Soft power, hard cash: trends of China and Africa’s cooperative investment

“Real win-win cooperation”. This is what President Xi Jinping clamored for back in December 2015, signaling an era of strengthening economic relations between China and Africa with a pledge to invest $60 billion into the continent. Yet Africa’s shores are no strangers to Chinese ships. As early as the 7th century, China reportedly sailed into Egypt bringing porcelain to its Mediterranean coast. Coins from the Tang dynasty have since been discovered in Kenya, Zanzibar and Somalia, during which time it is noted that China reached the Horn of Africa and, with countries like Ethiopia, forged bonds from elephant tusks and pearls. Trade has for centuries been at the heart of China and Africa’s persevering relationship, yet it is only from the 20th century’s latter half that economic and diplomatic co-operation accelerated between a nation newly vital on the international stage and a continent still with one wrist shackled by colonial rule.

In 1950 Sino-African trade stood at $12 million: a figure which rose rapidly through subsequent decades to a peak of $216 billion in 2014. Chinese foreign direct investment in Africa has similarly rocketed up in recent years, with fdi intelligence reporting a 515% increase from full-year 2015 figures to over $14 billion by July 2016 alone.

Such a tightening of ties – both bilateral and borne of Chinese intrigue – provokes several interesting questions. In what context did Sino-African relations begin to flourish? What is the nature of contemporary Chinese investment in the continent? What commodities is China most interested in from Africa? Which African countries have been China’s most active partners? What trends might point to the future of their relationship? Here’s all you need to know:

The diplomatic roots of investment

When the Bandung Conference took place in 1955 – the first uniting the world’s Asian and African states – an agenda was set: to promote economic and cultural ties between Africa and Asia. A second, more propulsive call to action coloured China’s mid-20th century cooperative involvement in Africa with an initial motive; oppose colonialism in all of its forms.

China began the 1960s as a strategic benefactor for multiple African independence movements, providing ‘moral and military’ support to pro-independence groups from the Marxist-leaning FRELIMO party in Mozambique to various indigenous factions during the Namibian War of Independence. This aided several pursuits of the People’s Republic: to shatter the consensus of Taiwan as China’s global representative and to challenge Western influence on the continent by destabilising colonial regimes.

Monetary aid from China to Africa during this period pales in comparison to recent numbers: between the mid-1950s and mid-1970s, it is estimated that China gave around $2.5 billion in aid to 36 African countries. More impactful was China’s provision of doctors, engineers and technicians to assist African development on the ground and lead infrastructure projects.

Perhaps the most notable of which was The TAZARA Railway. Complete by 1975, the railway linked Zambia with Tanzania in a time when the former was landlocked between the white-minority governments of South Africa and Rhodesia (now Zimbabwe). TAZARA sought to end Zambia’s economic dependence on its neighbours by connecting its Copperbelt directly to the Indian Ocean, for the first time creating a trade route that did not transit through hostile white-led states. This marked the largest foreign aid project China had undertaken at the time at a construction cost of U.S $500 million (upwards of $2 billion in 2017 terms).

Not without coincidence, investment projects such as this only endeared China to African nations. The People’s Republic reaped the cooperative benefits of investment in the continent when, in 1971, 26 African nations joined the vote in recognition of the PRC as the sole legitimate representative of China at the United Nations. By the end of the 1970s, 44 of Africa’s 50 independent countries had struck up formal diplomatic ties with China.

Promising relations did not however spur more dedicated trade and investment in the following decade: throughout the 1980s China focused domestic economic reform and pivoted increasingly towards the Western world. Pressured later by backlash from the West towards China’s suppression of the Tiananmen Square protests and seeing opportunity in the waning interest in Africa post-Cold War, China once again turned to the continent for political and economic allegiance. This more visibly began to affect policy when President Jiang Zemin proposed a new basis of relations between China and African countries to the Organisation of African Unity in 1996; one grounded in increased economic cooperation which would only surge through the millennium.

Direction of Chinese investment in Africa

China’s contemporary investment in Africa encompasses a diverse range of industries and countries. Here, we break this down into several streams of analysis: the amount of projects that China has propped up throughout the continent, the sectors in Africa that China is most heavily investing in and which African countries are the largest recipients of such investments.

