ZHEJIANG GONGSHANG UNIVERSITY
TITLE: IS CHINA’S FDI REALLY
SCHOOL: SCHOOL OF BUSINESS
MAJOR: INTERNATIONAL BUSINESS
CLASS: 2014 AUTUMN
STUDENT ID: 1401122131
NAME: DOMINIC ZIMBA
INTRUCTOR: QIHUI LU
It is with the utmost gratitude that I acknowledge my thesis supervisor, Mr. Qihui Lu. Without his assistance and guidance, completing my thesis would have proven more challenging and time consuming. I would also like to acknowledge the School of Business Administration entire faculty for providing me with the tools and knowledge required in completing my studies,the entire learning experience was enjoyable and very fulfilling.
Mr. Qihui Lu
As part of the International Business undergraduate program in Zhejiang Gongshang University,this final paper (thesis) is completed in the eighth semester of study.
Sino-African relations include many modes of economic interaction, including
investment, aid and trade. This study focuses on Chinese Foreign Direct Investment
(FDI) to Africa, and the possible impact thereof on Africa. It is an important issue since Africa is still the poorest continent in the world and needs to manage its resources carefully in order to enhance growth on the continent. FDI has also frequently been identified as a possible catalyst for growth in Africa. In contrast to these positive effects, China’s engagement in Africa could have negative consequences for economic growth as well.
The purpose of this research paper is to analyze the extent of China’s foreign direct investment in Africa,with a focus on member countries of the Sub Sahara African community. The analysis will be inclusive of investment activities over recent years,challenges,successes and opportunities.
With the use of panel data,it can be found that positive terms of trade have benefited African economies that export natural resources. On the other hand, there is also evidence of the displacement effects that Chinese competition has brought on African firms.
However,it would seem Chinese Foreign Direct Investment and aid has not had an extensive impact on growth in the region and has brought with it a lot of negative effects on the region. Therefore, this research paper will be aimed at understanding exactly how Chinese FDI in Africa works and why it does not have an effect on growth in the region nor necessarily better the lives of citizens of the region.
TABLE OF CONTENTS
1.1) EXECUTIVE SUMMARY………………………………………….
1.2) KEY FINDINGS……………………………………………………..
1.3) RESEARCH QUESTION……………………………………………
1.4) RESEARCH METHOD……………………………………………..
1.5) RESEARCH ORIENTATION AND STRATEGY…………………
FDI IN SUB SAHARAN COUNTRIES…………………………………
2.1) SOUTH AFRICA (CASE STUDY)…………………………………..
2.1.1) WHAT HAS CHANGED?…………………………………………
2.2) TANZANIA (CASE STUDY)…………………………………………
2.2.1) WHAT HAS CHANGED?…………………………………………
2.3) DEMOCRATIC REPUBLIC OF CONGO (CASE STUDY)……….
2.3.1) WHAT HAS CHANGED?…………………………………………
2.4) NIGERIA (CASE STUDY)……………………………………………
2.4.1) WHAT HAS CHANGED?…………………………………………
1.1. EXECUTIVE SUMMARY;
Sub-Saharan Africa (SSA) has seen economic growth of around 5 percent per year over the past decade, signaling an improvement in living standards and boosting human development indicators circling the continent. Better quality public institutions, private sector-focused policy environments, responsible macroeconomic management and an on-going commitment to structural reforms have largely expanded opportunities for countries in SSA to participate in global markets. A number of countries in the region, in recent years, enjoyed an increasingly favorable external environment, higher prices of commodity, and a greater demand for natural resources by leading economies, China being the leading market for natural resources for SSA.
In 2013, China emerged as SSA’s largest development and export partner. As it stands, China represents a quarter of SSA’s trade, rising from only 2.3% in 1985. SSA is the provider of almost a third of China’s energy imports, representing an important trade-link since energy consumption rates in China have grown by more than twice the global average over the past decade. Regardless of increased efficiency and rising domestic production, rapid urbanization and heavy industrialization continue to push China’s need for natural resources such as oil, natural gas, and coal. It is for this reason that China’s banks have promoted large scale investments in African infrastructure. More than 2200 Chinese enterprises currently operate in SSA, most of them private firms (UNCTAD 2014,Shen,2014). As a result, bilateral aid and cooperation initiatives have expanded greatly, and the Forum on China-Africa cooperation,established in 2000, has become the primary institutional mechanism for China’s strategic engagement with SSA.
However, growth of China’s annual GDP has slowed down over the past few years,as a result, China experiences excess production capacity while the rate of return on capital has declined. In response, The Government of China initiated a gradual process of economic re-balancing expected to shift the economy towards a more sustainable model in which growth will be driven less by investment and exports, and more by domestic consumption. The tripling of Chinese labor costs over the past 10 years has enabled countries with large labor forces and low wage rates to attract investment from Chinese and hence, compete with Chinese producers.
This research paper will be analyzing the positive and negative impacts of China’s economic re-balancing on its SSA trade and investment partners, as well as trying to establish if these partners are truly benefiting from Chinese FDI once the pros and cons are weighed.
Even at China’s slowing economic growth rate, its trade with SSA has continued to expand rapidly, growing by more than 19% in 2017. China has recently overtaken
Europe as SSA’s largest export partner, and regional economies are becoming increasingly vulnerable to changes in international commodity prices and Chinese
demand conditions. The composition of China-SSA trade is not symmetric, with SSA importing a wide variety of consumer and capital goods and overwhelmingly exporting primary commodities, especially oil, minerals, and other natural resources. This pattern has become even more extreme during the past five years;
agricultural goods now represent a mere 5 percent of SSA’s total exports to China.
