China's Increasing Presences in Sub-Saharan Africa
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Amid festering concerns, is the concern why China has so much interest in Sub-Saharan Africa. The precise nature of the impact that the relations between China and the SSA had brought forth is a matter of concern. Most of the literature lay an emphasis on the effects of the interactions, which generate both the positive and the negative impact. The relations between China and SSA passed through three phases. The first phase was the Bandung Conference of Non-Aligned Nations back in 1955. This resulted to what might be termed as the third world solidarity, which lasted for over four decades. The second phase came because of the swelling demand for resources that China suddenly developed, which saw the entrance of large Chinese funded enterprises in Sub-Saharan Africa as the contractors and investors to Chinese aid funded projects.
The third phase of the interaction between China and Sub-Saharan Africa is one that factors small and medium sized companies in the equation, predominantly privatized companies. This has coordinated the flow of sales into Sub-Saharan Africa. The fourth and current surfacing phase is one in which small and medium sized enterprises, previously started and owned by the Chinese, employed in large-scale investments, broke away and started acting as largely autonomous entrepreneurs. There are a number of channels through which the effects of the Chinese presence is felt in SSA. This might either be through the trade flows, foreign direct investments (FDI), integration on global value chains, and the third world countries.
The relations between China and Sub-Saharan Africa may either be competitive or complementary, or both in some instances. A complementary relationship is that in which both economies benefit from each other, for instance China may provide cheap consumer goods and capital to Sub-Saharan Africa and Sub-Saharan Africa may supply China with all the commodities it needs to fuel its continued economic expansion. A competitive relationship is the one where local producers may be displaced by imports from China, resulting in competitive impacts on the entrepreneurs and workers in Sub-Saharan Africa. The impacts, also, can be direct or indirect. Direct impacts are relatively simple, clear and transparent due to the direct trade flows. The indirect impacts occur as an outcome of Chinas relations with the third party countries, which work their way indirectly through Sub-Saharan Africa.
Amid fostering apprehension about China is its mushrooming global power including Africa. Since the Maoist revolutionary days, China has yet again recognized the African continent as a particular area of interest. Among the shrouded questions that everyone is asking, is the particular interest of China in Sub-Saharan Africa. The year 2006 was dubbed as the Year of Africa, and saw China promise to make a trip to Africa each year. The meeting was held with over fifty African heads of state in attendance where they were promised financial, military and commercial aid. China has also disregarded at least one billion in the form of African debts, and more are yet to be written off. The World Bank accepts the fact that Chinese banks have loans valued at over fifteen billion dollars for the infrastructure projects in Africa.
The question looming in the background is whether China is doing this out of the benevolence of its kindness. The answer is no. Nothing drives China into Sub-Saharan Africa greater than its pursuit of gas and oil. China is now the world second largest consumer of oil, after the United States. It has developed interests in Africa to reduce its reliance on the very volatile Middle Eastern sources of oil and gas. Today, Africa makes available over 30 percent of its power meeting over 5 percent of China’s energy needs. For instance, China has over 4 billion in investments in Nigerian oil, which is ranked as the eighth largest producer and exporter of oil. Beijing has also invested over 3 billion in the Sudanese sector. In Angola, more than two billion has been invested in the oil industry. Today, Angola has outpaced Saudi Arabia. China is also seeking political sway. With over fifty countries in Africa, this constitutes more than a section of the United Nations General Assembly, which forms a noteworthy voting federation. Friendly ties with China bring forth favorable results for the above countries cooperation with the U.N and the world trade organization as well.
The other reason as to why China has so much interest with SSA is to come across new markets and commercial prospects. The Chinese economy is export driven, and hence, Beijing must be in constant search for markets upon which they can develop and grow its market. Today, there are over 1000 Chinese companies operating in almost all African countries. This sort of penetration has made their markets expand in Africa. The third force driving China towards Africa is their concern for Africans themselves. These firms underbid the local African companies, and they end up using Africans for cheap labor. It has led to unemployment in countries like Zambia, where China has copper mining interests. There is also a mounting concern that the lending practices of China have trimmed down the debt saddle in Africa. This can also be viewed as a plan that the government of China had for Sub-Saharan Africa.
