Challenges Facing Chinese Enterprises In Africa

                            by Philippe Valdois

                                                                    April 30th, 2013

Doing research work and trying to give an honest opinion about the constraints and challenges facing Chinese-funded enterprises in China, and how best to fight misconceptions among the public about the real positive or negative effects of China’s presence on the Continent, has been an enlightening and challenging experience.

I had in front of me very different sets of data supporting more than often opposite conclusions. This forced me, in the absence of enough primary sources, to question even my own ideas as the product of a not so objective thought process.

In fact, as I was concluding this redaction of this report, Professor Deborah Brautigam, the author of The Dragon’s Gift: The Real Story of China in Africa (Oxford U. Press, 2009, 2011), posted online a very interesting article on 30 April, 2013, untitled Rubbery Numbers on Chinese Aid in which she criticized a new paper and media-based dataset on Chinese aid/finance released by the AidData project in an event at the Center for Global Development.

Although her article was about a paper on official development finance in Africa, it confirmed what I had been writing so far in my report about misconceptions regarding the activities of Chinese enterprises in Africa.

I based my essay on extensive readings and used four different types of sources: Chinese government and various agencies, medias, experts and African countries citizens (both online and face to face.)

If as mentioned before published papers and analysis have to be carefully scrutinized, articles and opinions emanating from the three other types of sources are even more doubtful because of the contradictions they present. I did not want to be as categorical as most authors, which lead me to conclude this somewhat unusual but necessary introduction about the pitfalls of sloppy research by saying that there is still a lot work to be done to dispel myths now prevailing. Chinese enterprises have already done a lot of efforts as we will see later to answer Africans’ concerns, the kind of efforts I would have myself encouraged them to make, but as long as the veils of myth are in place, concealing reality in its complexity, those efforts will not be recognized.

Is the honeymoon really over?

Chinese-funded enterprises are facing a number of challenges in Africa and a growing competition from both new and traditional business players on the continent. Many medias are asking if the honeymoon is over between China and Africa basing their gloomy predictions on recent speeches by some African leaders criticizing China.

If the recent African tour of Chinese President Xi Jinping was a way for China to reaffirm its commitment to this continent it was also to respond to the criticism emanating from countries like Zambia and South Africa regarding China’s trade strategy in Africa. But as we will see, there are many misconceptions regarding the nature and extent of this criticism and the mass media adopt a very different approach from that of most experts and economists who have a more moderate view and tend to see in a more positive way the dynamics of change at work in Africa.

We will see to what extent the image of China has really changed, how this change in perception might affect Chinese interests in Africa and what could be done to remedy those difficulties.

Durban, a turning point

If the visit of Xi Jinping marks continuity for Chinese diplomacy, Chinese leaders having made the decision in recent years to choose the African continent as the destination of their first trip of the year, the Durban’s BRICS Summit was the theater of a major change of direction in China-Africa relations, in particular with the emergence of multilateralism.

Africa recognizes the positive role China has played in its economic growth, but discontent is also expressed regarding a lack of transparency in some contracts and the fear that China’s imports might put a break to the industrialization of countries like South Africa. But are those fears based on reality? For example, we hear about China buying land everywhere and exporting massively its labor force to Africa. Those fears are greatly amplified by the medias. Regarding the supposed land grabs by China, we must note that Middle-East countries are the main buyer of land in Africa and not China by far. Professor Deborah Brautigam also wrote about “Zombie” Chinese land grabs! I will come back later to the question of Chinese labor.

When Xi Jinping visited Tanzania at the end of March 2013, as the first stop on his African tour before the Durban Summit, observers speculated that his main job would be to tone down the feeling of discontent associated with the idea China was not playing fair. He did that by reminding Tanzania of their common revolutionary past and achievements as exemplified by the building of the Tanzam railway, not only as a way to put forward China’s anti-colonialist, anti-imperialistic tradition, but also to express China’s gratitude towards African nations for having made it possible for the country, through their votes, to join the UN Organization.

But has an African journalist told me, Africans have changed. They are looking towards the future and a more mature relationship, at business relations not tainted with nostalgia. Talking about China, the Zimbabwean Finance Minister Tendai Biti told bluntly the Reuters Africa Investment Summit in April 2013 “The sad reality is that they are not comrades. Their companies are there to make profits like everyone else.” I personally think that evoking the ghosts of colonialism in a new multipolar world, where many Chinese-funded enterprises are in fact working in Africa under contract with large Western companies, could become a negative factor in the development of trade. Listening to the President of Algeria talk at the United Nations University a few years ago and knowing how high the youth unemployment rate was in this country (a future factor of discontent and even revolt in North Africa) I was surprised to hear him talk mostly about the Algerian War and the fight against France as an (ex-)colonial power, something as far as can be from the preoccupations of young people without a job. The youth of Africa likewise are focusing on what China is bringing them today, a new lifestyle with the possibility of owning their own mobile phone, their own car, etc. China at the political level should point at those benefits its enterprises are bringing to Africa and not too much at its past accomplishments in the continent.

