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July 25, 2012

Is Africa the Next China?

Africa’s commodities boom could be the spark that turns this impoverished continent into the next China. But there is still much to be done to make Africa a global driver of growth.

Rebecca McReynolds

A decade ago, Africa was viewed by the West as a problem that needed to be solved. But now Africa is increasingly being seen as a valuable business partner with which developed countries want to engage.

That’s due in large part to investment by China, says Greg Mills, director of The Brenthurst Foundation, a South African–based nonprofit that promotes economic development across the continent. China’s overseas direct investment (ODI) has played a leading role in shaping the continent’s new image, he says.

At a recent public forum, sponsored by the Chazen Institute, on the economic and political impact of China’s overseas direct investment, Mills explained China’s pivotal role in Africa’s recent gains and what the consequences might be for other countries.

Capitalizing on Opportunities

Between 1995 and 2010, China’s trade with Africa grew from less than $5 billion to more than $130 billion. Most of that investment has been driven by China’s demand for Africa’s natural resources — China imports 1.5 billion barrels of African oil every day — but those numbers tell only part of the story, Mill says.

Africa is often viewed as a single entity, but the continent is home to 55 sovereign countries with varying degrees of democracy and very different market structures. Some have deep ports for easy trade. Others are land locked. Some are attracting outside investment with their plentiful natural resources. Others are dependent on their neighbors for everything from food and water to building materials, but offer manufacturers plenty of inexpensive labor.

In short, there is no single impetus for investment. As a result, Chinese business interests in Africa are increasingly disparate, Mills says. For example, there are no longer just a few large, Chinese state-owned enterprises (SOEs) bidding for government construction contracts. A growing number of independent Chinese companies are now competing against SOEs and other international firms for a wide variety of both government and private projects.

What’s Next

Africa’s history is littered with economic booms that went bust, often leaving the local populations worse off than before outsiders arrived. The question to be wrestled with now is whether things will end differently this time. “Will it leave behind better infrastructure, better government, and better systems?” he asks.

This is a pressing question because two-thirds of Africa’s population is under the age of 25, and by 2025, one in four young people in the world will live in sub-Saharan Africa. “We have enormous pressure to provide jobs for this group of young people, many of whom have had their expectations formed by the world outside, and many of whom are unemployed or work in vulnerable employment,” Mills says.

Going forward, African states need to look beyond the current extraction cycle and focus on building long-term partnerships with China, and other potential foreign investors, that will generate sustainable economic development. If managed correctly, today’s commodities boom could be the spark that turns Africa into the next China, Mills says. But there is still a lot of work to be done by all parties involved before Africa can become the next global driver of growth, Mills adds. Toward that end he offers three pieces of advice:

For the West: Experience has shown that China is looking for the same things as any other ODI investor: credibility, reliability of supplies, and partnerships. Although Chinese ODI in Africa is often viewed as a way to gain a monopoly on Africa’s rich natural resources, “we have to cut out the hyperbole, chauvinism, and cliché,” Mills says.

For China: Mills urges Chinese leaders to continue pushing that country’s open-market reforms, and warns them against getting involved in African politics. “History shows that Africa has a way of resisting and rejecting imperialism,” he says. “And regimes with good governance are useful for guaranteeing investment whether they are from China or the West.”

For Africa: Mills tells his fellow Africans: “We can’t expect China or anyone else to act according to our interests, It’s very important for us to get our house together, to take a more nuanced view of China, and to try to get as much out of our relationship as possible for the long term.”

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