Chinese investment in Africa is bigger than anyone realised
A lot of questions have been asked about China’s rapid investment in African nations over the last two decades. Western powers are sceptical about the intentions of China and quick to speculate the potential dangers of Africa becoming too reliant on Chinese money.
Despite some strong opinions on either side of the debate, the truth is we know relatively little about the current state of Chinese investment in Africa. However, a new report from McKinsey provides us with the most in-depth look at China’s economic ventures in Africa – and it’s far bigger than anyone realised.
More than 10,000 Chinese firms in Africa
The McKinsey report calculates that there are more than 10,000 Chinese-owned firms operating across Africa now. This figure is based on the companies finding from eight African nations: Angola, Côte d’Ivoire, Ethiopia, Kenya, Nigeria, South Africa, Tanzania and Zambia.
This figure is almost four times higher than previous estimations.
In the eight African countries on which we focused, the number of Chinese-owned firms we identified was between two and nine times the number registered by China’s Ministry of Commerce, until now the largest database of Chinese firms in Africa. – McKinsey
Interestingly, McKinsey also finds that 90 percent of these firms are privately owned, which debunks the idea that state-owned Chinese companies are taking over Africa. While the state-owned companies are generally larger, the percentage of private-owned companies with their own economic interests is a huge revelation.
Previous to the McKinsey report another common criticism of Chinese investment in Africa was unravelling. A number of reports in recent years have pointed towards Chinese-owned firms employing African workers in much larger numbers than critics once suggested. And this latest report from McKinsey provides a much larger dataset that appears to confirm this.
At the Chinese companies we talked to, 89 percent of employees were African, adding up to nearly 300,000 jobs for African workers. Scaled up across all 10,000 Chinese firms in Africa, this suggests that Chinese-owned business employ several million Africans.
New technology, infrastructure
The two most commonly accepted benefits of Chinese investment in Africa are the development of infrastructure and the transfer of knowledge and new technology. The scale of Chinese-funded infrastructure development has been huge over the last couple of decades, although it hasn’t come without criticism.
Questions over safety, quality and the funding agreements are common. There are also concerns about the environmental impact of these projects, but this isn’t unique to Chinese-funded infrastructure.
It’s not only infrastructure Chinese firms are bringing into the 21st century either. Some 48% introduced a new product or service and 36% have introduced a new technology in the last three years, according to the report.
Challenges ahead for Africa’s relationship with China
While the McKinsey report reveals unprecedented economic benefits from China’s investment in Africa, it also aims to highlight the challenges that lie ahead. It specifies three key areas “that need significant improvement” for the Africa-China partnership to flourish.
- Local sourcing: By value, only 47% of Chinese firms’ sourcing was from local African firms, which is lost opportunity for these firms to benefit from Chinese investment.
- Local managers: Too few locals are in managerial positions – only 44% today.
- Pain points for both sides: Chinese firms cite personal safety and corruption in some countries as their top concerns. For African leaders, language and cultural barriers are pain points. There have been instances of labour and environmental violations by Chinese firms.
The report calculates that – if the partnership simply continues on its current path – Chinese firms will grow steadily to “around $250 billion in 2025, from $180 billion today”. However, by addressing the key issues highlighted in the report, McKinsey calculates this number could reach revenues of $440 billion by 2025.
Featured image: McKinsey