Chinese investors in Africa

Chinese investment in Africa (非洲)
Red = Mining Blue = Mfg 2011

According to Wall Street Journal, Chinese companies have made significant amount of investment in Africa. Among these investments, 30.6% of them are invested in mine industry, 19.5% in finance industry, 16.4% in construction industry, and 15.3% in manufacture industry. These investments are becoming important to China, because in the new few years, jobs will leave China due to the rise in wages. As many as 85 million jobs will leave China, according to renowned economy scholar Yifu Lin.

One of the reasons Africa seems so attractive to Chinese investors is wage. Wages in Africa are significantly lower than wages in China today. Wall Street Journal states that “The average monthly wage for a low-skilled Ethiopian factory worker, for example, is about 25% of the pay for a comparable Chinese worker, according to the World Bank”. Wages in China will continue to rise in the next following years. Therefore, it is becoming almost necessary for companies to construct plants overseas.

Also, Africa is the land of opportunity. “Africa is now home to six of the world’s 10 fastest-growing economies, according to the International Monetary Fund”, said Wall Street Journal. In the future, African demand for all kinds of goods will grow significantly. These goods include automobiles, houses, coals, clothes, and loans.

For those African countries who seek to grow and lack the ability to do so, China offers them decent amount of loans. Since 2009, China has offered more than $20 billion of loans to African countries. Providing loans can also potentially enhance the relationship between China and African countries. A good investment environment and friendly government are essential for foreign investors.

Among these investors, some of them are auto companies. Wall Street Journal reported that “Auto maker China FAW Group Corp. is building a new factory in the South African industrial hub of Port Elizabeth to produce trucks and light commercial vehicles”. The plant in South Africa will provide convenience for FAW to ship its products to other African countries, making FAW more competitive in the local markets.

May 15, 2014 WSJ story

8 comments to Chinese investors in Africa

  • Jier Qiu

    This is a fascinating economics topic. For many years, China has been dumping money into Africa. A lot of interests are involved between China and African countries. The latest news I read on this topic is about Africans demanding more jobs from Chinese companies. Chinese corporates in Africa have been providing millions of jobs already and there are still room for more. Therefore Africa is still a very lucrative market to invest in. We can expect even more investment in Africa in the future.

    • Kuangdi Zhao

      Indeed. Africa is important for China for several reasons. Its natural resources, business opportunities, and other Geopolitics reasons. I believe that more Chinese investors will come to Africa in the future.

  • Peter Wittwer

    Interesting post. Some reasons I am skeptical about the African economy is because there it’s a continent plagued by political turmoil. Although South African is fairly stable there’s a multitude of countries throughout Africa that are engulfed by civil war and have not yet engaged in a land reform to the people yet. All the land is owned by the government or war lords. Until there’s a land reform many countries in Africa will not be allowed to build factories on their land or industrialize. Also, due to the lack of industry in Africa, there’s a lot of unskilled labor there. It’s going to take a large amount of capital investment by Car manufacturers to teach unskilled workers how to build cars if they plan to move their production facilities to Africa.

    • Kuangdi Zhao

      Political turmoil is definitely the primary concern for African countries. However, I hope the African Union can play a more important role in dealing with these turmoils. I don’t think foreign intervention is a good idea for helping African countries to solve internal conflicts. The problem can only be solved from inside.

  • heardd16

    I think it would be great to see jobs move to Africa. A country that is plagued by so many social and economic problems could benefit from an influx of money from China, whose economy is growing substantially. It is interesting to think about what Africa might be like decades from now. Maybe business from China will help ameliorate social problems throughout the continent in the long run.

    • Kuangdi Zhao

      Some critics call the influx of Chinese investment as a new form of colonization. They state that the intents of those investments are to control African economy. I do not think this is true. Chinese investment in Africa will be mutually beneficial to both Africa and China. Chinese companies can be benefited from plants that have lower operating costs than the plants in China; meanwhile, African countries can enjoy benefits of GDP growth and higher wages. Economic growth, providing job opportunities, can also solve many social problems because it helps to solve unemployment. When there are enough jobs, people will spend more time in factories instead of on the street protesting.

  • Manufacturing investment in Africa reflects the use of ISI (Import Substitution Industrialization) development strategies, that impose high tariffs on finished consumer goods and lower tariffs on imported components. That certainly was the case for South Africa, which is why the Big Three (Ford GM Toyota) have plants there. In addition (cf. Mexico) regional Free Trade Agreements make setting up plants more advantageous, more market access is gained from crossing a single tariff wall. Furthermore, as developing countries there’s a market for cheap commercial vehicles without all the trimmings for safety and emissions and fuel efficiency. The Big Three are not well adapted to serve up such products, but FAW likely is. Outside of China, however, Great Wall is the most successful. My hunch is that if you search, you’ll find they already have a plant in South Africa.
    No one is shying away from investment in France because the Ukraine is also in Europe. Africa is an even bigger place; political turmoil in the Congo (? the name keeps changing) or South Sudan can be hundreds or thousands of miles away from comparative success stories such as Mozambique or Ghana or Senegal.

    • Kuangdi Zhao

      Professor, thanks for your comments. I am curious about what is the capability of US big three plants in South Africa? Are those plants capable of producing enough vehicles for African countries other than South Africa?

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