China’s investments in Africa

It seems we hear about more Chinese investments in African economies every week. While opinions differ on how growth will be achieved and at what “cost,” there’s no doubt the money is rolling. South Africa’s Standard Bank, Africa’s largest bank, predicts in its five-year outlook that China’s investment in Africa is expected to reach US$50 billion by 2015, a 70% increase from 2009.

The BBC reported in early 2011 that it will be a record year for Chinese investment and that Ethiopia is a good example. Addis Ababa, the capital of the country, which is home to an estimated 88 million people, is littered with cranes and unfinished buildings, mostly funded by the Chinese.

At the World Economic Forum (WEF) meeting held in Cape Town, South Africa in May 2011, Liu Guijin, the Chinese government’s special envoy for African affairs, stated that “China’s investments in Africa have brought numerous benefits to the continent and improved livelihoods, more opportunities for development and more choices for local people.” He announced that “China has invested more than $250 million in economic and trade joint ventures or local infrastructure in Zambia, Mauritius, Nigeria, Egypt and Ethiopia “.

However, all of these activities pose challenges for other investing countries as they lead to a more competitive labor market and affect salaries. There has been some criticism of possible Chinese labor exploitation, their lack of commitment to skills development and their failure to use local suppliers for their infrastructure projects. Questions have been raised by organized labor organizations about this new breed of colonialism and whether China will contribute to real growth in the developing world or whether it will just source raw materials for its own production.

One of the China-funded projects in Africa is Angola’s Benguela Railway. One of Africa’s iconic railways, the railway consists of 1,344 kilometers of track and was opened in 1928 to transport copper deposits from inland DRC to the coast at Lobito in southern Angola. A big Chinese investment out

China’s state-owned Sinohydro Corp is enabling this important route to be fully operational again after 27 years of civil war destroyed much of it. It is undoubtedly a business investment, not a social or charitable project.

Companies like Aluminum Corp. of China Ltd. and China National Petroleum Corp. seek acquisitions in Africa, buying iron ore, oil and copper assets to feed a growing economy. The Chinese government recently announced plans to invest around $5 billion in private equity funds in Africa, most of which target Nigeria’s construction and energy sectors. It is supported by the China-Africa Development Fund.

The Economist recently reported that the Heritage Foundation, a US think tank, estimated that between 2005 and 2010 about 14% of Chinese foreign investment went to sub-Saharan Africa. Though much of this will be invested in mining and infrastructure, China is now bringing in funds to contribute to technological improvements badly needed to support its growing businesses.