Africa is a continent with more than 50 countries, but there are those that have reaped the greatest of benefits from their diplomatic relations with China and Beijing. Exports to China account for amid 85 and 100 percent of all the exports of oil for Angola, Sudan, Nigeria and Congo. An analogous picture is spot on for the DRC, which has 93.6 percent of its fundamental metal exported to China. On the import side, only seven SSA countries bank on a significant portion of their aggregate imports from China. In 2007, the largely import-dependent SSA economies on China were Angola (34 percent of imports), South Africa (18 percent), Sudan (12 percent) and the Democratic Republic of Congo (8 percent) (Kaplinsky and Farooki, 2008) Almost all of the traded items were manufactured products.
There are many roles that Chinese companies operating in Africa have played. Many companies have flourished ever since the Chinese set foot in Sub-Saharan Africa. Since 1997, over 300 million dollars had been injected into the textile mill in Zambia. Over the recent years, much more has been invested in manufacturing projects, construction companies as well as expanding agriculture. A Chinese company, COBEC, rehabilitated the Kamatanda cobalt and copper mines in Katanga province, in the DRC. Chinese companies have also been operating in Zambezi province, Mozambique. This concerns logging and shipping of the timber products to China.
Huawei Company has become one of the leading dealers in wireless technology. This has in a huge way, contributed to better and more efficient modes of communication all over Africa. ZTE Corporation also has its presence felt in Angola. ZTE invested over 400 million dollars to build Angola’s telecommunication network. The company also upgraded the countries’ military systems and built a mobile phone factory. Hashan Company has its presence felt in Nigeria. The Chinese company spent over six million dollars to boost the local shoemaking industry. In Kenya, CRBC commissioned the building of Thika Road, at a cost of over three million dollars. The above mentioned are the examples of Chinese companies operating in Africa. They all have various roles in the development of Africa as a continent. The major role is the development role. The companies also play a role in the expansion of markets as they create markets for products that come from the SSA.
The Chinese aid is different from the Western aid in many qualitative ways. The Western aid has always been coming from the companies that are privately owned. These are the companies that have their main focus on profit maximisation and usually come with short time spans. In contrast, the Chinese aid comes from the firms that are partially owned by the state or wholly state owned organisations. They are majorly linked to the achievement of some certain objectives that are long term, but are associated with the aid.
Furthermore, the aids that come from China are partly driven by a proactive government policy, (UNCTAD 2007). Chinese companies that are trading in other regions enjoy certain types of incentives, which include special tax rates, credit and loan facilities, and foreign exchange allowances among many other benefits. It is another difference that sets it apart from the Western aid. Chinese aid to Africa has been further supported as compared to the Western Aid. This becomes evident from the support the aids have received through numerous meetings, joint committees, business state visits. This has promoted to China’s involvement in most of the affairs that take place in Sub-Saharan Africa.
The impacts of Chinese firms in the SSA economies have tagged along some impacts that cannot go unnoticed. A good instance is the clothing and textiles that are manufactured in both South Africa and Ghana. Their local products are being displaced by the imports from China. More evidence can be found when reviewing the case of clothing and footwear manufactured in the Sub-Sahara Africa. In Ethiopia, 95 SME’s and domestic producers reported cases of competition from the Chinese products. Of those, over 25 per cent were forced into bankruptcy and another forty were downsized. The average number of micro enterprises shrivelled and has never recovered.
This brought forth long term detrimental effects to the economies of the Sub-Saharan Africa countries. Among them: reduction of the prices of clothing textiles, reduction of available working positions, especially for women. This had severe effects on their families as well. We all know from comprehensive experience that brisk economic growth can be a noteworthy factor in plummeting poverty levels, and the defeat to both export and GDP emanating from sharp narrowing of the clothing industry will definitely impact negatively on poverty levels.
A survey carried out in 2004, brought to light the fact that workers in Kenya, Swaziland and Lesotho lost their jobs after the production in the clothing industry hit a snag. In Kenya alone, the imports reduced the domestic production and displaced the imports from the neighbouring countries which had disastrous outcomes for the industry.
There are many impacts that come as a result of the direct trade between China and Sub-Saharan Africa. For example, the demand for a certain good in China may raise their global prices. There is also the displacement of the already existing local goods by the cheap Chinese products. Competition in the external markets also leads to reduction of prices and market shares.
