Africa goes Chinese. All over the continent Chinese companies are investing their money. Mines are being opened, roads are being made, and trains are starting to run. The results seem staggering: after decades of sluggish economic growth, Africa finally has its long-awaited economic boom. The question is how long this boom can last. Chinese investments mainly focus on the extraction of raw materials, and no attention to capacity building is paid. Understandably, many thus point to China as a neo-colonial power, exploiting Africa. Whether China’s presence will be Africa’s economic blessing or curse depends as much on African leadership as it does on China.
Africa’s post-independence economic experience was a nightmare. Due to war, political struggles and bureaucratic inefficiency, the continent went through decades of negative economic growth. Countries like the Central African Republic, the Democratic Republic of the Congo, the Ivory Coast, Liberia, Niger, Senegal, Zambia, and Zimbabwe are all poorer today than in 1960. Most countries have not upgraded their infrastructure since they became independent, and even basic facilities such as power grids or road networks are highly unreliable.
This underdevelopment made China a very welcome guest. Chinese companies opened a uranium mine in Namibia, built a railway line from Ethiopia to Djibouti, created a hydroelectric power station in Guinea, and paved a 1000 kilometre long freeway in Algeria. Hundreds of comparable projects are being built as we speak. Now, finally, Africa can get its basic infrastructure, something it would never be able to achieve on its own.
The results of China’s involvement are striking. After decades of economic decline, Africa’s per capita growth rate has reached 3 percent annually since 2000 – outperforming Latin America, who were not doing badly either. Some even talk about an “African growth miracle” that may be able to take millions out of poverty.
But there are reasons to be less optimistic. The African countries do not get all the infrastructure projects for free. China offers “soft loans” so countries can pay for the projects themselves. Those soft loans have to be paid back through raw materials. China improves a country’s infrastructure, and in return wants oil, uranium, diamonds, or gold. For example, in exchange for building a train line in northern Namibia, China was allowed to exploit a uranium mine at favourable prices. China is heavily investing in the continent, but mainly because it needs Africa’s raw materials.
This focus on the extraction of resources is problematic. African countries become increasingly dependent on the export of raw materials. In 2016, more than 90 percent of Congo’s exports were raw materials, and 60 percent of Botswana’s foreign trade involves diamonds. This makes these countries vulnerable to economic shocks. If the price of diamonds goes down in a global recession or if the mines dry up, Botswana will have a significant problem.
Now that African countries get rich through their raw materials, corrupt elites have no incentive to change their country’s institutions. With a booming economy, the status quo seems sufficient for the masses, and perfect for the elite. In this case, that means that the rich get richer while the poor remain quite poor. Equatorial Guinea is a textbook example of such kleptocracy: thanks to its oil reserves, it is Africa’s richest country, but “poverty thrives“. When the oil is gone, the country will have no industrial capacity to produce anything, and will remain poor.
China’s involvement in Africa could have some value if attention were paid to capacity building, but it is not. Chinese companies hiring local people would teach Africans how to build roads, produce cheap manufactured goods for world markets, and use Chinese technologies. Instead, many Chinese firms choose to use Chinese workers, and thus do not teach anything to local populations. Not only is Chinese labour much cheaper than expensive African workers, Chinese workers are also more productive and have better technological skills. In the eyes of the Chinese, educating African workers would not only be time-consuming, but also only lead to cultural misunderstandings. Instead, thousands of Chinese are flown in, taking with them Sichuanese restaurants and Chairman Mao Zedong High Schools.
With a limited transfer of skills, African firms find it difficult to compete with Chinese companies. Thanks to China’s investment projects, Africa is better connected with the world than ever. In theory, this opens up a chance for African factories, who can export low-tech goods to the rest of the world. The problem however is that they cannot compete with Chinese products, which are not only of better quality, but also cheaper. African producers of simple products such as garments, shoes, and ceramics could not survive against Chinese competition. The result is daunting: Africa is actually prematurely deindustrializing, as the industrial sector share of Africa’s economy has decreased. Unfortunately for Africa, no country has ever developed while it was also deindustrializing.
Does this all mean that Africa is lost, thanks to China’s huge investment projects? No, not per se. Africa cannot compete with China today, but it might be able to do so in the future. Wages in China are increasing rapidly. In Africa, on the other hand, wages are stagnating as urban populations continue to rise quickly. In a few years, Africa might thus become competitive with a country like China. Then, it will at least have the infrastructure it needs.
Moreover, whether Chinese investments in Africa are a blessing or a curse depends as much on Africa as it does on China. Individually, African nations are weak in the face of a powerful China. Yet, if the nations work together they might set a minimum standard for Chinese investments. This minimum standard should include that Chinese firms have to employ African workers, and share at least some of its basic technologies. China should be able to understand these basic demands, as it sets the same kind of rules for Western companies investing in China. Getting a minimum standard accepted is thus not wholly unlikely, but African initiatives to achieve this are at least uninspiring. China presents its investments as a gift, but they are not. They are an economic deal, and to turn this into a fair deal, African nations should start working together.
If African leaders are able to set the required minimum standards, it is good to give Chinese investments a try – even when they might not bring the promised rewards. Western development strategies have all but failed, and humanitarian aid has done little to improve the economic situation in the recipient countries. Chinese investments in Africa are a mixed blessing, but whether it will be a curse depends as much on Africa as it does on China.