China’s rapid industrialization has accelerated growth in many countries in SSA, particularly those rich in natural resources. Because of their widely different export profiles, there is no evidence that China has displaced exports from SSA in third-country markets such as the European Union or the United States. Many of China’s and SSA’s exports are highly complementary. Chinese exports to SSA have benefited consumers, but they have also put significant pressure on domestic
producers. Firms in SSA have faced significant competition from Chinese imports during the 2000s, partly because of the appreciation of the real exchange rate. The appreciation of the real exchange rate in SSA countries was the result of the peg of the exchange rate to other currencies (in particular to the euro), the surge in exports of natural resources and raw materials, and the amount of financial assistance from international donors, including China.
SSA is not fully exploiting its comparative advantage in agriculture to expand its export presence in the Chinese market. An analysis of the evolution of revealed comparative advantage (RCA) over the past 10 years shows that Africa has been losing competitiveness in all sectors, with the only exception being certain non-oil natural resources, mostly ores and metals. SSA manufactures have the lowest RCA of any export category and the competitiveness of agricultural exports appears to be eroding over time. These trends likely reflect structural inefficiencies and logistical
constraints in Africa; however, China’s relatively high tariffs on agricultural imports (15.1% in 2014, down from 18.1% in 2002) may have also contributed.
To add to SSA seemingly being on the disadvantaged end of the economic activity with China, there are also certain social,environmental and humanitarian elements of this arrangement that seem to be poorly impacting SSA countries and those too will be discussed.
1.3. RESEARCH QUESTION
In this research paper, we investigate major aspects of China’s economic relations with SSA countries and therefore attempt to answer this question: ” Is Chinese FDI really improving African lives?”. Looking at the amount of money involved, or
scale of trade between the two regions, it would be easy to assume that general life is improving for residents of the SSA countries in which so much Chinese Foreign Direct Investment is being poured. We will take a closer look to discover just how valid this notion is and try to argue why the benefits don’t equal the level of investment.
1.4. RESEARCH METHODOLOGY
This section introduces the overall research strategy and analytical approach used in developing data for this paper. It also describes how the investigation is aimed to answer the papers question in a scientific, comprehensive manner. It determines the course of action, assures a comprehensive framework and entails the chosen concepts.
Furthermore, it justifies the choices in data selection and lays the foundation for the development of research and hypotheses. It assures the creation of scientific linkages between theoretical concepts and the real world phenomenon. It is additionally dealing with the constraints and limitations of this work and explains possible shortcomings in terms of scope and content.
1.5 RESEARCH ORIENTATION AND STRATEGY
The research in this paper acknowledges that only constructed pictures of reality can be achieved through social research and that the gained “knowledge” is created through perspectives, notions and values and does not provide an objective description of an independent existing reality. As a result, the overall strategy is aligned to the acknowledgement of changing paradigms, understanding and perceptions.
The strategic approach for this study is aligned to theories and concepts given by relevant literature and so the research strategy is depending on existing theoretical backgrounds. First of all, it has to be stated whether a study follows an inductive, or a deductive approach, which describes whether it aims to generate an independent theoretical conception (induction), or aims to validate an existing theoretical conception (deduction). If there is not much theoretical work available an inductive approach would be sufficient because that would entail establishing one’s own original theory, but in the case that already adequate theoretical basis is given, deductive studies seem more appropriate. So it is important to align to the present knowledge to prevent the investigation from repeating existing understanding and to allow for rejection, confirmation or enlargement of the present academic stand.
The theoretical groundwork for this topic seems rather sophisticated, especially with regards to FDI,development and economic relations. Several empirical studies exist, which provide a basis for an operational assessment. Hence this study follows a deductive research structure.
The first step in addressing the papers problem is to generate a basis on which the hypotheses are built and therefore an overview about the current debate about China’s FDI and whether or not it has long term benefits for Sub Sahara Africa is given. This is combined with aspects of the theory, which is the basis for the generation of the hypotheses. It is important to combine existing “knowledge” like theories and observations about the specific phenomenon (Bryman 2012: 25), to ensure that the hypotheses are in a scientific scope, but also consider real world assumptions.
This approach means that there will be some limitations for the investigation, but entails also crucial advantages. A deductive approach gives the opportunity to investigate a phenomenon on the basis of a widely agreed notion, which leads to the use of verified structures and usually has a clearly determined scope so it is less likely to lead to distorted conclusions.
After an outline of the general orientation of the research, the research strategy, the next steps are to identify the research design and usually strategies and designs are strongly aligned. The problem formulation (question) shapes the research design, since it implies a territorial scope as an area of interest (SUB- SAHARA AFRICA) and it identifies the main factors of this interest (CHINA and SUB- SAHARA AFRICA) and it partly determines sources, types of data and relevance of data.
The most insightful design seems to be a “case study”, which is a “detailed and intensive analysis of a single case (…) (and) (…) is concerned with the complexity and particular nature of the case question” (Bryman 2012: 66). So it deals with impacts of a specific phenomenon and is mostly used for inductive approaches, but it can also generate valid results in deductive studies (Bryman 2012: 70ff, Hammersley 2004). Case studies can “imply the collection of unstructured data, as well as qualitative analysis of those data” (Hammersley 2004), which is a definite benefit for this investigation.The so called “case” is per definition the focus of investigation and is defined here as “the Sub- Sahara region” including its political and economical features. This is a rather “large” unit, meaning that I will analyze a number of individual case studies within the region in order to get a clearer view of the conclusion we intend to reach, rather than focusing on just one example.
Another problem for case studies (especially within a deductive approach), is the level to which we can generalize case studies, since one case might not be representative to any further cases (Bryman 2012: 69). This means that the findings might not be transferable or may lack general “validity” when compared to the next.