Let’s start with the below table, which charts the project investment of around 2,000 Chinese firms into 49 African countries:

1. Top sectors for attracting Chinese investment projects (from FDI) in Africa (1998-2012)

top-10-sectors-for-chinese-projects-in0africa-1998-2012

Hosting lands rich in oil, diamonds, cobalt and other lucrative resources, it may surprise that Africa’s ‘Mineral products’ and ‘Base metals’ categories (as defined by Quartz) do not appear to be the utmost priority for China in terms of maximising the amount of investment projects. Likewise, addressing infrastructural needs with the birth of new development projects would be of transformative benefit to many African countries, yet ‘Construction, transportation, storage and postal services’ sits at #4. Meanwhile, the leading sectors for amount of investment projects – ‘Business services’ and ‘Wholesale and retail’ suggest that Chinese investors are eating into the less skill-intensive areas of African economies. It is important to note however that this particular chart does not factor in the amount of investments, the presence of which will reveal more about the scale of investments China is pouring into different African sectors and countries.

2. Chinese aid to African countries by sector (2000-2013, in $BN):

SOURCE: AidData (via. ChinaFile, rendered with Tableau)

Taking expenditure into account now creates a rather different impression of what nature China’s investment into Africa has. ‘Transport & Storage’, corresponding to a sector left outstripped by Retail and Business Services for the sheer amount of investment projects, is the clear avenue of choice for total investments, netting roughly $30 billion between 2000 and 2013. South Africa ($5.2 billion) was the top recipient of Chinese development funds to this sector followed by Kenya ($4.9 billion) and Sudan ($3.1 billion):

3. Top 5 African countries by Transport & Storage investment


SOURCE: AidData (via. ChinaFile)

Infrastructural investment trends further as the dominant concentration of Chinese aid to Africa, as ‘Energy Generation & Supply’ stands as the second-most boosted sector with over $25 billion; again, largely unreflected by the amount of projects undertaken by China. The same goes for ‘Communications’ – the third biggest beneficiary here – hovering just under $10 billion.

4. Top 5 African countries by Energy Generation & Supply investment


SOURCE: AidData (via. ChinaFile)

5. Top 5 African countries by Communications investment


SOURCE: AidData (via. ChinaFile)

Four countries recur among the top recipients in the most heavily invested-in sectors; Nigeria, Sudan, Ethiopia and Angola, all of which aside from Ethiopia are rich in resources if lacking in infrastructure. Compare with the table below, which ranks the top 10 highest recipients of Chinese investment based on all the sectors listed by AidData:

6. Top 10 African aid recipients from China


SOURCE: AidData (via. ChinaFile)

A plausible factor in Angola’s high intake of Chinese aid during this timeframe is forwarded in Yun Sun’s ‘China’s Aid to Africa: Monster or Messiah?’ Sun explains that starting with Angola in the early 2000s, China frequently provided low-interest loans to nations heavily reliant on commodities such as oil or minerals. The rationale for this strategy: “the recipient nations usually suffer from low credit ratings and have difficulty obtaining funding from the international financial market; China makes financing relatively available – with certain conditions”. Countries such as Sudan and The DRC – resource-rich yet tainted by combative foreign relations and, as a result, isolated economies – certainly fit the profile of states compelled to seek aid where available. Compare those in receipt of the most aid with those in receipt of the most capital investment; the latter of which is by contrast dominated by Africa’s largest economies:

7. Top 10 African destinations for Chinese capital investment


SOURCE: Financial Times

In summary, Chinese investment in Africa is notably marked by the following trends: high-cost infrastructural projects with a focus on developing transport and energy sectors, lower cost retail enterprises and the provision of aid to resource-rich countries while investing capital in the largest African economies. Now that unilateral Chinese investment priorities in the continent have been established: how closely does this dynamic match the nature of bilateral Sino-African trade?

Bilateral trade between China and Africa

On the whole, recent years have saw trade ties between China and Africa deepen at an unprecedented pace. There is, however, much to unpack. After all, Africa is not one homogenous whole but a collection of 53 nations, each with different resources and developmental needs that spark unique foundations for cooperative trade with China. We will dive deeper into which African countries have been China’s greatest import and export partners, and examine the commodities that have formed the basis of such trade, but first, let’s get a high-level look at bilateral trade trends past the millennium:

8. China-Africa Trade: Imports and Exports (2002-2015, U.S. $ billion)

Strident yet steady, the figure of total trade made an impressive leap from $12.4 billion in 2002 to $172.36 billion by 2015. There remained a largely even balance in the value of imports and exports between the two parties, both generally enjoying year-on-year increases. Two notable exceptions puncture hopes for a completely skyward growth rate. Unsurprisingly, recoil from the 2008 financial crisis saw both Chinese exports to Africa and imports from the continent shrink the following year at respective rates of 6.6% and 22.6%. Trade soon proved resilient, with exports to Africa rebounding 25.5% and imports from Africa charging up 54.8% in 2010.

