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Nothing good can come from Chinese investments in Africa — at least that’s what naysayers would have you believe. Critics suggest that China’s African projects lay the groundwork for neocolonialism and leave poor communities vulnerable to exploitation.
But as a recent Quartz article put it, when it comes to Africa, “Chinese investment is everywhere.” And with polls showing more than 50% favourability of China in a number of African countries, many people on the continent don’t think that’s a bad thing.
Critical observers should revise their stances as well. China has enabled a number of much-needed, high-profile advancements in several African nations, and it provides useful case studies for how to invest successfully in the region.
Despite the Asian superpower’s reputation for disregarding human rights and dispensing legal concerns, Africa has found an important ally in China. In 2009, China surpassed the US to become Africa’s largest trading partner. By 2012, Sino-African trade stood at US$198.5-billion, compared to US-African trade at US$99.8-billion. That growth is meteoric by any measure.
The benefits of the Sino-African relationship haven’t been one-sided, either. The Export-Import Bank of China funded US$100-million of the US$360-million it took to build Kenya’s landmark Nairobi-Thika dual-carriage highway. That development slashed commuting time between the two cities and enhanced workforce mobility. China also financed more than 2 200 megawatts of thermal energy generation in Sudan. Such projects have been game changers in Africa’s business landscapes.
China’s Lessons to the World
Other countries should look to China’s example to navigate these emerging economies that are set for explosive growth during the next several decades. There are three areas, in particular, in which investors can learn from Chinese developers’ work in Africa:
1. Long-term strategies
China has taken a far-reaching view of Africa, seeing beyond present volatility to the potential evolution of the investment landscape. By analyzing the possibilities of the future rather than the difficulties of today, China has positioned itself as an indispensable presence throughout the continent.
China’s decision to become a key partner in Ethiopia, for instance, couldn’t have been more strategic. Ethiopia boasted the world’s fastest-growing economy in 2015, and the Exim Bank has played a crucial role in financing major development projects there. In fact, the Exim Bank provided 85 percent of the funding for the recently launched Addis Metro, the first light rail system in Ethiopia and sub-Saharan Africa.
Many foreign investors, particularly those from the US, find that by the time they get in on Africa’s investing opportunities, China is already there. The American private equity firm Schulze Global Investments set up shop in Ethiopia in 2008, but the China-Africa Development Fund had been helping Chinese firms navigate that market since 2007. In July 2014, the US-based Brown Shoe Company (now Caleres) announced that it would establish a presence in Ethiopia. Its Chinese peer, Huajian Group, had already opened its own factory near Addis Ababa in January 2012, taking early advantage of Eastern Africa’s lucrative leather hub.
2. Multisectoral approaches
Rather than focus exclusively on extractive industries, China has diversified its investments by strategizing for a variety of growth engines. The electronics manufacturer Hisense was one early investor, establishing operations in Africa in 2003 or earlier.
As African economies shift and develop, investors need to have multisectoral plans for capitalizing on new opportunities. They can’t have tunnel vision when it comes to resource extraction projects because those aren’t surefire long-term bets. And a number of other industries are ripe for foreign involvement, like the information and communications technology and financial tech fields.
3. Sustainable investments
China has served as a source of low-cost, commodity-backed credit to countries like Angola for several years. But volatility in Angola’s and Gabon’s oil industries signals the need for more stable investment strategies. Foreign investors should look beyond natural resources for market openings that promise worthwhile, consistent returns.
Downturns in Uganda’s and Tanzania’s oil and natural gas markets also indicate the need for caution, diversity, and sustainability in emerging areas. While these economies may use natural resources to drive initial growth, investors will need sophisticated approaches to weather volatile commodities markets.
China’s current widespread commitments in Africa are only the beginning of its investments there. Other countries should spend more time learning from Chinese strategies and less time looking for sinister motives. A critical eye can keep companies honest, but to view China’s Africa story only through the lens of skepticism is to miss a much bigger picture.
Image by Russ Bowling via Flickr