Africa nowadays bears a staggering resemblance to China more than forty years ago in terms of geographical and natural endowments.
At the very beginning of its reform and opening-up, China had a population of 956 million, with a median age of 21.5 years. There are 1.3 billion people aged 19.7 on average in Africa today, which shares the same demographic dividend as China at the dawn of the reform and opening-up process.
China is endowed with a long coastline along its southeast coast, which creates natural conditions for export-oriented economy. It is foreign trade that directly led up to China's economic rise at early stages after the reform and opening-up policy was implemented. Africa, flanked by oceans, has a coastline of 30,500 km. Vast in territory, it abounds in natural resources, but the agricultural land utilization efficiency there is currently only 25% of that of the arable area. With the growing manufacturing industry,the agricultural products urgently call for international markets.
Foreign direct investment (FDI) is a direct enabler for the booming trade and industrial economy and the gains in employment, while providing advanced management and technology that drive the development of more regions. It is vitally important for the development of emerging economies.
In 2020, China's FDI in a whole array of industries in Africa amounted to USD 2.96 billion. 47 countries in Africa were covered by new investments from Chinese enterprises, with an increase of over 10% in investment for 19 countries. Geographically, China's FDI flows in East Africa and North Africa increased; from the perspective of industry, the service appeal to the investors went up significantly. The growth of Chinese enterprises' investment flows in scientific research and high-tech services, transportation, warehousing and postal industries, residential service, repair and other service industries, and health and social work industries rose by more than 100%.
Given the international community's concerns relative to China's FDI in Africa, we need to identify a common misconception about the major Chinese players with heavy investments in Africa being state-owned enterprises (SOEs).
According to the Ministry of Commerce of the People's Republic of China (MOFCOM), Chinese private enterprises account for 90% of the total of Chinese enterprises directly investing in Africa and 70% of the total China's FDIs there. Since SOEs possess natural investment advantages in strategic significance of and long-term return on investment in mega projects related to infrastructure, energy, resources, and other sectors, they remain investors of these projects from the perspective of single investment. Investment from the majority of Chinese private enterprises in Africa is directly fueled by the development prospects of the African market and the growing connection with China's industrial chain and consumer market.
For its FDI in Africa, China is more concerned about the synergy with China's economic development than simply copying China's development model.
Five major reasons for investment from Chinese private enterprises in Africa
Africa demonstrates a huge demographic bonus
With the heightened aging of population, China will be on a two-fold mission of aging society and sustainable and steady economic development. What Africa is facing in this regard today, however, is exactly the opposite. It is expected that the workforce in Africa will surpass the sum of that in China and India by 2034. The young workforce in Africa is exactly what is needed by Chinese labor-intensive enterprises now.
Africa is obviously advantageous in terms of low-cost labor
According to the World Bank's country classifications by income level, China has a solid place among the upper middle-income countries and is well on track to become a high-income one. China was once, but is no longer, a country with low labor cost advantages required by the middle and low-end industrial chain globally. By comparison, sub-Saharan Africa's GDP per capita for 2019 was USD 1,596, equivalent to one seventh of China's GDP per capita.
With the continuous upgrading of China's industrial structure, Chinese companies are active in responding to the reconstruction of the primary industrial chain. Adding in relatively high labor and logistics costs in China and local production lines in Africa gaining traction, low-end labor-intensive manufacturers are transferring their production lines to ASEAN and Africa.
China has evolved into the world's largest importer of agricultural products
China imports various African agricultural products, from cereals and sugar to seafood and wines. Africa's agricultural trade with China and China's investment in agricultural technology in Africa align to the needs of the Chinese market and strategy. China's investment in agricultural technology in Africa has only just begun.
There is a great demand in China's consumer market
Since 2000, the total value of trade in goods between China and Africa has went up by 20 times (over USD 200 billion in 2019), and China's FDI in Africa has skyrocketed 100 times (up to USD 49.1 billion in 2019). China's FDI stocks in Africa hit USD 110 billion in 2019, contributing more than 20% to local economic growth. To support the growing demand of Chinese consumers, Chinese enterprises must invest in the upstream of the African industrial chain for production ramp-up and efficiency gains.
Africa's consumer market is seeing a massive surge
The rise of the middle class in Africa will lead to a growing range of demands for consumption in energy, education, entertainment, finance, health, and other fields. Chinese private enterprises are making their way into these fields, and are also bringing Africa the proven digital economy model, IP and technology platforms from China.
54 African foreign diplomats to China and nearly 200 heads of competent departments of 36 member organizations of the Chinese FOCAC Follow-up Committee attend the 14th Senior Officials Meeting of the Form on China-Africa Cooperation (FOCAC).
Africa is made up of 55 states and is not a frictionless single market, even though it boasts numerous core elements for economic development. In contrast, China owns the development advantage as a natural single market, which is not currently available and is in urgent need inAfrica. for inward FDI, it is essential to create a unified trade body, a standardized legal system, and a single market. The African Continental Free Trade Area (AfCFTA) was thus founded to make that a reality, with trade commencing as of early 2021.
Regarding the economic situation in Africa, Zhang Zhongxiang, Tao Tao and other scholars hold that there are still highlights that should not be overlooked, in spite of a moderating African economy since 2014. For example, many African countries have made great headway in inclusive economic growth; consensus on economic transformation has been strengthened; and digital economy is gaining momentum. By framing East Africa in her study, Piao Yingji put forward reflections on building a new economic model for East Africa by accelerating the transformation of economic structure, creating an institutional environment conducive to private sector of the economy, advancing the construction of special economic zones, investing more in infrastructure and human resources, and tapping the potential performance of free trade areas on the African continent.
Further Reviewed by: Zhao Yuhui and Jiang Yongfeng
Reviewed by: Chen Jue
Edited by: Liao Sijin
Source: CAETE Comprehensive News