China’s Economic Influence in Africa

Francisco A. Laguna & Jennie Linder Cunningham

Photo Credit: 2006 UN HDI report via Wikimedia Commons

Photo Credit: 2006 UN HDI report via Wikimedia Commons

Over the past decade, China’s activities in the developing world have drawn a great deal of international attention. Although not a new phenomenon, the West was not overly concerned with Chinese economic and political moves in the developing world until very recently. This week, in the first of a series, we explore Chinese economic activities in Africa, to be followed by segments detailing similar activities in Latin America and Indochina.

Africa, particularly sub-Saharan Africa, looks entirely different than it did 100 years ago: no longer European colonies, African states have transitioned into independent nations. With few exceptions, however, these political transitions and subsequent regimes have been highly contested, often violent, prone to racial turbulence and extreme corruption. The resulting instability and corruption of many African states has led much of the developed world to avoid (in word, if not deed) economic and political involvement in the region. China, however, has not been so shy. Although the West is wary of investing in African states, then-Secretary of State Clinton issued direct criticism of China, indicating that China might be taking advantage of its powerful position vis-à-vis Africa.

Photo Credit: Sémhur via Wikimedia Commons

Photo Credit: Sémhur via Wikimedia Commons

Recent estimates of 2012 Chinese foreign direct investment (FDI) in Africa fall between $14 and $40 billion or more, depending on reporting, with trade topping $166 billion. Although FDI in Africa is low as an overall percentage of Chinese investment – just over two percent – the pace of FDI has increased dramatically in a relatively short period of time . In 2012, Chinese economic activity was heaviest in Nigeria, with an estimated $15.6 billion in FDI, primarily in energy projects. This was followed by Algeria, with an estimated $10.5 billion, almost entirely focused in the transportation sector. Other countries in which China has invested mostly in energy or transportation sectors include Chad, Ethiopia, Ghana, Libya, Niger and Sierra Leone.

Much Chinese activity also occurs in nations with valuable natural resources beyond oil and gas, such as rare minerals and metals: particularly diamonds and materials used in high-tech electronic products. Chinese FDI in the Democratic Republic of the Congo (DRC), for example, is almost exclusively dedicated to natural resource investments ($7.2 of $7.8b total); the DRC possesses nearly three-quarters of the world’s coltan, used in electronic circuits, and over 30% of its diamond reserves. The DRC, like many African states, is overwhelmingly mineral-rich, yet remains extremely poverty- and violence-stricken, mainly due to regime instability and corruption.

Photo Credit: DF08 via Wikimedia Commons

Photo Credit: DF08 via Wikimedia Commons

Observers (and critics) often note that Chinese companies are in a position to take advantage of the unstable political and economic situations endemic to many African states, a phenomenon that is amplified by the ability of state-owned enterprises to shoulder risky projects that Western and/or private companies would typically avoid. Additionally, China is in a unique position to negotiate with corrupt regimes shunned (again, publically) by the West – the Beijing Consensus. It has demonstrated a willingness to do so, and a pattern of offering aid and infrastructure (often “prestige projects”) in exchange for mineral, energy, and resource rights. Although this is a rapid and common generalization offered by China’s critics, it also tends to be an accurate description of the pattern of Chinese investment in Africa. Combined with a willingness to work with governments such as the former Libyan regime, Zimbabwe, and the DRC, without stipulations as to human rights or democratization, as embodied in the Washington Consensus, and China’s still-growing economy and heavy FDI, this pattern might soon prove to be a successful long-term model for Chinese resource security.

TransLegal assists companies with foreign investments abroad, including reviewing investment laws and suggesting entity types. We have offices both in China and various African countries. Contact us with any questions you may have.

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