The opportunity beyond the caution

When the Fortune/TIME/CNN Global Conference convened in Africa for the first time this year, China was on the mind of many delegates.

The Asian economy’s role in Africa was underscored at a breakfast panel where the latest McKinsey report released details of an extensive list of Chinese investment across the continent. In assessing the opportunities such a global power brings, some have instinctively asked for caution.

At worst, Chinese investment has been met with fears of a new colonialism on the continent.

Deborah Brautigam, however, argues that the massive infrastructure projects are opportunities for Chinese construction firms to gain a foothold in Africa.

In her book, The Dragon’s Gift: The Real Story of China in Africa, she argues that focusing only on the China threat makes us blind to the real opportunities that Chinese engagement offers for African development.

Many may be cited through an indirect assessment of industries whose growth potential will be furthered by Chinese investment in infrastructure. Endless reports detail infrastructure as a stumbling block to Africans developing nearly all forms of local enterprise, both at the level of small, medium and micro enterprises and corporates.

A stated effort to meet the continent’s infrastructure needs is as much a matter of economic priority as it is Chinese state policy.

When the Chinese government launched the China–Africa Development Fund at the 2006 Beijing Summit on the Forum on China-Africa Co-operation, money over and above pure trade investments has been coming in steadily. So far, the fund has committed to invest US$1 billion and given US$4bn to 35 projects in 20 African nations, with most projects focusing on resource and energy, processing and manufacturing, infrastructure construction and agriculture, according to the Chinese Minister of Commerce, Chen Deming.

Overall, Chinese direct investment in Africa increased to US$1.44bn in 2009 from US$210 million in 2000.

So far, more than 1 600 Chinese firms have invested in Africa, creating positive spin-offs for local economic growth.

China’s practice of pragmatic politics should lead to understanding that its investments and the opportunities they bring are matched by a Chinese demand for resources that Africa possesses.

According to Stephanie Hansen of the GlobalPost: “When China lends to Angola, it knows it will receive repayment if the loan is backed by oil. Angola knows it will receive the infrastructure it needs because the loan funding flows directly to the Chinese contractors for individual projects, bypassing the African government (and avoiding a problem in many commodity-rich states – corruption).”

The indirect process of easing corruption by accelerating growth has positive externality effects for business overall.

Corruption is shown to undermine the levels of economic freedom within nations, having the overall effect of limiting development.

Where the West sees risk, China sees opportunity. Africa has provided the highest return on foreign direct investment of any region in the world, with an average of 31% for two years straight, said a report released at the 2008 United Nations Conference on Trade and Development.

Michael Kulma, an expert on China’s economy at the Asia Society, one result of China’s explosive growth has been an opportunity for Africa to reduce its dependence on traditional trading partners such as the US and the European Union.

“If you look at Africa and China’s trade pattern, the numbers suggest that China and India combined make up about a third of export trade for African nations, which replaces the traditional US and European relationships,” Kulma told Xinhua, a China-based English news source.

Adams Bodomo, an associate professor of Linguistics and African Studies at Hong Kong University, wrote in a recent essay that Africa and China have entered a golden era. According to him, this era is marked by high-level political visits and meetings, an increase in trade, and the rapid establishment of African and Chinese migrant communities on both continents.

“Ten years ago, there was talk about the marginalisation of Africa,” Bodomo told the Xinhua news group during an interview. He noted that “now, nobody talks about that.”

Bodomo’s words confirm that Chinese companies smartly sought to expand in places where international competition is relatively weak.

Brautingam says China’s huge demand for Africa’s commodities is creating new opportunities for African governments to realise the hopes of their people for a better life.

“Countries that set their house in order... can position themselves to benefit; and those that do not, will find their resources continue to be simply a ‘curse’ — with or without China.”

Garreth Bloor