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Tuesday, May 21, 2024

Warning signs for Africa: how Chinese investment is reshaping the region

The author discusses the reasons for China's increased investment in Africa. China has a lot of interests in the region. Africa's natural resources, labor capital, and similar ideologies are the main reasons for China's economic pursuits in Africa.

During the past decade, China’s rapidly growing presence in Africa has increasingly become a topic for debate in the international media and among economists and policy analysts. Studies of China’s Africa strategy have been overwhelmingly focused on China’s economic interests in Africa, the role played by Chinese government and companies, and the economic and social impacts of such activities on the ground.

China is now the biggest foreign player in Africa. It’s Africa’s largest trade partner, the largest infrastructure financier, and the fastest-growing source of foreign direct investment. Chinese entrepreneurs are flooding into the continent, investing in long-term assets such as factories and heavy equipment.

Considering Africa’s difficult history of colonialism, one might suspect that China’s activity there is another instance of a foreign power exploiting resources.

Read more: The Road to Independence of African Colonies

Despite fifty years of Western aid programs, Africa still has more people living in extreme poverty than any other region in the world. Those who are serious about raising living standards across the continent know that another strategy is needed.

Chinese investment in Africa will provide industrial development of the continent. With a manufacturing-led transformation, Africa would be following in the footsteps of the United States in the nineteenth century, Japan in the early twentieth and the Asian Tigers in the late twentieth,

There is a strong tendency to assert moral judgments in the assessment: China’s activities in Africa are often characterized as “evil” when they are seen as representing China’s selfish quest for natural resources and damaging Africa’s fragile efforts to improve governance and build a sustainable future.

However, they are characterized as “virtuous” when they are seen as contributing to a foundation for long-term economic development through infrastructure projects and revenue creation.

Read more: China Africa Relationship: Win-win or debt trap diplomacy

China’s political interest in Africa

As China becomes a global economic and political power, a simplistic perception of Africa as China’s supplier of raw materials inevitably neglects other key aspects of Africa within China’s global strategy. China’s goals and policies have become more diversified as China seeks to satisfy four broad national interests in its relations with the continent.

Politically, China seeks Africa’s support for China’s “One China” policy and for its foreign policy agendas in multilateral forums such as the United Nations.

Read more: World is not ready for ‘One China’ yet

China saw natural common ground and bore a sense of empathy with Africa as a result of their shared historical experiences: Africa and China were both victims of colonization by the capitalists and imperialists and faced the same task of national independence and liberation after World War II.

China relies heavily on diplomatic support and cooperation from African countries on key issues in the international arena and at multilateral forums. Currently, the 54 African states account for more than one-quarter of U.N. member states and votes. China has relied on African countries’ support at the U.N. for its political agenda.(in 1972 twenty six African countries voted for China to resume its seat in UN).

Another of China’s key political aspirations in its relationship with Africa is to end Taiwan’s diplomatic presence on the continent. For Beijing, it is a matter of fundamental regime legitimacy that Africa embraces the One China policy and accepts Beijing rather than Taipei as the only lawful representative of China.

Read more: Taiwan’s separation “Not Acceptable”: Warns China

The three stages of Sino-African economic relations

Economically, Africa is seen primarily as a source of natural resources and market opportunities to fuel China’s domestic growth. This is the immediate result of Beijing’s strategy to diversify and consolidate its legitimacy in Africa was through the delivery of economic development to the general population.

According to Chinese analysts, the six decades of Sino-African economic relations could roughly be divided into three stages.

From 1949 to 1979, China’s economic activities in Africa were primarily motivated by China’s political agenda and were focused on providing economic assistance to newly independent African nations so as to build diplomatic relations, to support Africa’s “anti-imperialism, anti-colonialism struggle and to gain their support for the People’s Republic of China internationally.

Read more: China woos Europe through massive investments

From the beginning of reform and opening up in 1979 to the mid-1990s, the focus of China’s foreign policy shifted to supporting domestic economic development. This shift directly resulted in the gradual adjustment of China’s priorities for its Africa policy from extracting political favors to “mutually beneficial economic cooperation,” and from providing assistance to promoting service contracts, investment, and trade.

Beginning in the mid-1990s, the theory of “utilizing both domestic and international markets and resources” began to prevail in China’s foreign economic relations. This change led to a boom in China’s international economic cooperation and the initial introduction of the “Going Out” strategy in 1996 by then-President Jiang Zemin after his trip to six African countries.