Keywords: China, Sub-Saharan Africa, Trade, FDI, Economic Growth, Positives,
FDI IN SUB-SAHARAN AFRICAN COUNTRIES
Data on outbound Chinese FDI flows, as reported by the Ministry of Commerce of the People’s Republic of China (MOFCOM) do not conform to the Organization for Economic Co-operation and Development (OECD) definition of FDI , which only takes private investment into account. In contrast, the MOFCOM definition includes private and public financial flows (e.g., from state-owned enterprises) from the mainland China; it does not include Chinese owned FDI passing through offshore finance centers (e.g., Hong Kong SAR, China; the Cayman Islands;Luxembourg; etc.). Anecdotal evidence also suggests that many companies, although required by law to register with government agencies, choose not to go through the time-consuming registration process (Shen 2013).
Data from MOFCOM (2014) indicates that Chinese FDI flows to SSA reached US$3.1 billion in 2013, which would represent 7 percent of global investment in the region,a share that is rapidly approaching that of the United States (7.3 percent).
Moreover, the total stock of Chinese FDI in SSA was recorded at almost US$24
billion, about 5 percent of the SSA’s total FDI stock. These figures would signify that the presence of Chinese investment in SSA remains limited. For example, the ratio of Chinese FDI to SSA’s aggregate GDP was just 1.5 percent in 2012, albeit up sharply from 0.1 percent in 2003. Meanwhile, the share of Chinese FDI in SSA’s aggregate gross fixed capital stock would appear to have grown quite modestly, from 0.37 percent in 2003 to 0.78 percent in 2012. However, when considering these figures, the concerns about data quality and completeness noted above should be kept in
China-Africa Cooperation in Resource Development
Resource development is a significant part of China’s
investment in Africa.
Chinese enterprises adopt open, transparent and multiform ways of cooperation and are firmly against monopoly and exclusiveness. They jointly exploit and utilize resources with African countries and international enterprises.
China-African oil cooperation provides needed materials to China; expands the financial sources for African development, raised the value of such resources, and
facilitated local infrastructure construction and economic development.
Factor Intensity and Job Creation
Not much is known about the relative factor intensity of Chinese investment in SSA and its contribution to job creation. However, a database produced by fDi Intelligence, a division of The Financial Times specialized in tracking FDI investment projects around the world, enables us to check for some limited analysis of these dynamics. This database includes only greenfield projects by Chinese investors in SSA. Between January 2003 and June 2014, a total of 156 projects were documented, a small sample even when compared with the MOFCOM statistics, but one that provides vital information on the relationship between investments and job creation.
Out of the 156 projects recorded in the database, manufacturing projects have generated the highest number of total jobs at about 39,000 as indicated in the table below. Manufacturing projects represent more than half of all jobs created by the entire sample, although their average capital investment is smaller than that of projects in other sectors. This suggests that the relocation of Chinese manufacturing firms to SSA could have a substantial impact on employment. Extractive industries and the construction sector averaged the largest project size in investment and job creation.
Government-led projects tended to be much larger than private projects and created more jobs.
Comparing Official Chinese FDI Data with Alternative Sources
A number of research institutions and international agencies have begun to specialize in tracking information on Chinese FDI from other sources, including corporate websites and news reports.The China Global Investment Tracker (CGIT), a joint initiative of the Heritage Foundation and the American Enterprise Institute, is a publicly available database that identifies and records Chinese FDI projects over US$100 million. Its coverage is wider than that of the MOFCOM database, and it includes projects that are implemented through offshore financial centers.
However, CGIT does not include projects below US$100 million, a very high threshold that many Chinese investors do not reach. In addition, the data are based on publicly stated commitments,which often differ from actual investment flows.
To begin our investigation, we will take a closer look at some of the investment activity that has taken place in SSA through Chinese foreign direct investment. We
will be analyzing the scale of Chinese FDI in a number of countries that fall under the category of Sub-Saharan Africa.
2.1. SOUTH AFRICA
In April 2015, the People’s Bank of China and the South African Reserve Bank signed a 30-billion renminbi/R54bn bilateral currency swap agreement for a three-year period with an option to renew, for the purpose of facilitating bilateral trade and investment and maintaining regional financial stability.
On July 8 2015, the Bank of China (Johannesburg branch) was designated as the official renminbi clearing bank in SA and the first clearing bank in Africa.
By the end of 2015, China’s investment in SA approximated $13bn, with more than 300 Chinese enterprises in the country. According to statistics from Chinese customs,
bilateral trade in 2015 reflected China’s exports to SA at $15.9bn, with imports from SA at $30.2bn.
SA — the only G20 member state from Africa — is considered a middle-income, developing country and the most developed economy on the continent. Its competitive advantages include abundant natural resources, a sound financial and legal sector, favourable communication systems and capable port and ocean transportation facilities.
Weaknesses include security and crime (including occasional xenophobic attacks), high unemployment, power shortages, insufficient infrastructure investment, insufficient railway capacity, the volatile rand exchange rate and a trend of weakness in the currency.
The challenges experienced by Chinese enterprises in SA include public security, strained industrial relations, a shortage of technical professionals, a cumbersome visa system, insufficient energy supply, foreign exchange regulations, a continuous declining trend in the rand and infrastructure backlog.
Violent crime in SA continued to increase in 2014 and 2015, with sexual assault, robbery and murder on the rise.
Labor strikes occur frequently in the country, seriously affecting business operations and causing significant trading losses. According to statistics from the South African Department of Labor, during the period 2008 to 2012, lost work days per annum per 1,000 people due to strikes averaged 440 days. In comparison, Britain lost 24 days.
According to a report released by South African human resources company SAdcorp, almost 830,000 highly skilled jobs are vacant. Highly qualified technical professionals are not available and cumbersome immigration procedures and regulations make it difficult for foreigners to obtain work permits in a timely fashion. Critical technical and managerial personnel cannot enter the country.
WHAT HAS CHANGED?
