CHINA INSIGHTS | 30 SEPTEMBER 2020

Private investment from China to play a greater role in Africa’s next growth stage

Author-Kai-Zhu

Kai Zhu

Head: Africa-China Corridor

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Beijing is looking to Africa to realise its vast potential by moving away from state loans and embracing economic reforms and entrepreneurship – like China did 40 years ago.

The past decade has seen the world’s leading economies race to increase their ties with Africa, a continent brimming with potential. And none more so than China. Its sustained courtship of the continent has seen their bilateral trade and investment reach astronomical levels. According to official Chinese figures, trade with Africa grew to just over US$204 billion in 2018. And a recent tweak to their approach promises to enshrine Africa as the continent of opportunity for Chinese companies.

While Beijing used the recent Forum on China-Africa Cooperation to commit a further US$60 billion to Africa, emphasis was also placed on the greater role that private Chinese companies have to play. China is now hoping that investment from a diverse group of private investors can take African sustainable growth to the next level.

Instead of offering a blank cheque, China hopes to give Africa the ability to accelerate its economic progress even further by utilising the infrastructure that Chinese companies develop. The technology, employment and opportunities created are expected to stimulate growth through a market-based, rather than assistance-based, approach.

Continued involvement by China

This is not a sign of China truly stepping away from Africa. It is a realisation that if Africa is to truly flourish, then the bulk of the continent’s development must be internally sourced. It cannot be artificial. So, instead of maintaining the dizzying levels of state investment, China is encouraging private companies to play their part.

And they should need no convincing. Africa is becoming a hugely powerful market for goods and services. With 1.2 billion people, 60 per cent of whom are under 30, Africa’s population is expected to exceed China’s by 2025. Meanwhile, at least 44 countries have signed up to the African Continental Free Trade Area, and six of the world’s 10 fastest-growing economies are African, according to the International Monetary Fund.

Africa's untapped growth potential

The untapped growth potential in Africa is similar to China’s 30 to 40 years ago. China achieved its phenomenal growth through economic reforms, by opening up to international investment and embracing entrepreneurship. Africa now has the chance to replicate China’s success.

Opportunities abound for Chinese companies as a result. But they cannot just rush in. The continent has 54 different countries with diverse cultures, unique market characteristics and disparate regulations. Africa is a continent of both opportunity and risk. There is no single business strategy or solution that can be easily replicated across all African countries. Taking a global headquarters-driven approach will not work.

Ambitious companies must engage people on the ground, source regional expertise, and devise a local strategy, which should be tailor-made to the challenges of doing business in Africa, prioritising local employment and community development.

Addressing this should fall into China’s wider attempts to take a more socially responsible role in Africa. At the Forum on China-Africa Cooperation, its action plan showed the increased focus on harder-to-measure metrics. For example, scholarships in China will be targeted specifically at Africans as a result.

An intertwined history, spanning centuries, demands that China’s approach to Africa is mutually beneficial. Therefore, although China is looking to extend its global influence, it is also hoping to support Africa’s development goals. Eradicating poverty, promoting sustainable growth and increasing employment are all focus areas. And private companies are key to this.

China’s devotion to Africa will not dissipate any time soon

Chinese companies, therefore, have an extended window in which to make their mark. To do so, further attention to specific African needs will be required. By securing local support and working with regional experts, companies have a far greater chance of success. It is a challenge that requires a nuanced approach.

However, having seen the rise of Chinese companies domestically and internationally, the likelihood is high that they will be able to bring possibilities and potential to the African continent, jointly with their friends in Africa.

This article was originally published here.

Author-Kai-Zhu
Kai Zhu

Head: Africa-China Corridor

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