China’s growing interest in Africa is now being discussed not only in boardrooms but also in the hallowed precinct of academic institutions and think tanks. Many feel that the interest of China in newer geographies are driven mostly by its demand for natural resources and job generation within the country. Its basic economic principle to go for economies of scale or production at large scale is to keep the unit price low to cut into other’s market. China has been doing it in the case of US, Europe and South East Asia, Latin America and Africa. In its wake, China has commanded a fair share of respect, and courted criticisms and controversies.
China has more than 3000 critical infrastructure projects in Africa and according to present reckoning, has extended over US $100 billion as loans to the countries to the region. Between 2000 and 2014, China, on an average, invested US$ 6 billion in Africa. In 2015, Chinese President Xi Jinping offered US$ 60 billion as commercial loans to the region, which increased lending to at least US$ 20 billion a year. In Kenya, for example, the volume of loans to the Kenyan government is six times larger than that of France, the country’s second-largest creditor.
China’s level of foreign direct investment (FDI) is relatively low. It accounts for just five percent of FDI flows into the region in 2015. This must have gone up in the later years. Two-way trade has grown 40 times over the last 20 years and now exceeds $200 billion. More recently, there has been a surge in Chinese private investment accompanied by a limited state engagement. There are more than 10,000 Chinese-owned firms operating in Africa today, about a third of which, are involved in manufacturing. An overwhelming majority of these enterprises are small and micro businesses. Chinese investment in Africa increasingly contributes to job creation, skills development, and transfer of new technologies, practices more generally associated with Western business norms.
There is a section of people who express concerns about the increasing exposure of China in the region. They feel that with the increasing clout of China in the region, the Chinese businesses will try to grab maximum economic and political advantage. Along with increased indebtedness to China, at some point in time, the region would lose its power to negotiate and go for the best economic and business deals. According to them, China should consider transitioning from loans and grants from the single source, should tap resources from multiple sources to finance its infrastructure projects. Will Africa ever listen to that advice is the billion dollars question?