The strategy was then endorsed by the Politburo in 2000 as a national strategy and has remained in effect ever since.

Read more: China’s multilateral policies- a solution for global economic recovery?

Africa’s untapped labor resources

Africa’s importance as a market for China was significantly enhanced as a result of the 2008 international financial crisis and its dire effect on China’s export industries. When the demand for Chinese goods shrank from stagnant Western economies, China’s export industries had to resort to alternative markets to fill the void.

Furthermore, as China seeks to upgrade its industrial economy and move up in the global supply chain, Africa, with its vast and untapped labor resources, is identified as the ideal location for China’s labor-intensive industries.

By relocating low-skilled jobs and labor-intensive industries to Africa, China seeks more capital-intensive, high-tech industries and jobs to improve its own development model and quality.

Read more: Unemployment takes heavy toll on South Africa’s young

The Going Out strategy

The implementation of the Going Out strategy substantially increased China’s economic ties with Africa.

This is most clearly reflected in China’s trade with Africa. Compared with 1950, when Sino-African trade totaled only $121 million, by 2000 Sino-African trade passed the threshold of $10 billion and has been growing 30 percent annually since then.

In 2012, China’s trade with Africa reached $198.5 billion, with 42 percent in exports, 58 percent in imports and a trade deficit of $27.9 billion.

Read more: China’s yuan sinks to weakest in 11 years amid trade tension

The Going Out strategy also promotes the growth of China’s investment in Africa. According to statistics from the Ministry of Commerce, China’s investment in Africa grew from $1.57 billion in 2007 to $5.49 billion in 2008.

The growth was disrupted by the international financial crisis in 2009 (down to $1.44 billion) but climbed back to $2.11 billion in 2010 and then $3.17 billion in 2011. Despite this growth, Africa constitutes only a small fraction of China’s total global investment. In 2011, China’s investment in Africa was merely 4.3 percent of its global total.

Read more: China-Africa summit to target investment despite debt worries

The success of the “Going Out” strategy was further propelled by incorporation of the signature 2013 economic Belt and Road initiative. As part  of the initiative, China has fronted a significant share of financing for the $4.5 billion Ethiopia-Djibouti Railway, the $600 million Doraleh Multipurpose Port in Djibouti, and the $3.2 billion Mombasa-Nairobi Railroad, among other projects in east Africa alone.

How is investment promoted in Africa?

The Chinese government actively promotes investment in Africa through concessional loans, commercial loans, and regular and preferential export buyer’s credits. F

rom 2009 to 2012, China provided $10 billion in financing to Africa in the form of “concessional loans.” During Chinese President Xi Jinping’s first overseas trip to Africa in March 2013, this commitment was renewed and increased to $20 billion during the three years between 2012 and 2015.

Sometimes these investments are mingled with foreign aid to maximize feasibility and flexibility. This has created confusion, both inside and outside China, about how to distinguish between foreign aid and investment.

Read more: Chinese company interested in FIEDMC to set up agro-industrial units

In addition to securing Africa’s natural resources, China’s capital flows into Africa also create business opportunities for Chinese service contractors, such as construction companies.

In the case of Chinese assistance to Africa for infrastructure development, this is essentially “tied aid.” According to Chinese analysts, Africa is China’s second-largest supplier of service contracts, and “when we provide Africa assistance of ¥1 billion, we will get service contracts worth $1 billion from Africa”.

Moreover, initial Chinese investments have attracted other global investments from the UAE, Japan, and others that may have been reticent to invest in Africa before. Finally, investments by China have been an opportunity to improve African livelihoods and economic prospects, when leveraged properly by African nations.

Read more: New WTO chief: it’s Africa vs the West in race for top trade spot

Threats to China

From a security standpoint, the rising presence of Chinese commercial interests in Africa has led to growing security challenges for China, as the safety of Chinese investments and personnel come under threats due to political instability and criminal activities on the ground.

Given the vast geographical distance, Africa poses hardly any direct physical threat to China’s immediate national security or the security of its periphery. However, as China’s economic activities and personnel presence expand rapidly on the continent, the physical security of Chinese investments and nationals has become the top challenge for Beijing.

According to incomplete data, there are at least 1 million Chinese living in Africa as of October 2012.These people are subject to numerous security threats at the local level as well as the state level as a result of the volatile political situations in Africa.