When Tanganyika and Zanzibar were united and became Tanzania on April 26th 1964, China extended its diplomatic ties accordingly. In 1965, China and Tanzania signed
the Treaty of Friendship, as well as other agreements on bilateral cooperation in the fields of economy, trade, culture and health.
According to estimates from the Chinese Business Chamber of Tanzania, Chinese private companies have created more than 150,000 jobs, although more conservative estimates put the number at 80,000 jobs. By contrast, Tanzania’s SEZ, the Export Processing Zone Authority, has only created 15,100 jobs. Many Chinese firms provide on-the-job training to local workers and some also send Tanzanian managerial staff to China for training programs lasting from three months to one year. Most Chinese private firms are involved in low-tech, labor-intensive industries,such as light manufacturing and assembly, and many compete with domestic companies in
Tanzania. In several instances, local workers have started their own enterprises after
leaving Chinese firms.
The distribution of firms by sector shows that the majority of Chinese companies produce for the local market rather than for export. Over 90 percent of Chinese firms are located in the country’s largest city, Dar es Salaam. Interview respondents reported that the key reasons for this include its substantial market, its large labor force, and Dar es Salaam’s status as a major commercial center.
China is Tanzania’s third export partner by export volume after India and South Africa. In 2014, Tanzania’s export to China amounted to USD684million, represented mostly by oil seeds, precious metal ore, copper ore, and refined copper. China is Tanzania’s second import partner by volume of import after India. In 2014, Tanzania’s import from China amounted to USD2billion. Tanzania imports a variety of products from China, including rubber tires, motorcycles, tractors, and iron structures.
Chinese FDIs in Africa at the end of 2014 were USD24.5b representing 14% of China’s total FDI in that year according to the World Resources Institute (WRI). Tanzania accounted for 16.3% of China’s FDI to Africa with USD4b in 2014, an increase of 100% from the total Chinese FDI recorded in the country at the end of 2013, according to the Chinese Embassy to Tanzania. At the end of 2015 the Tanzanian Government announced that over 100 Chinese investors will set up their businesses in the country, as part of a five-year program backed by the China Africa Development Fund (CADFund).
On March 22, 2017, the President of Tanzania Hon. Dr. John Magufuli met with Mr. Guo Jinlong, Secretary of the Communist Party of Beijing, to sign three cooperation agreements between China and Tanzania. Through the agreements, Tanzania has secured USD 300,000 for the construction of a building for the Ministry of Foreign Affairs and East African Co-operation, USD 20,000 for anti-narcotics police training and an undisclosed amount for the expansion of the police institute in Moshi. During the meeting, Mr. Jinlong delivered to President Magufuli a message from the President of China, Mr. Xi Jinping, appreciating his efforts on fighting corruption and strengthening the economy. “China highly appreciates the support it has been receiving from Tanzania in the international affairs. I assure you that China will continue its cooperation with Tanzania in various areas including agriculture and industries,” Mr. Jinlong commented.
For his part, President Magufuli said that Tanzania will continue to promote its ties and cooperation with China. He also asked Mr. Jinlong to invite Chinese investors and businessmen to invest in Tanzania in various sectors, particularly in manufacturing, construction of transport infrastructure and buildings and agricultural development. “Tanzania is ready at any time to cooperate with China in development and projects beneficial to the citizens of both countries,” Magufuli concluded.
Stanbic Bank Tanzania (SBT) held a Chinese Economic forum in Dar es Salaam on Tuesday 16th March 2017 to assist the Chinese business community wanting to invest in Tanzania. According to the bank’s Executive Head of Corporate and Investment Mr. Thomas Bisonga, the China direct investment will be driven by Stanbic Bank Tanzania’s aspiration of, supporting the growth of economic activity in Africa. The forum was organized to demonstrate the bank’s commitment to partner with Chinese
customers in their quest to move their business to the next level. Through the partnership, Stanbic Bank is able to link its clients to growth opportunities offered by Tanzania, and other African economies, Bisonga explained. Stanbic established a China desk with Mandarin speaking staff to facilitates free flow of business between the two countries. “We established the China Dedicated Desk to help facilitate international trade, infrastructure projects and investments between Tanzania and China,” Bisonga said, adding that the service makes Stanbic better placed to meet the needs of all Tanzanians and Chinese seeking to do business in the region. The figure below shows us why Tanzania is an important investment destination for China, as ranked on the “RMB Investment Attractiveness Index”.
Tanzania climbed two places in the 2018 “Where to Invest in Africa” report of RMB bank, to position itself as Number 7. RMB’s Investment Attractiveness Index provides a means by which to assess the most appealing of African investment destinations. It is based on what the bank perceives to be the most important conditions for viable investment in Africa: economic activity, expressed as a weighted average of market size and forecasted levels of GDP growth, and the operating environment depicted as a weighted average of four international surveys that measure the ease of doing business. The surveys used are Doing Business Index, Global Competitiveness Index, Corruption Perceptions Index, and Economic Freedom Index. The report indicates that “though marginal, improvements for Tanzania have registered in all four aspects of our operating environment index.” “In a bid to ease the regulatory burden, President Magufuli’s administration has introduced reforms aimed at rooting out corruption and facilitating corporate registrations and licensing.
The economy continues to grow steadily at 7% — albeit slower than the government’s targeted level of 7.2% for 2017. The upshot, however, is that Tanzania’s population continues to expand at a quicker rate, capping its GDP per capita at USD 965. The government is fixated on boosting domestic productivity and actively reducing Tanzania’s import dependence to attain middle-income status,
which would further enhance its investment appeal,” the report explains. Tanzania is also among the largest destinations for Chinese investors seeking strategic investments.
Meanwhile, the continued opening up of Tanzania’s capital market (debt and equity) has paved the way for portfolio investment, particularly EAC investors. However, the report also indicates that there has been a slight shift away from business-friendly policies and instances in which donor pulled back because of corruption. In addition, the new laws that have been enacted to increase the state’s share of mining profits are likely to cap future capital flows into Tanzania’s mining sector.
