Africa Open for Business

A critical look at China’s investment in Africa.

Despite China’s emergence as an economic powerhouse and political force, Western leaders still frequently decry China’s authoritarian regime, trade violations, and human rights abuses. But there is one region of the world that does not judge China by the same demanding standards: Africa.
The partnership suits both sides. Africa has tremendous natural resources and is in dire need of development. And China’s red-hot economy gives it a voracious appetite for resources. To Africa, Chinese investment is particularly appealing because the Chinese do not demand political preconditions before making economic agreements, assuring African leaders that their national autonomy will be maintained. This no-strings-attached policy allows African countries to make fuller use of their natural resources, and enables China to gain a significant competitive advantage over the United States.
Unless Western countries improve their African development strategies, China may soon become the dominant economic actor in this vital region.

The Courtship Period
Harvard Kennedy School professor Dwight Perkins explained that China’s interest in Africa traces back to the late 1960s and early ’70s, when the People’s Republic needed the votes of African countries to supplant Taiwan in the United Nations. That issue was resolved in the PRC’s favor, and China’s support for liberation movements in Africa further solidified its relationships in the region.
China’s interests evolved during the 1980s and ’90s as it began to develop rapidly under Deng Xiaoping’s reforms. Derek Scissors, a research fellow at the Heritage Foundation, told the HPR that China continues to boost its relations with Africa. “In 2005, China inaugurated an official ‘Going Out’ program, which was a function of it having a lot of money to spend—more than $2.5 trillion—and it went looking to acquire mineral resources all over the world,” he said. Africa became an obvious target, and China became a serious suitor.
Princeton Lyman, a former U.S. Ambassador to Nigeria, told the HPR that China has three main objectives for its investments: “to secure continued support from the Africa bloc in international forums; to increase their supply, and access to, natural resources; and to use Africa as an untapped area of investment, a food production source, and a way of expanding China’s entrepreneurial and business opportunities.”
Today, China is not only interested in mining and natural resources, but it also invests in almost every development sector, including telecommunications, energy, tourism, agribusiness, and electronics. These investments manifest themselves in several ways. For many ventures in mining and other industries, China builds much-needed infrastructure which remains in place even after Chinese workers depart. China also purchases part-ownership in companies, as well as debt from African governments. For instance, Lyman noted, China has a 40 percent equity position in Sudan’s major oil company, and the Angolan government borrows Chinese money collateralized by Angola’s oil supply.

The Investment Honeymoon
These arrangements offer advantages to both Chinese and Africans. Harvard economics professor Philippe Aghion told the HPR that China’s investments help African countries develop because they are “bringing
a culture of methods and a culture of work” to the region. Perkins agreed, adding that “China did not create the unstable African political conditions; China merely deals with governments that are willing to deal with it.” Lyman explained that, ultimately, “China is making an economic contribution and is happy to engage in infrastructure building and provide commercial loans and aid.”
Initially, Africans opened their arms to this investment because China offers enormous sums without demanding political liberalization. Lyman explained that “stability is the most important thing for the Chinese, and since democracy can be destabilizing, the Chinese attitude is to let Africans decide how to develop.” Aghion agreed, saying that “African countries often reject Western values and may fear China less, which does not judge them on freedom or levels of democracy.”
Thus it is not surprising that African leaders have enthusiastically embraced Chinese deals: “African leaders welcome Chinese involvement because they are a source of capital, a bargaining chip for use with the West, and an alternative when Africa is being pressured by Western donors,” said Lyman.

The Morning After
Nevertheless, the Chinese investments also have clear downsides for Africa. Scissors noted that China’s hypocritical development methods remain a major source of friction with African workers. Africans doubly suffer when “Chinese workers are brought into Africa to complete projects, but China…does not allow foreign workers into its own borders,” Scissors said.
In addition, almost nonexistent environmental regulations and lax labor standards mean that environmental destruction and displacement of the poor are common phenomena. China’s economic impact on Africa runs even deeper than these obvious problems. Lyman explained that Chinese goods being imported into Africa “have a negative impact on African industries that cannot compete, and this produces feelings of resentment.”
Some Africans worry that their economic potential is being undercut. Finally, Chinese transactions often lack transparency. Capital flowing into Africa is often “siphoned off by government officials,” Scissors noted, which increases already high levels of corruption and decreases the benefits of development for the poorest Africans. In short, the euphoria of the honeymoon may be wearing off.

Catching Africa on the Rebound
China’s “no preconditions” policy allows it to collaborate with African governments that Western countries find distasteful, and thus gives it a competitive edge over the United States in African development. An alternative to U.S. assistance and to the Western development model is attractive to Africans because it comes with a seemingly unlimited supply of funds and the long-term drawbacks are easy to ignore.
Chinese competition should nonetheless give Western countries motivation to improve their development relations with Africa.  As Scisssors said, the United States in particular “needs to raise its game. Democratization will sell itself if American assistance is superior to Chinese assistance in Africa.” Harvard political scientist Robert Bates suggested something similar: “the West has a lot to learn from China about how to handle relations with Africa, since benevolent aid has its place, but it’s certainly not the only thing that [the West] should be doing.” Aghion pointed to “institutions, technology transfers, schools, capital investment” as areas where Western assistance could be vital.
If the West does not improve its efforts at wooing Africa, however, China may soon be the sole significant actor in the region–a dire prospect for Western economic vitality and political values. The Chinese economic juggernaut has found a winning formula with its no-strings-attached investment model in Africa. The United States can learn from China’s example, but set a better one as well.