During the civil war in Libya in 2011, China was forced, in part by domestic public opinion, to mobilize significant military and diplomatic resources to evacuate more than 30,000 Chinese nationals based in Libya.

Read more: As the Libyan conflict widens, ugly designs are unveiled

The Chinese People’s Liberation Army dispatched four military aircraft and one navy vessel for the mission. Nevertheless, the regime change resulted in total losses as high as $20 billion for Chinese companies on the ground, due to uncompleted contracts originally made with the Gadhafi government.

Security interests

China has demonstrated an increasing interest in bilateral solutions, with Beijing taking a series of measures to deepen cooperation with the African Union (AU) and African countries on peace and security issues.

During the 5th Ministerial Meeting of Forum on China-Africa Cooperation (FOCAC) in Beijing in July 2012, then-President Hu Jintao launched the Initiative on China-Africa Cooperative Partnership for Peace and Security.

Aside from supporting the AU’s own peacekeeping operations inside Africa, China made the commitment to provide financial support to the AU standing army and to train security officials and peacekeepers.

Read more: Middle East mess expands to East Africa

Xi Jinping’s first overseas trip to Africa, the new Chinese leader also promised to constructively participate in Africa’s peace and security affairs. China is willing to assist the AU in developing such capacities to defuse and fight security threats in Africa.

Thus, China’s security interests in Africa are mostly defensive and aimed at protecting its existing economic interests and citizens.

Ideological interests of China

China also sees an underlying ideological interest in Africa, as the success of the China model in non-democratic African countries offers indirect support for China’s own political ideology and offers evidence that Western democratic ideals are not universal.

The emphasis on ideology originated from the hostile external environment that forced China to seek friendly diplomatic space to ensure its survival. This ideology-driven policy resulted in massive aid to Africa despite China’s own economic difficulties and was gradually abandoned after 1979.

Since then, China no longer uses ideology (communism, socialism or capitalism) to determine its relationship to political parties and countries in Africa. Instead, it has developed broad relations with all African countries that embrace the One China policy.

Read more: Xi wears Mao suit as China celebrates 70 years of communism

Domestically, the CCP proves its legitimacy by making China independent with the founding of the new China, and by making Chinese people rich with reform and opening up. Internationally, foreign governments’ recognition of the CCP’s successful political and economic policies is seen as a powerful reinforcement of CCP’s legitimacy at home.

This is where the China Model, or Beijing Consensus, plays an important role. China uses its own development model, which combines political authoritarianism and economic capitalism, to prove to some African countries that economic development and political stability can triumph over the need for a sound democratic system.

In this sense, China’s ideological interest in Africa did not disappear as a result of the nation’s shifting its priorities to economic development. Instead, it has taken a different, subtler form, one that supports Beijing’s legitimacy through spreading and popularizing China’s development model.

The more countries identify with and adopt Beijing’s approach, the less isolated China feels. Therefore, any success of authoritarian governments in Africa, such as Sudan, Zimbabwe and the DRC are in and of themselves seen as constituting support for the legitimacy of the CCP.

Read more: People of Sudan unite against military oppression

Flashing warning signs for Africa

China’s narrow economic pursuits is due to the absence of a grand strategy. Without a grand Africa strategy to manage differences, the conflict between China’s economic and political goals directly contributes to the bureaucratic conflicts.

The conflict between the economic and political aspects of China’s Africa policy is exacerbated by the proliferation of Chinese actors operating in Africa, such as central-level, state-owned enterprises (SOE), provincial governments and private companies.

China’s economic strategy for the African continent continues to unfold: recent developments indicate cause for concern.

Read more: Foreign policy calculus: Is China swapping the Middle East with Africa?

First, beyond elite-to-elite relationships, there is anxiety and a growing sense of alienation by Africans. In the last few months, anti-Chinese protests erupted in Kenya and Zambia.

Second, China’s financial investments in Africa appear riskier and less sustainable against the backdrop of slowing global economic growth and the ongoing trade war with America.

Third, China now owns a significant share of debt in multiple countries. China touted $100 million in pledges to the African Union in 2017 and $64 billion as part of a broader package in 2018.

The author is an M.Phil Scholar in International Relations from National Defence University Islamabad. His Twitter handle is: @TanviirKhan. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.