More curious is the fall from an all-time trade peak in 2014 to the lowest total trade figure since 2011. While the value of Chinese exports to Africa actually rose slightly in 2015, the value of imports from Africa crashed 39.4% between 2014 and 2015: something the China-Africa Research Initiative attributes to weakened commodity prices since 2014.

In order to gauge how this may have destabilised China-Africa trade relations, the following graphs compare the top 10 African importers from China and exporters to China between 2014 and 2015:

9. Top 10 African importers from China: 2014 and 2015


SOURCE: UNComtrade data from 1992-2015, http://comtrade.un.org/data/

Much like the monetary value of Chinese exports to Africa between the two years, the top recipients of Chinese goods remain largely static, with South Africa, Nigeria, Egypt and Algeria established as the largest importers from China. A notable exception is Angola, as the value of its imports fall behind Kenya and Tanzania in 2015.

10. Top 10 African exporters to China: 2014 and 2015


SOURCE: UNComtrade

South Africa stands as China’s most valuable bilateral trading partner, yet the decline in commodity prices in 2015 caused a 32.2% drop in the value of South Africa’s exports to China; a slump smaller only than that of Angola (down 48.6%). Despite these discouraging figures, it is clear that the two aforementioned countries are the most crucial African exporters to China by a considerable distance: the value of Angolan exports to China in 2015 is still four times higher than that of the year’s third greatest exporter, Sudan.

11. What does China import from its main African exporters? (2015)


SOURCE: Observatory of Economic Complexity.

Potentially more revealing than the fact that China’s closest import ties to Africa are grounded in a huge demand for natural resources is the proportional breakdown of exports. The three crude petroleum exporters are, according to the data, incredibly reliant on that particular commodity to spur trade with China, whereas The DRC and especially South Africa have a much more diversified exporting dynamic, allowing them to more readily anchor through volatility in commodity prices, as seen recently with oil.

Looking forward

What are the prospects for continued cooperative investment between China and Africa? Bright, apparently. Afrobarometer’s recent survey of 56,000 people across 36 African countries found that China was perceived as the best model for national development (24%), second only to the United States (30%). Early figures from 2017 are also encouraging: Reuters reports that China and Africa’s total trade value rose 16.8% to $38.8 billion in Q1, with a 46% increase in exports from Africa to China over Q1 2016.

 

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Sources

LSE: https://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR016/SR-016-Chun.pdf
FDI Intelligence: http://www.fdiintelligence.com/Locations/Middle-East-Africa/Chinese-investment-into-Africa-soars-in-2016
Forbes: https://www.forbes.com/sites/amyjadesimi/2017/03/14/how-chinas-60-billion-for-africa-will-drive-global-prosperity/#33a1da6a38a3
Financial Times: https://www.ft.com/content/0f534aa4-4549-11e7-8519-9f94ee97d996
Chinese African Research Initiative: http://www.sais-cari.org/data-china-africa-trade/
Chinafile: http://www.chinafile.com/infographics/visualizing-chinas-aid-africa
Quartz: https://qz.com/488589/chinese-investment-in-africa-is-more-diverse-and-welcomed-than-we-give-it-credit/
PRC’s Ministry of Foreign Affairs: http://www.fmprc.gov.cn/mfa_eng/ziliao_665539/3602_665543/3604_665547/t18035.shtml
China Daily: http://www.chinadaily.com.cn/world/2014livisitafrica/2014-05/05/content_17483508.htm
China-Africa Economic Relations: https://books.google.es/books?id=DCzzCAAAQBAJ&pg=PT91&lpg=PT91&dq=chinese+support+for+independence+africa&source=bl&ots=TDeIK_juSP&sig=t02gueV4mj3AfoPVPM24-ZXsU4I&hl=en&sa=X&ved=0ahUKEwiBzvLHo6XVAhUCXBoKHWm_CUA4ChDoAQhbMAs#v=onepage&q=chinese%20support%20for%20independence%20africa&f=false
China Policy in Focus: https://sites.google.com/site/chinapolicyinfocus/china-s-return-to-africa/the-history-of-sino-africa-relations
Observatory of Economic Complexity: http://atlas.media.mit.edu/en/
UNComtrade: http://comtrade.un.org/data/
Afrobarometer: http://afrobarometer.org/sites/default/files/publications/Dispatches/ab_r6_dispatchno122_perceptions_of_china_in_africa1.pdf
Reuters: http://af.reuters.com/article/africaTech/idAFKBN1870LJ-OZATP

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