Criticism and reality

The main criticism we are hearing regarding China right now is that Africa is exporting raw materials while spending on imported finished consumer goods from China. This model was prevalent during the colonial era and it would be easy for a journalist to see a correspondence there and offer an oversimplified analysis. However, we should remember that under colonial rule, there was no African sovereignty. Now, on the contrary, African States can negotiate their own terms contracts and treaties as they wish and ask for technology transfers and assistance in forming their own specialized work force. The quality of each relation depends for the most part on the political will of the nation involved, with its laws and regulations. In addition, we have to take into account the fact there is a diversity of African States and not all have the same type of relations with China. This makes it impossible to generalize, when some countries with better governance can experience a real win-win relation with China, while others with a less than transparent way of conducting business will see investments going to useless projects. The African policy-makers are here to blame, or to praise. An opinion shared by more and more African business and civil society leaders.

It is true that some African countries have suffered from the importation of Chinese goods, in particular textiles, at one time or the other. However as the president of China Institute of International Studies Qu Xing wrote in the Zambia Daily Mail, the African consumers are free to choose what to buy. Regarding textiles, he continues, “Several years ago, in response to Africa’s concern, China willingly restricted its textile exports to certain African countries. As a result, the market share of Chinese textile declined with the market taken by other countries’ products instead of African countries.” More important, according to The Economist, if the value of China’s annual exports to the continent more than doubled between 2007 and 2012, the values of its imports from African countries rose even faster. This dynamic translates in fact into a growing trade unbalance in favor of Africa. So China is not the invader we sometimes hear about.

The fact that the Durban Summit was for the most part an initiative of South Africa, Brazil and India reflects moreover the reality of the new multipolar world we mentioned, with China being only one among many partners of Africa, China represents in fact only 10 to 15 percent of the total African trade. It is difficult in these conditions to talk about an asymmetrical neocolonialist model.

There are also many signs of positive changes and in particular, of a better understanding of the situation and the nature of the problems on both sides. For example, and contrary to what some out of context quotes might let us think, when Lamido Sanusi, the governor of Nigeria’s central bank wrote in the Financial Times on March 11th 2013 an article untitled “Africa must get real about Chinese ties” about China taking Africa’s primary goods and selling them in return for manufactured ones, a mechanism described by him as “the essence of colonialism” and a “new form of imperialism,” he was mostly directing his criticism at the Africans themselves, those governments unable to manage efficiently their own trade relations, and bargain as they should do.

The reality is that China’s role as we mentioned previously has been extremely positive in Africa, starting an import-led growth, which benefited countries with few industries and limited buying power. I already mentioned mobiles phones imported from China without which there would not have been a telecommunications revolution in Africa, with all the associated benefits like mobile banking for example. Also, new developments in China itself are contributing to the industrialization of its African partners. For example, growing labor costs and pollution at home make it necessary for Chinese concerns to integrate their production facilities in Africa with the building of factories. This of course could be a double-edged sword for the local populations in the absence of environmental regulations and good governance.

To put to rest another preconceived idea, it is necessary to note that China, in terms of trade and investments, is not in a position of power in most countries in Africa. Chinese enterprises have to compete in most African markets with powerful adversaries, which have however the potential to become along the way partners in this new world of triangular relations.

Competitors and partners

As a major competitor of China in Africa, we must first mention India, geographically closer to Africa and with a stronger presence in the Middle East. Investors from this region are as we saw previously the main buyers of land in Africa, and Indians are strongly positioned as the main managerial power in the Middle East. India offers also different more frugal solutions to Africa compared with the Chinese model of mass-production, in particular by favoring the access of African cities to cheap telecommunications models. However both China and India have a similar ability to expand the market towards the base of the buying power pyramid by making available to most people the products only the elite could previously afford. This is all benefit for Africa and again, this knowledge should be strongly emphasized at the political level.

Another competitor is Japan, the first country to offer, with its TICAD, the Tokyo International Conference for African Development, a forum for investments in Africa. China actually followed with its own version, the Forum for Investors in Africa, in Beijing. The 2-day preparatory meeting for the TICAD took place in Addis Ababa, in Ethiopia in March 2013 and delegates from about 50 African nations and Japan developed a draft of the Yokohama Declaration to be adopted at the TICAD in June 2013. The focus of Japan’s support is to be on private investments and trade. But if Japan shows a strong interest in Africa, the fact that it has to respect certain rules about transparency and governance greatly limits its business opportunities compared with China. We should see however a growing presence of Japanese enterprises in Africa, offering for example high tech products like solar energy systems, etc. With a growing number of potential consumers on the continent, there might be a shift in Africa towards buying more high-tech products with less concern for price.