WHAT HAS CHANGED?
GOODS AFFORDABILITY; One important category that seems to drive a great deal of people’s immediate attraction to commodities and services provided by the Chinese government and private companies, is affordability of products and services, which can impact quality in an inverse relationship. The more affordable the product in many cases, the lower the quality is likely to be. Tanzania is a developing country and though there are people of significant wealth, there are large numbers of people with very limited disposable income. Thus products from China are marketed by price point and with some assumptions on quality. Due to lack of industrialization in Tanzania, they import virtually all of the mechanical and electronic goods available in the country. Chinese imports are much more inexpensive, compared to foreign goods from Europe, The Middle East,and the United States. Low prices of goods attract many buyers in Tanzania and as a result many of the goods that Tanzanians own are from China. Motorbikes and cellphones are viewed as essential for people’s livelihoods and even for health and communication, yet they could be very expensive for most households of Tanzania.
COMMUNICATION; Statistically, 98% of Tanzanians do not have landlines, yet 73% of adult Tanzanians own cell phones. Only 8% of the total population owns smart-phones, and 65% owns at least one cellphone.90 A majority of the population has never been able to get a landline, but once cell phones became accessible and affordable people quickly took to the technology and most rely on cellphones for their remote and long-distance communication. Tanzanians have even heavier
reliance on cell phones over land-lines than in developed countries. Furthermore, because only 7% of population own home computers and even few have Internet, cell phones have become a multipurpose technology. Most cellphones whether
Android or otherwise are made in China for a Tanzanian market which has implications for both price and quality. Cell phones have become critical to the economy because they give people access to many more than services than just communication. For instance, many Tanzanian mobile telecom network companies, such as Tigo and Vodacom in Tanzania offer a banking system that customers can utilize through cellphones. The system allows for quick money transfers to others, short distance money self-transportation and money storage for short to medium periods of time. In this way, cell phones have boosted economic interactions across
regions in Tanzania. Approximately 61% of Tanzanians have a registered mobile money account, while only 8% have a full-service bank account. The Tanzanian banking system is based on a mobile system rather than conventional physical banks. People no longer need to go directly to family or friends travelling long distances to get cash and for those who have accounts, banks and ATM machines are no longer required to acquire cash. People instead use cellphones to transfer money and get cash at local mobile system distributers. This has expanded business opportunities for Tanzanians who can work in the money transfer business. It has also lowered the fees of money transfer for everyone.
INFORMATION TECHNOLOGY; Moreover, increased access to Information Technology (IT) through cellphones and smartphones impacts many people’s business capacity. More Tanzanian farmers started to use IT to gain agricultural pricing information regionally and globally to their advantage, and as a result
they obtained higher prices than they did prior to cell phones and compared to those farmers who don’t access such information. Therefore, inexpensive cellphones from China assist increasing access to information and provide a banking system. As such, phones have led to higher quality and more business opportunities for many Tanzanian locals. Most phones in Tanzania come directly to Tanzania and are produced for a Tanzanian market specifically. It is clear that phones have brought personal and economic benefits to Tanzanians. Chinese smartphone producer, Huawei has signed a contract with Tigo aiming to provide Tigo’s more than 6.2 million subscribers with access to affordable devices. In the cellphone market including smart phones, Samsung from South Korea individually has the largest share in
Tanzania (15.4%), yet two Chinese companies combined, Huawei and Tecno in total have the largest share (17.8%) and the share has been rapidly increasing due to the affordable price tag they have managed to offer in the market.
TRANSPORTATION; In terms of transportation, only seven out of every 1000 people owns a motor vehicle in Tanzania. Even though the number of motor vehicle licenses issued has been increasing over time, personal travel mobility relies on the use of short and long distance public transportation. The state’s primary focus has been in the urban transport sector to address issues in Dar es Salaam, long-term rural transport plans for other parts of Tanzania have not yet been addressed to the same extent as the urban planning has gone. For example, in May of 2016, the city government of Dar es Salaam worked with China to install a mechanized payment system and bus stands for their new bus system called Dar es Salaam Rapid Transit (DART). The city developed the roads with a loan from Africa Development Bank to accommodate the bus which now has its own lane for the service to operate rapidly from one end of the city to the other. Personal cars and other public or private bus operations, of which there are several, cannot use this lane. This bus system connects the suburb and the center of Dar es Salaam from south to north to reduce rush hour traffic coming into the city. Due to lack of frequent public transportation system and growing urbanization there is a lot of demand for two wheelers in Africa. With more than 45% of the African population residing in urban areas in 2015, and the number expected to increase in the coming years, the market is expected to be $9billion in 2021. Moreover, motorcycle taxis, which are locally known as Boda Boda, are playing a crucial role in driving the sales of two-wheelers. Motorcycle taxis are being used for carrying goods and passengers to distant places in many parts of Africa including Tanzania. Overall, increasing demand for means of transportation increases demand for personal transportation means. With limited budget, two-wheeler fits the consumer preference and especially cheap motorbikes from India and Chinese manufacturers hold the largest share in the Tanzania.
CHINESE VS. LOCAL BUSINESS; Big business comes to
Tanzania for making short term profit and they have no intention of staying or thinking about sustainability. On the other hand, in his view individuals from small business first come to Tanzania for field research and they analyze local purchase and production capacity. They make sure that their business could stay for a long time in Tanzania. They take some pictures of common goods that are on trend in Tanzania and made exactly the same ones in China. Chinese does not transport those but Tanzanians buy from China and sell them at higher price. Their business wins over the local business in many aspects: price, speed, and quantity. Therefore, it
destroys local manufactures businesses and Chinese goods dominate the market.regardless of size of the business, they are destructive to the local community. Big business is destructive, their business does not advocate for sustainability and it is unlikely that they create long-term employment opportunities for the local people. Small foreign businesses have however in some cases also swept away the local Tanzanian businesses because they bring in new products that local entrepreneurs don’t have access to or must acquire through middlemen.
