that African affairs should be handled by the African people." Yet, in the wake of China's recent economic slowdown, there were concerns that China will reorient itself away from Africa, as Chinese investments declined by a whopping 84%.
Rather than see that fall in investments as a threat to Africa's development as it first appears, research and conversations with businesses in China and Africa reveal that the recent decline in Chinese investments could actually completely transform the economic relationship for the better. Xi's statement and this new plan, announced at the second annual Forum on China-Africa Cooperation, could actually be the first signs of this change.
China's involvement in Africa to date has been dominated by the former's demand for commodities. However, emerging trends in Sino-African relations point towards activities that are more diversified, more localized, more environmentally-friendly and more beneficial to small and medium-sized African businesses.
Through our business networks across the continent and China, the organization I co-founded, the Sino-African Center of Excellence Foundation (SACE), has noticed four developments in particular that merit attention: a focus on quality and not just price, the push to employ more local talent, a greater interest in building local capacities, and the need for diversifying risk.
Quality and not just affordability: No product exemplifies this better than mobile phones. Chinese companies are keen to shed the stereotype of fake labels and poor durability that accompany their low prices. In recent years, over six reputable Chinese mobile phone brands, including Huawei, Xiaomi, Tecno and Oppo, are competing all over the continent not just for better prices, but also improved quality.
Local employment opportunities: Maintaining a majority-Chinese workforce in Africa is simply unsustainable for both small and large companies. SACE has found that in Kenya, employing a Chinese worker costs about 4 to 6 times more than hiring a local equivalent. In order to build local teams, Chinese companies are learning to localize their sales, operations and government relations. Meanwhile, African service providers will find that Chinese companies have started to hire local legal counsellors, human resource consultancies and marketing companies in order to better integrate their brands into local markets.
Capacity building and knowledge transfers: A greater push towards hiring local talent by Chinese firms has been accompanied by increased investments in capacity building. SACE found that a majority of Chinese managers have started to or are considering partnering with local training institutes or programs in order obtain local workers, who can excel in the required positions.
Mitigating risks and diversifying portfolios: Chinese investments in Africa are undoubtedly still skewed towards the extractive industries. Nevertheless, the composition of Chinese foreign direct investment (FDI) is undergoing significant transformation. For example, in 2013, extractive industries accounted for 30% of Chinese FDI in Africa, while finance, construction and manufacturing collectively constituted 50% of total FDI.
There's no denying that a drop in demand for commodities in China has led to a drop in investments in Africa. Nevertheless, there are signs that the country may be taking a fresh approach towards its economic engagement with Africa (the boldest one came last Friday), and this could result in greater interdependence and mutual benefit for both regions. But all the impetus to change can't lie just with China. If Africa is to benefit from its biggest partner long term, African governments, firms and professionals have to think strategically about what they want from this relationship.
Isaac Kwaku Fokuo Jr. is the co-founder of the Sino Africa Center of Excellence (SACE) an initiative to promote the exchange of knowledge, ideas and experiences between China and Africa. He is also the CEO of The African Leadership Network, a membership community of the most dynamic and influential leaders in Africa.