By Mthuli Ncube and Michael Fairbanks
Which is more probable: Africa becomes a virtual international province of China, the main source of its sub-soil assets, and the major component of China’s strategy for its own domestic stability; or China becomes a way African nations upgrade their economies and integrate into the global value chain for manufacturing. The answer lies in the demographics of China, and what African nations decide to do next.
The greatest challenges facing China are an ageing population, gender disparity, migration to cities, rural health care and income inequality. Poverty declined from more than 60 per cent to less than 7 per cent since 1978, eradicating more poverty than in the rest of human history. That happened because of China’s “going out” into the world strategy and Africa is, arguably, the most important part of that strategy.
Africa represents oil and minerals that fuel employment and growth at their thousands of factories, a place to send young men to work (some say there are 500,000 Chinese workers in Africa), and a place to invest some of its excess liquidity to keep domestic inflation down.
China is like an elephant that intends to climb a ladder with a 75-year strategy for Africa. China sprawls in spits and spurts, appearing to cover the whole ladder at once, but it has a clear view of the top rung and its benefits: global influence, international brands and distribution, high-end products, and a rising standard of living for its colossal population.
If China can’t grow at high rates, the Communist Party may not keep power over the rural poor, keep Tibet under its influence and be a credible threat to other nations who seek terrain in the South China Sea.
Growth was always the main goal of China’s globalization strategy, and specifically, its deepening relations with African nations. Gross domestic product expanded 9.2 per cent in 2011, down from 10.4 per cent in 2010. China’s economic growth will slip to less than 8 per cent for 2012, largely due to the eurozone problems.
Chinese Business Strategy is Evolving
Sino-African trade increased from $125bn in 2010 to $200bn in 2012. More than 2,000 Chinese private businesses are in Africa. China’s share of Africa’s total exports has increased from 1 per cent to about 15 per cent in a decade.
China is reassessing its project, business and financial risk profile, exploring what some have called the “Japanese Model”: minority stakes, perhaps as little as 10 per cent to 15 per cent, and taking a seat on a board to gain access to customer and cost information. Western operations, Chinese money (with more sophisticated fund raising and exchange functions), and African raw materials are the new alliance. State-owned enterprises investing in Africa were much more co-ordinated five years ago and now compete with one another. China is now focused on margin, distribution and brand.
China’s industries in Africa have caused pollution, but perhaps not more than western investments. Numerous labour disputes exist, but some observers suggest they treat workers the same in China and are willing to improve this.
China’s low-cost manufacturing exports have undercut some African firms, especially in the clothing, textile and footwear sectors. But, they have also helped develop manufacturing by investing in infrastructure and increasing their imports. And, there is vast potential for Africa’s agricultural goods in China.
It is probably true that Africa is more important to China than it is to the west, and that China, without the explicit goal of altruism, has done more to alleviate poverty in Africa than anything ever attempted by western colonialism or the initiatives of traditional partners.
Three Scenarios
First, the worst case, which has a low to moderate probability: low demand for Chinese products in the European Union and US, or war in the South China Sea slows the economy and creates internal conflicts (grass roots corruption, health crises, uncontrolled urbanisation), which damage confidence in the Confucian social contract between the Communist Party and the rural poor. Trade and aid to Africa decline and create a new “Dark Age” for the continent.
Second, the base case with the highest probability: Chinese growth declines; its Asian neighbours become jittery. China expects even less from Africa than the west does, and offers immediate, ad hoc alternatives to solving long-term problems. China’s approach to Africa continues to evolve with more numerous players, contracts and tactics. African governments are caught between Chinese bilateral power and their own constituents. There will be isolated strikes at Chinese mining interests. But, Chinese “soft power” will slowly increase in Africa.
Chinese investments in Africa will be more profitable than global industry averages, and continue to increase; they will ally with western firms for distribution and retail, and build Chinese brands. (Imagine an iPad-like tablet with no quality defects that sells for less than $100.) China, with increased stakes on the continent, may begin to intervene in African domestic affairs, its security presence will increase and Chinese aid to Africa will level off. China will not outsource manufacturing production to Africa as it does to Bangladesh, Pakistan and Vietnam; it will not help African nations to enter global value chains because it views African nations as not doing enough to improve themselves.
Third, the best case scenario with the lowest probability, but it has the virtue of depending solely on Africans: African nations realise the biggest opportunity in their history awaits them. Africans need to upgrade their investment platforms so China will outsource manufacturing to them. They need to create truly independent central banks; build specialised infrastructure, especially in agriculture and across national borders; demolish intra-African trade barriers; and invest in the only possibility of infinite returns – the skills, abilities and self-determination of entrepreneurs and the work force.
Africa’s strategy for China is fixing Africa
African nations should stop pointing fingers at each other, or the east and west, and use their relationships with the Chinese as a historic opportunity to help China lumber up the ladder of productivity, and then ascend that ladder themselves.
Mthuli Ncube is the chief economist and vice president at the African Development Bank. Michael Fairbanks researched China’s strategy in Africa as a fellow at the Weatherhead Center for International Affairs at Harvard Universty. These views do not represent those of the AfDB, its board, senior management, staff or stakeholders.