2.3. DEMOCRATIC REPUBLIC OF CONGO
The relationship between China and the Democratic Republic of Congo
(DRC) provides a unique case to test China’s win-win policy with African
countries. A recurring question is how can a win-win partnership be realized
between very unequal partners? China is a global power ideologically, economically,
militarily, and financially. The DRC is known for its weak state characterized by
years of instability and mismanagement. China claims to pursue a win-win relation
with the DRC. The DRC’s political economy has been dominated since 1885 by an
economy of extraction built on the legacy of the Free State. According to this legacy,
the DRC serves as an open source of capital accumulation for foreign powers. This
pattern of colonial extraction, where the DRC is a source of cheap strategic mineral
resources that serve the narrow interest of Western capital remains largely
unchanged today. China entered the DRC with a promise to break with this
exploitative economic relation. China has acquired financial and economic strengths,
which it is using to position itself as an alternative to the West.
The DRC is a dysfunctional state par excellence, lacking capacity to organize and
conceptualize its future both politically and economically in a manner that differs from its past. China-DRC trade relations are taking place within the confines of a fragile Congolese state lacking in capacity to optimally benefit from opportunities that China brings. The DRC,after years of dictatorship and war, has been working with great difficulties to install democracy as a stabilization tool and a source of economic progress. The main challenge for the DRC is how to build a functional and responsible state without which every development effort whether internal or external is bound to fail. The question is: does the win-win as applied currently by China contribute to state building in the DRC?
China and the DRC are capable of maintaining a beneficial and interdependent economic relationship because they both have goods that they need to trade with each other. The main interests for the two countries in their relationship are clear. For China, the DRC is a secure source of strategic natural resources, market for its manufactured goods, and space for investment in infrastructure development. For the DRC, China is a source of finance and know-how for its infrastructural, and a source of manufactured goods. This is what China has called a win-win arrangement: “you give me the minerals I desperately need, and I build for you the infrastructure you need.” The DRC fits well into China’s trade policy of securing supply of minerals and energy products and encouraging export of finished products.
China offers considerable opportunities to the DRC, and the DRC is attracted to China
for its civil engineering to help with the reconstruction of the shattered infrastructure. The DRC government sees China as an opportunity to help lift the country’s productive capacity,a source of funding for infrastructure development (road, railway, and mining infrastructure), and to strengthen public private sector partnership information and technology investment.
The fascination with China has been about how it has succeeded in a relatively short period of time in moving so many of its people out of poverty and modernizing its
cities so rapidly. For most Africans, the thinking is that because “China has managed to overcome so many similar problems, it knows what it is doing.”3 The economic transformation it has achieved is attractive, and the DRC wants to learn and benefit from China’s successes. The DRC’s fascination and increased cooperation with China are rational especially after years of failed Western imposed interventions. President Joseph Kabila’s model of development “la Modernité” is copied from China’s economic miracle, which is a result of China’s much vaunted priority of modernization. The admiration with China’s successes is fueled by scepticism of Western development approaches, which many Africans have described as
neo-colonialism and exploitative. Intensifying China-DRC relations coincide with China’s economic upswing on the one hand and an economic decline in the OECD countries on the other hand. The DRC has for a long time looked for opportunities to escape Western control.
WHAT HAS CHANGED?
Nigeria and China have had a longstanding relationship founded on a strategic partnership to promote a South-South cooperation, development and growth of their economies. The conclusion is that there is a neo classical dependency theory that Chinese growth and development model is beneficial for the Nigerian economy and China’s expansion in Africa is not a new form of colonialism. However, Nigeria needs to create more employment opportunities for its local population by reducing the number of the Chinese workers through a process of skills and acquisition transfer.
After Nigeria’s independence in 1960, Nigeria and China did not have any form of
diplomatic relations or economic partnership until 1971 because prior to that period, China was in support of the Biafra war and provided weapons.
In Nigeria, China’s focus is on the oil and gas, manufacturing, transport, water and power sectors,however, their initial investment was limited in the agricultural sector, which is one of the potential sectors of the Nigerian economy which can expand the job market for this oil dependent economy. Nigeria imports machinery, chemical and manufactured goods from China. Also, the country exports petroleum and its products, rubber, cocoa and some other agricultural products. As of 2013, Nigeria exported approximately 57% of crude petroleum and 27% of petroleum gas to China. The export value from Nigeria to China reached $899M USD while the import value from China to Nigeria was $9.53B USD. This shows a strong negative balance,
thus a trade deficit for Nigeria because they are importing at a higher value than they are receiving in exports to China. Nigeria imported mineral working tools, machinery, rubber,motorcycles, generators and even vehicle parts.
The trade volume after their diplomatic agreements was approximately $2.2billion USD. This placed Nigeria as China’s fourth largest bilateral trade partner in the continent of Africa. In 2011 – 2012, the trade value of China and Nigeria reached $5 billion China’s exports and imports with Nigeria respectively reached $4 billion and $828 million. Since the beginning of China’s agreements with Nigeria, China has maintained continuous efforts in increasing their FDI in various sectors of Nigeria. This increasing presence of China in Nigeria has spurred infrastructure development, job creation, education advancement and others that will enhance economic development.
Nigeria and China seem to have common characteristics – Cultural dimension, foreign
relations and trade. Also, they share the same economic goals and challenges and have a mutually beneficial partnership. For example, both countries have large
populations with many Nigerians are present in China and vice versa. Both countries have a global south-south relationship and it influences the uniformity in their approach to global politics. China provides domestic and international support to Nigeria, such as voting alike on issues at the United Nations (U.N). China and Nigeria have the potential to merge their ideas for practical cooperation by exploring new ways and areas to advance their economies.
