NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

This post is the second in a two part series exploring China’s role in Africa’s development. Part 1 focused on the breakdown and impact of African exports to China, and Part 2 focuses on the role of China’s investment and imports into Africa.

Investment

It is no surprise that most Africans are welcoming Chinese investment and products. The history of traditional Western aid and investment in Africa is one of a nagging “I correct you because I want what’s best for you” parental-like stronghold over the continent. Tired of “the politically motivated, finger-wagging approach of western governments,” Africans have welcomed China’s emphasis on pure business. Numerous sources quote the lack of political motivation, as well as societal or environmental demands, as one of the primary reasons that Africa is welcoming the Chinese investment.

Sahr Johnny, the Sierra Leonean ambassador in Beijing, was quoted as saying the following regarding China’s projects in Africa:

The Chinese are doing more than the G8 to make poverty history. If a G8 country proposes a project for Sierra Leone, there is an environmental assessment and evaluation of the human rights and governance situation. The Chinese just come and do it.

Despite the claims of poverty reduction, the reality is that the aid flowing from China is not designed to alleviate poverty, as opposed to aid from the World Bank and the IMF, which falls under the category of “official development assistance.” Therefore, it is not subject to social and environmental assessment. The assistance from China is purely aimed at promoting trade and development for China, as it is delivered through China’s Export-Import Bank. Therefore, when an issue like the Darfur crisis in Sudan arises, China slyly steps aside and claims that its role is not to police other countries.

While this lack of social and environmental benchmarks may worry some, others praise the fact that much-needed investment has been able to flow freely into Africa. Some of the key areas of Chinese investment, which align with improving the efficiency of resource extraction, are telecommunications, energy, and physical infrastructure. These areas have traditionally been ignored by donors in Africa, who have instead favored social development programs such as education and health.

According to the World Bank, the infrastructure deficit in Africa is dire. Investment needs are estimated to be at least US$20 billion per year, and the continent has a funding gap of approximately US$10 billion per year.

The total China Ex-Im Bank loans for infrastructure to Sub-Saharan Africa amounted to over $12.5 billion as of mid-2006, which should be just enough to close the funding gap. Support to the power sector makes up about 40% of total commitments, followed by “general” or multiple sector commitments (24%), transport (20%), telecom (12%), and lastly water (4%).

In telecommunications, between 2001?07, Chinese telecom firms supplied almost US$3 billion worth of ICT equipment, mainly in Ethiopia, Sudan, and Ghana. Chinese companies such as state-owned Zhong Xing Telecommunication Equipments Company Limited (ZTE) and the private Chinese multinational Huawei have entered the African market. In the energy sector, many of the African oil enterprises have offered Chinese firms equity stakes. In the construction industry, Chinese companies have contributed to railways, roads, bridges, hospitals, stadiums, and dams. According to most, these projects have been affordable, good quality, and completed quickly.

Although the money is flowing in, much of the development is focused on building Chinese brands abroad, not investing in African businesses. In addition, Africans complain that the Chinese contracts often stipulate that a high percentage of laborers have to be Chinese, who are brought over in droves.

Africans have expressed concern regarding whether or not these investments will add long-term value in the sense of technology transfer, education, and opportunities for Africans. At the amazing blog Global Voices, a young Malawian girl questioned, “Am I being idealistic in hoping that they will teach us their unique skills in building and pass the construction mantle back soon after? Abeg”

Products and Services for the African Market

Not only has China offered investment in infrastructure, but there has also been an influx of Chinese products in Africa, which has rallied critics from both ends of the spectrum. According to the article “The Strategic Entry of China’s Emerging Multinationals into Africa,”

?the Chinese multinationals have become adept at identifying so-called ?market blind spots?, market areas that have essentially been neglected and under-capitalised. These are typically cheaper product lines that may not seem to be money spinners, but which would actually stimulate demand once available.

Examples of these are Haier’s smaller refrigerators and Lenovo’s C100 laptop, targeting small and medium enterprises. Huawei provided the international market with low-end routers that were 40 per cent cheaper than other products, capturing 3 per cent of the global market by 2002.

From that, it sounds as if the Chinese products are giving African people more choice, and filling market gaps, which are certainly efforts that we all advocate for here in the BoP community. However, there are worries about the safety of the extremely cheap Chinese goods. If an exporter can?t pass FDA inspections, it may still be able to slip its products into African markets. As one blog on African-Chinese relations asked, “Are unscrupulous Chinese companies exporting counterfeit drugs, poorly made equipments, unsafe food items, and poisonous toys to our continent?”

In addition, there are protectionist concerns that Chinese companies are contributing to the demise of indigenous African industries, such as textile and apparel firms.

China as a Model for Development

Lastly, if you look beyond the investments and new products, and consider China a model of development that may provide a tutorial for Africa, it is both exciting and worrisome. A working paper issued by the World Bank in February of this year, titled “Lessons from China for Africa” is focused on the fact that “other developing countries struggling to grow and reduce poverty are naturally interested in what has been the source of this impressive growth and what, if any, lessons other developing countries can take from China.”

For those who are looking solely at economic indicators, China has lifted 300 million people out of poverty with unimaginable speed. China certainly did not achieve this success through a dependence on Western aid and structural adjustments.

So, could China do the same for Africa? Do we want China to do the same for Africa?

The situation that has emerged in China, albeit economically prosperous, may not be the pathway that most would like to imagine for Africa. China may have tackled poverty, but what about inequality? While China has started to embrace the market philosophy from the West, the adoption of the freedoms that are usually associated with a democratic system is another story. You could trip over the number of examples of human rights violations in China, from incarcerated activists to the infamous “great firewall.”

While there are some very positive and exciting stories coming out of the BoP community, we cannot ignore the limited choices that much of the developing world still faces. This is especially true as we embrace the role of business in development, and as we believe that market-based solutions have the potential to be a powerful positive force in both poverty alleviation and overcoming inequality in these desperate economies.

What is happening in Africa right now clearly demonstrates a seemingly simple distinction that we may all sometimes forget to make; poverty and inequality are not one in the same. And, if poverty is addressed, will inequality then follow suit?