The traditional foreign partners, the United States, France and Great-Britain, had somewhat neglected not long ago Africa because of financial constraints, leaving behind a vacuum China and other countries have been filling up. Interestingly, it is because relatively new comers like China, India, etc., are showing their interest, with large investments and loans, that the ex-colonial powers are coming back to the Continent to reinvest, rediscovering the many resources Africa has to offer. However, relations have changed, from North-South to South-South to now triangular ones without, as I mentioned previously, the bilateral and asymmetrical models we saw in the past. Again, this became obvious at Durban.

We hear other critics related to the Chinese labor force taking over the jobs of the Africans but here too the situation is quickly changing with Chinese companies opening joint-ventures not only with African partners, but also signing contracts and working on projects in Africa with foreign companies. While some critics like Codrin Arsene in Congo Forum talk about only 30 % of the people hired in Chinese infrastructure projects being Africans, the reality is that the Chinese government is encouraging when possible the hiring of local personnel and that the proportion of Chinese and African working on specific projects depends on many factors: labor laws, immigration laws, availability of skilled labor, cost, etc. Again, Professor Deborah Brautigam offers very different and more realistic numbers for some specific projects. Chinese-funded enterprises are also facing similar challenges with the use of imported equipment sometimes unavailable.

In some African countries, mostly those where there is a better freedom of the press and unions have their say, some Chinese companies have been accused of mistreating their employees and not respecting working safety rules. According to some medias, China is exporting to Africa its own practices which are criticized at home by the Chinese population itself. The president of Zambia Michael Sata was known before he won the election in 2011 as a fervent critic of Chinese corporate practices in his country and abuses at Chinese-operated mines. But as an illustration of what we might expect for the future in terms of relations between Chinese enterprises and African States, pragmatism prevailed on both sides and as Alexander Mutale of the Christian Monitor wrote “… the general mood is one of rapprochement, with Sata voicing moderation and Chinese investors promising good corporate behavior.”

Problems have also been reported with accusations of racism, and various violent incidents have taken place in the work place, but Chinese companies are showing pragmatism here too and multiculturalism is emerging with more interaction between individuals. The number of mixed marriages is for example growing.

It should be noted however that for the time being, the most positive comments towards China are coming from the well-to-do African elite in power in the countries where corruption is rampant and who benefit from some doubtful infrastructure projects. But it shows again that the solution to most of those problems has to come from Africans themselves, not only from political leaders but also from the civil society. China itself has distanced itself from such regimes in recent years (in the case of Angolan and Sudan for example.) But here, we have to mention another great challenge for Chinese enterprises: security. Many terrorist groups are active in Africa and conflicts are opposing not only nations but also ethnic groups in regions where China operates. It does not help the image of China that it is also selling a huge number of small arms to belligerents in places like Sudan and RDC. With the turns of political and military fortune, any past deal or association with warlords might damage the ability for Chinese individuals and small and medium companies to safely conduct business in the future.

Another challenge for Chinese companies will be to respond to criticism from Chinese themselves who think the money spent on investments in Africa could be better spent at home. The government will have to thread carefully but the employment potential for Chinese in Africa should help counter such criticism.

I could survey here only just a few of the challenges facing Chinese-funded enterprises in Africa. I mentioned already the large diversity of countries, political regimes, opinions, etc., which have all to be taken into consideration before making any major corporate level decision. I had written in a previous paper about the necessity for the Chinese in Africa to know the local languages and better understand the local cultures. But most importantly, it is necessary for China to actively participate in the academic debate about its presence in Africa by openly sharing data to put to rest the phantasms propagated by the mass media and facilitate the work of its enterprises on the continent.

Finally, I would suggest a more active participation of Chinese executives in forums such as VC4A ( described as “The launchpad for emerging technology and trends.” I became a member when it started a few years ago and saw it become an international forum for innovation with meetings in many large cities around the World, a system of mentorship and business angels. Identifying and helping funding ventures started by talented young African entrepreneurs (the business leaders of tomorrow,) is a good way to invest in the future and make sure that Chinese small and medium-size enterprises will have a positive influence on the future of Africa and find the right human resources for their growing business in Africa.

References: (Applause for China-Africa Cooperation, April 3rd, 2013, Zambia Daily Mail)

International Monetary Fund, Podcast, Growing Chinese Investment in Africa, 2012

France Culture, Les Enjeux Internationaux, podcast

Radio France International, Géopolitique, le Débat, podcast

China in Africa: The Real Story: “Zombie” Chinese Land Grabs in Africa Rise Again in New Database! (Zimbabwe: China’s African Ally, The Jamestone Foundation)

Photo:Government ZA via flickr