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China’s Business Environment – Doing Business with Africa

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China’s Business Environment – Doing Business with Africa

Introduction

It has been a little over a month after the last Forum on China-Africa Cooperation (FOCAC) on Beijing and it is clear that this partnership is not going anywhere. Xi Jinping guaranteed that China and Africa would keep the benefits coming for both parties. He showed his ambitions of implementing 8 measures that involved encouraging Chinese companies to invest in Africa, infrastructure cooperation, trade facilitation, green development, health care, peace and security  (Xinhua, 2018).

As we all now, China has been on an exponential economic growth rally. To maintain this economic growth China had to review and have been making consistent updates on their foreign policy. Africa is one of China’s trade treasures that they wish to preserve and improve.

This paper has the goals of exploring the history of both regions that led to this current apparently unbreakable link, its upsides and challenges. By having a better understanding of the rights and wrongs of Sino-African Relations, we are best able to predict upgrades and setbacks and try to transport this knowledge to other international business cooperatives.  

Historical Overview

The People’s Republic of China (PRC) was born during a colonial time. After the decolonization, China started to seek the opportunities among ex-colonies left by Europe, for the most part. China took advantage of a common hatred shared by these countries towards the West and its sovereignty. Agreements with India and other 29 Asian and African countries were thrown on the table with hopes of a better future as partners.

In mid-1960’s Africa was considered as crucial to the PRC’s foreign exchanges (Yu, 1965).

In spite of a setback during the 1970s and the 1980s, after the Cold War, China reassessed its position in the world. They hit a record economical shape and started to look the US in the eyes for the first time. Geographically, they expanded like never before. Africa was no exception to the Chinese map of prospect partnerships.  Oil-producing countries were give greats amounts of attention. Conferences and presidential meetings extended through the 1990s and the 2000s. PRC shipped arms and got involved in peace operations (namely Liberia).

In October 1999, Jian Zeming proposed a bold agreement to the Organisation of African Unity (OAU) where the China-Africa Co-Operation Forum was finally created, a diplomatic seasonal programme that would change the diplomatic bonds between both countries forever.

Mutual benefits in the 21st century

China’s goal in the 21st century is, undoubtedly, to draw attention and business away from Africa’s old trading partners – the European Union and the US (Parenti, 2009). In 2014 China traded over 250 billion US$ with Africa and even though it reduced for the following 2 years, they still remain the biggest trade partner of the continent (see Charts 1 and 2). China has advantage over the US and the EU countries when it comes to connecting with Africa. It’s communist, centralized system allows for decisions and projects to flow much more smoothly than in other places (for example, the present complications with the Senate and the Trump Administration in the US). Besides, by assuming the helm of cooperation with Africa, China gained some international leverage and bargaining power in multiple institutions namely the UN Security Council. 

The primary driver of Chinese interest in Africa is the oil and other natural resources. In the past 2 years China was the biggest importer and consumer of oil (see Chart 3). Chinese petroleum companies started to explore African resources like never before and it hasn’t slowed down since. China manages to secure oil privileges by securing long-term deals where they give back, for example, infrastructure projects, that also granted China over 50 billion dollars in gross revenue, in 2015 (see Chart 4). Angola is the best example of the mutual upsides that China’s investment can have among African countries (Centre for Chinese Studies). China is very dependent of Africa when it comes to oil consumption. China is poor on natural resources and Africa has plenty of them. Africa provides the raw materials to satisfy increasing the Chinese increasing demand, and China gives back infrastructure projects and aid programmes that help Africa captivate foreign investment (Ashan, 2007). Belgium, for example, built roads only for the extraction of resources in Congo. China helps improve existent roads and build others that are of interest for the citizens to travel on.

Diplomatically China and Africa continued promoting FOCAC’s, “political exchange programs and an expanded embassy and consular presence” (Gill, Huang, & Morrison, 2007). China and Africa started to sum up some big achievements. “The affirmation of the One China Policy increased support for its world vision of multi-polarity and the ability to compete for markets, alternative energy sources, and strategic space against equally increasing US engagement” (Mekala, 2004). China was also a big support to the New Partnership for African Development (NEPAD) helping them to achieve their goals on poverty, sustainable growth, globalization and the empowerment of women (New Partnership for Africa's Development, 2005).

In 2002 it was announced that China and Africa were going to establish an agricultural cooperation with benefits for both players. China would provide the technology to increase the land productivity of Africa, reduce hunger and increase jobs. Since 1987, China managed to acquire over 250 thousands of hectares of African land (see Chart 5).

On another hand, China stepped-up to fill a hole that was always left by the West: science and technological assistance. It is an area whose trade relevance is rapidly increasing. China collaborated in the emission of Nig Sat I (a Nigerian communications satellite), sent oil experts to countries such as Sudan and currently it is the only investment player in Ethiopia’s technological investment (Crabtree, 2017).

Challenges

While the Sino-African partnership may seem to have an overall net benefit for both parties, there are a couple of possible harms that need to be considered.

For example, some labour practices sustained by some Chinese companies in Africa, cause some conflict among people from the continent. Despite of a recent fall, in the 2000s the increase of Chinese workers in Africa increased substantially (see Chart 6). A lot of times, Chinese entrepreneurs almost never employ African workers in the African business segment (The opportunities and risks for textile enterprises to invest in Africa, 2006). Economically speaking, it is more profitable to employ already trained Chinese employees rather than train African workers from scratch. From a legal point of view, by employing African workers, Chinese companies are subject to the local laws, that usually are more restrict. The differences in efficiency are clear but it generates discontent among locals.

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