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Chinese companies are currently dealing with many products manufactured in Africa. The first product is oil. China gets its oil mainly from Angola. Angola also has gas exploration spots, just like Nigeria. This has put Nigeria on the map too. Many of these investments usually come in the form of loans and aid in the exchange of infrastructure development and sumptuous trade deal. In Agriculture, Burkina Faso, Mali and Benin supply about 20 per cent of China’s cotton needs. Ivory Coast supplies China with cocoa since it has a favourable environment for the thriving of cotton. Kenya also chips in large quantities of coffee and Namibia remains China’s biggest fish producer. Zambia is another country that China has particular interests in because of its vast copper beds. China has set up factories in various places from which it gets a substantial amount copper metal. Fruits have also been exported from Kenya, which include oranges and pineapples. To some extend China strives to make these trading relationships symbiotic, as used in biology to denote a situation in which both parties benefit.
Africans in Sub-Saharan region are the major beneficiaries of experiencing heavy Chinese presence in their countries. In an exclusive interview with Xinhua, the Economic planning Minister of Zimbabwe and Desire Sibanda, the promotion secretary, admitted that Chinese has provided favourable business conditions for the country, as Zimbabwe benefitted from the relationship with China and traditional partners like the World Bank, which provided major assistance when it came to improving the infrastructure: the roads were built in exchange for the raw materials that were already present in Zimbabwe.
Many African countries have had an upgrade in infrastructure in exchange for China implementing its projects on their territory. A very good example is Kenya which currently entered into a deal with China to have their roads constructed in exchange for the oil recently discovered in Turkana. Therefore, this way in which the Africans acknowledge and appreciate the presence of the Chinese in SSA seems to be really beneficial for both. Cities like Rwanda, Zambia and Angola have benefited in terms of infrastructure development. Instead of focusing on trade, the Chinese focused on the point of most of the SSA countries’ needs, infrastructure development and upgrade of services like communication.
Many SSA countries have also obtained benefits from Chinese presence in terms of debt management. The Chinese came up with various financial assistance packages that helped reduce the level of debt. China offers real assistance, as compared to the Western countries that are considered by many as being capitalists bent on enriching themselves. The presence of the Chinese has also led to the development and enlargement of the markets of products manufactured in China, which are cheap. This has led to huge amounts in savings for the SSA families, and hence, the increase in disposable income. China has also improved the levels of education in the countries in which it has made a presence, by establishing Confucius institutes in many national capitals. It also sponsors Africans to Beijing for the employment or further studies. General contribution of China to SSA countries lies in direct investment into the economies of SSA countries. This has provided a spanking new approach towards the development of Africa on the whole. But on the flip side, there are certain effects that come with the presence of the Chinese in Sub-Saharan Africa. Sudden influxes of goods manufactured in China that are of low quality in the African market have impacted negatively on the economic growth of Africa.
There are various ways in which the local entrepreneurs adjust both socially and economically in order to keep up with the Chinese Foreign Direct Investments. The local firms have been given better access to information about entrepreneurship as well as small scale enterprises. This gives them an edge, since they are provided vital information regarding the overall business industry including concerns like market analysis, accounting classes, which come in handy when carrying out daily business activities.
The local governments have also provided necessary for inter firm linkages assistance. This has given the local businessmen and businesses and opportunity for the acquisition of the new skills that are effective for today’s competitive marketplace. The local businessmen are taught the importance of the value chain and focus on creating products of high quality to beat the foreign direct investment rates. The African governments have also encouraged inter firm relations between the large buyers and the local firms. This has made it easy to counter the effects of the foreign direct investments from China. The local businesses have also increased in number in order to keep up with the Chinese FDI. These new businesses have also made their presence felt in the international community by participating in international trade. Ties have been extended to the United States and the European countries after the quota system was implemented. Partnerships with firms in foreign countries through joint ventures have also been achieved. Firms, such as Swedish International Development Cooperation Agency, have helped the local firms gain access to markets in the better placed economies. Licensing, as well as other collaborative models have been created, especially for the European organic markets.
The above mentioned measures have provided opportunities to small scale farmers in African countries. Access to governmental financial support is also vital, since the small businesses can get micro finance to aid in their expansion. Without this governmental support many small businesses would have never existed. Another positive effect of governmental support is aiding the local businessmen cope with the current level of Chinese direct investments. Most of the governments of African countries have elaborated privatisation plans in order to provide the opportunities to the local entrepreneurs. This has been promoted in Africa since the late 80’s, and was pushed for by the International Monetary Fund and the World Bank. This way the businesses have adjusted socially and economically to the level of Chinese direct investments.
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