China exports crude oil from Nigeria but this only constitutes of 1% to 2% of Nigeria’s crude oil export, this is rather low. The upstream sector of the oil and gas industry also ranks as the most important segment in the Nigerian economy. The downstream segment is equally important as it accounts for about 5 refineries, “four of which are operated by the Nigerian government through the NNPC, while the fifth is owned and operated by Niger Delta Petroleum Resources (NDPR)”. Due to poor management, sabotage and corruption there has been a low production of refined products. These refineries are situated in Port Harcourt, Kaduna, Warri and
WHAT HAS CHANGED?
The economic conditions of Nigeria have advanced over the last few years as a result of the rapid phase of industrialization.
The economy of Nigeria also improved tremendously with foreign investment (mainly from China) aided by high quality research and development.
Due to the establishment of bilateral ties with China, the trade scenario of Nigeria has received a great impetus over the last few decades.
Nigeria is dramatically under performing in spite of strong revenue flows
from high-priced crude oil exports.
Various bureaucratic obstacles and a lack of strong institutions have led to constrained progress in areas of infrastructure, agriculture, and technology transfer.
Widespread corruption has not transferred wealth to the lower classes and has stifled foreign direct investment in the non-petroleum sector.
In terms of economic development and economic growth in African countries, the positive effects are visible, for the increase of Chinese demand Chinese for raw materials prices allowed the improvement of trade and export incomes. The new Sino-African relations contributed to reintroduce Africa in the international flows of the formal trade from which it was aside for several decades. This increase in the oil incomes enabled some African countries to implement public or economic policies(structural adjustment).
Chinese FDI have improved economic growth in many African countries, because since a decade Africa’s growth is 5% on average per annum, which has placed the continent among the most dynamic regions of the world. For example, in 2012 the growth of sub-Saharan Africa countries had increased more than 5.4% compared to the year 2011, which was 4.9%. It should also be noted that in 2013, South Africa had been among the top 30 (the most powerful economies in the world), and ranked at twenty-ninth in world.
In terms of infrastructure development, Chinese investment in Africa has led to a remarkable improvement of this sector. The development of a given country must also go through the development of basic infrastructure (hospitals, hydroelectric dams, roads, bridge, and so on), unfortunately during several years this was what most African countries lacked. But in recent years, much progress has been made in this direction, and over years the African continent has become equipped with basic infrastructure. For instance, the construction of the national road connecting the two main cities of the Republic of Congo (i.e. Brazzaville and Pointe Noire) whose inauguration took place at the beginning of the year 2016, the construction of a major hospital in Luanda (Angola’s capital city), stadiums built in Sierra Leone, airports and many other administration buildings in most countries which are recipients of these investments, etc.
All these achievements gave to African countries a new status of modernity and improvement of basic infrastructure that they lacked in the past. It should also be noted that in December 2011, China made a donation to Africa by building the new headquarters of the African Union (AU), located in Addis Ababa in Ethiopia, which had a cost of more than 200 million USD.
In terms of social development, it can be said that Chinese investments have brought their results. First, the increase of Chinese investments in Africa has resulted in competition between Chinese investors and traditional investors (i.e. Europe and America), and the local population benefited from it. In other words, this competition drove traditional investors to increase the salaries of some employees, and signed employment contracts, since some employees were hired without an employment contract, for fear of losing their employees who may be tempted by the massive coming of Chinese investments.
Chinese FDI helped Chinese products to take an important place on the continent, and this has led to an improvement of the living conditions of local populations. Indeed, Chinese products, i.e. ;made in China; are increasingly being stocked in all stores in Africa, and thanks to these products, Africans have had easy access to products that were considered some time ago as luxury products, such as: mobile phones, computers, air conditioners, etc., their low prices have therefore improved the purchasing power of consumers. Chinese investment enabled the African population to have easy access to the treatments of malaria (regarded as a scourge on the African continent), reducing thereby the mortality rate caused by the disease.
Chinese investment in the agricultural sector, allowed some African countries to reduce prices of food, contributing to the improvement of the shopping basket of consumers and the reduction of famine.
China’s rebalancing also presents new export opportunities in the agricultural and manufacturing sectors. Countries in SSA that have sound investment frameworks, stable governance, and a healthy investment climate will be well positioned to leverage these opportunities.
On the education and culture level, Chinese investments in Africa are also beneficial. At the education level, significant progress has been made, because after the FOCAC meeting of 2006, Chinese Government undertook to increase the number of scholarships allocated to African students, and so far this increase has continued, and that also involves the training of military officials.
With regard to culture, African people are increasingly interested in Chinese culture, and many Chinese language learning centers were established throughout the continent and in some countries Governments have introduced the Chinese language in the school program.
Finally, Chinese leaders as well as African ones seem completely convinced of the mutual profits which their countries pull out of this cooperation. Whereas Africa benefits from the development of long-term infrastructures, China enjoys an access to the oil and to the numerous natural resources of the continent, which allows it to feed its branch of rapidly expanding industry.
However, it is important to underline that beyond all these positive effects of Chinese investment in Africa, there also seem to be negative effects that are harmful to the
continent. This being the reason why we need to treat with extreme caution Chinese investment in Africa.
