China’s Fortune Cookie says: Invest in Africa

 

China in Africa, photograph from capitaleritrea.com
China in Africa, photograph from capitaleritrea.com

 

While the U.S. is struggling with its economy,  China seems to be enduring the global economic downturn quite well.  According to OECD’s Perspectives on Global Development 2010 Report, the current economic situation in the world has provided China with investment opportunities abroad.  Since mid-2009, China has increased its investment in Africa by 81% and considers Africa to be a “long-term strategic investment” necessary for success in the global market.

Chinese firms are already adapting to the local African markets and working in the unstable parts of the continent.    According to ComputerWorld Uganda, China has started handing out development packages that sound much like a Payless annual BOGO sale: “buy telecommunications equipment and get a development loan free!” The gimmick? To receive development aid from China, African governments can only purchase telecom equipment from China.

The rise of China’s telecom industry is worth noting.  China has already expanded its telecom sources into Egypt, Algeria, Tunisia, Kenya, Nigeria, South Africa, and recently in Zimbabwe.  Companies like Huawei Technologies and Zhongxing Telecom Ltd. are the most prominent in these countries, both of which have ties to the  country’s military and intelligence.

China of course is not the only emerging economy tapping into Africa’s resources. The government of India has already invested $125 million in Zambia, Ethiopia, Mauritius and Ghana, but China remains in the lead. Why? China’s “buy equipment, get development free” deals seem to be working.  India is also developing facilities in these countries, but will pull out after 5 years and expects African governments to purchase discounted telecom equipment from India thereafter.  But why is India lagging behind?  According to Anjana Pasricha at the India Africa Summit, “India will invest $500 million in development projects in Africa, in the next five years. It will also double financial credit to African countries from about two-billion dollars during the past five years to $5.4 billion.”  These figures are not comparable to China’s.  Annually, China will invest $60 billion dollars.  Nicholas van de Walle’s in his review of Harry G. Broadman’s book, Africa’s Silk Road: China and India’s New Economic Frontier, notes India’s private sector is competing against China’s government-to-government agreements.  “Indian economic interests in the region seem piecemeal and merely the decentralized results of the independent decisions of many small, family-owned firms, some of which have had interests in Africa for decades. On the other hand, it seems clear that Chinese imports from and investments in the region are part of a fairly recent and well-integrated geopolitical strategy”

China has already started providing development loans to its constituent countries, such as supporting agribusiness in Sudan.  The most recent country to sign a contract with China is Zimbabwe.  Zimbabwe signed a $45 million deal to replace the faltering telecom operating system, NetOne, with 2G and 3G coverage.  According to the World Economic Forum Global Competitiveness Report, Zimbabwe is currently ranked 132 out of 135 in technology readiness.  The project is supposed to benefit the country by boosting  its technological readiness scores and enable Zimbabwe to move to 3G and 4G.

With all these financial transfers from China to Africa, experts are beginning to question the effectiveness of such “aid”.  Deborah Brautigam, in an interview on AidWatch, claims that Chinese aid is weak and unreliable, and that there is no tangible evidence or statistics indicating that these countries are doing well from the loans provided by China.  Although Chinese business investments are transforming Africa’s current technological landscape with mobile calling and cellular devices across Africa,  “this is not aid.”

However,  finding good statistical evidence for aid effectiveness, whether its from China or not, is difficult in itself. 

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