Chinese investment in Africa, is not only beneficial as it seems to be suggested by the Chinese and African Governments, on the contrary, these investments have been accompanied by several negative effects on the African continent. Systematic research in this area has been scarce. To what extent are these perceptions about Chinese companies’ employment practice true? Can we map out a precise picture of Chinese employment patterns? Further, do Chinese employment patterns contribute to Africa’s own development and benefit African workers? Or do Chinese enterprises rather exploit Africa’s cheap labor and bring damage to local communities? The information following below aims to shed more light on the negative impact of Chinese investment in Africa:
In the economic sector, we can say that the increase of Chinese investment in Africa has negatively affected local companies. Many Africans have denounced the poor quality of Chinese products and estimated that their low price is the cause of the collapse of local industries. Ademola and al. (2009) quote several examples of countries where companies are threatened by the Chinese imports, what leads to numerous closures. In the textile industry, South Africa apparently lost between 23 000 and 85 000 jobs. In Ghana also, companies have to close. Furthermore, the competition in this sector caused the slowing down of the inter-African trade, because countries such as South Africa, Cameroon, Kenya and Madagascar lose market shares in nearby countries due to the massive penetration of Chinese clothing on the continent. A study dedicated to the effect of eviction produced by the Chinese exports highlights the link between the progress of the Chinese textiles exports (textile industries) and the backward movement of the African exports (Giovannetti and Sanfilippo, on 2009). Generally speaking, in the sectors where China and Africa are in competition, the increase of the Chinese exports leads to a reduction in African production.
The increase of Sino-African trade often comes along with trade imbalance to the advantage of China. It is particularly the case for South Africa and Nigeria which present respectively a trade deficit towards China of 4 billion and 1.7 billion USD. Indeed, Sino-African economic relations are represented in the form of North-South trade (as the North, China seeks to secure its access to raw materials) and therefore constitutes a serious handicap for the African continent, which continues to play the role of provider of raw materials (oil, wood, cantons, etc.), weakening thereby its position in the international division of labor.
Some observers express concerns that Chinese companies prefer to bring
a large number of Chinese workers to Africa and are unwilling to hire local workers.Hence,we should also note that Chinese investors hire essentially Chinese workers who represent a total of 70% against a total of 30% of local workers. This is a real concern for Africans, because for the most part for most of them, the only interest of these foreign investments is that they create some employment. Thus, the massive hiring of Chinese workers is not favorably appreciated. Ben Schiller reported that tens of thousands of Chinese laborers and engineers were imported to build infrastructure projects in Ethiopia, Sudan and other African countries. This makes the acute unemployment problem in Africa even worse.
There have also been complaints about low wages. The International Trade Union Confederation’s Hong Kong Liaison Office (IHLO) suggested that Chinese companies’ wages are among the lowest in many African countries and they usually pay less than other foreign investors.
Socially, Chinese FDI in Africa is a serious problem. As a matter of fact, the social rights of African workers hired by Chinese enterprises are constantly violated (underpaid, non-compliance with labor standards, non-recognition of trade unions, etc.), and Chinese companies do not take as much social responsibility as their western counterparts do. A major criticism is that working conditions in Chinese enterprises are problematic, often involving health and safety hazards and long working hours. For example, an explosion accident at the Beijing General Research Institute of Mining and Metallurgy (BGRIMM) 2005 killed 52 Zambian employees and provoked fierce resentment from the local community against the Chinese investors.
Doubts are also raised about Chinese companies’ contribution to the development of the continent’s human capital. A World Bank research paper states: “Chinese firms tend to rely on their own low-cost labor and do not invest heavily in the training and education of African workers.”8 Southern Africa Resource Watch also stated that “technology transfer to local people is not a feature of most Chinese investment.”
Concerning the protection of the environment, Chinese investments are also a problem. Environmental standards are not really respected by Chinese companies, because they give more importance to the quest for raw materials and the implementation of infrastructure projects (roads, bridges, railways, dams, etc.) than to environmental preservation concerns. Most international standards in the construction of bridges, dams and so-forth are not fully respected for the sole purpose of making more profits. It should also be noted that most of the time Chinese companies specializing in logging do not respect international standards in this sector of activity, leading therefore to the illegal sale of wood.
African firms do not appear to be positioning themselves within Chinese value
chains; as a consequence, trade with China is having a limited impact on economic transformation and export diversification. Imports of inputs and components for processing and assembly have been a major channel for technology transfer in many countries in Asia, particularly China. In the standard model, a firm from a developed country would export inputs or components to a less developed country with lower wage rates, where a local subsidiary would use those inputs to create
a finished product for export to one or more third-country markets or even back to the original developed country. For many countries, this pattern of trade has had highly positive economic impacts by facilitating technology transfer and catalyzing the development of dynamic comparative advantage. Input exports from China to SSA for processing and subsequent re-export to the U.S. consumer market have increased in recent years but remain extremely small as a share of total trade (Pigato and Gourdon
2014). Consequently, there is very little evidence that China is using Africa as a platform for its global exports or integrating African firms into its international
Lower Chinese growth rates will decrease global demand for oil, minerals, and other natural resources and reduce international prices for these commodities, which are among the chief exports of many countries in SSA. Given that China has accounted for almost the entire increase in global demand for minerals and metals (e.g., copper, iron, lead, nickel, tin, and zinc) over the past 20 years, slowing growth in China will have a major impact on world commodity markets.
Recent work by the International Monetary Fund (Drummond and Liu 2013) has shown that a 1 percentage point decrease in China’s real domestic fixed investment growth rate would lower SSA’s aggregate export growth rate by 0.6 percentage points. As one might expect, this effect appears to be larger for resource-rich countries and the countries in SSA that are likely to be most severely impacted are exporters of mining products, including the Democratic Republic of Congo, Guinea, South Africa, and Zambia.
First,China’s “no-strings-attached” approach to its economic relations with Africa has the potential to prop up authoritarian regimes and support political oppression and
violence, while arguably undermining the long-term economic prospects of its
partner nations. Second, Chinese firms operating in Africa have bolstered earnings
by exploiting weak regulatory institutions within host nations. While proponents of
Chinese investment often point to the wealth creation potential of Chinese-backed infrastructure projects,allegations abound that inadequately regulated Chinese owned
operations have inflicted serious social, economic, and environmental harms on Africans in the pursuit of their goals.