As the camera pans in on the glamorous Kenyan presenter of Africa Live, all the hallmarks of an African current affairs programme are evident: flashing clips of grey-suited politicians in cabinet meetings, grandiose company-openings in leafy suburbs, and stern-faced troops poised for military combat in rural terrain. Except this was a Chinese state-sponsored broadcast, taking place in a Chinese-owned news station.
When in 2010 China Central Television opened its first bureau in Kenya’s capital, Nairobi, to great fanfare, its officials pledged to "get inside the real Africa". Two years later, the Chinese state-owned news station expanded its office and increased its employee base from 12 to 50 people. By December 2012, fresh copies of Chinese state-owned China Daily rolled off the printing presses in Nairobi, signalling the launch of China’s first weekly magazine in Africa.
China’s state-owned media has been at the helm of its charm offensive in Africa. Although China overtook the US to become Africa’s biggest trade partner in 2009, local reception to its enterprises have been marred by distrust and suspicion. The killing of a Chinese manager in the Chinese-owned Collum Coal Mine in Sinazongwe, Zambia, following riots by local miners over low wages in August 2012, laid bare tensions between China’s businesses and local African interests. Keen to rebuff critics who see Beijing’s presence in Africa as an exploitative one, China's media has been part of the country’s drive to soften its image in Africa.
China is Africa’s most important strategic partner. Between 2000 and 2010, trade grew more than 10-fold, and South Africa's Standard Bank estimates that in 2012 trade between the two stood at $200bn. The number of greenfield projects in Africa has also been on the rise, and greenfield investment monitor fDi Markets found that the number of Chinese projects in Africa rose from 12 projects worth $5.5bn in 2003, to 35 projects worth $1.8bn in 2012.
China’s double-digit growth over the past two decades has been partly sustained by imports of raw commodities from Africa. fDi Markets data reveals that between 2003 and 2013, the coal, oil and natural gas sector has received the highest amount of greenfield investments, worth $24.5bn. China’s demand for the continent’s natural resources, ranging from Angola’s oil and South Africa’s steel to the Democratic Republic of the Congo’s (DRC) copper, has enabled it to fuel its urbanisation, as well as export its consumer goods to the world’s markets.
So significant is this boom in trade for Africa that for every 1% rise in China’s GDP, the GDP of low-income African countries such as the DRC, Guinea and Mali rises by 0.3%, according to the Organisation for Economic Co-operation and Development. “China has been developing a lot of resource projects in various African countries,” says Ann Russell-Cook, underwriter in political risk and trade credit at the specialist insurance firm Beazley. “It has invested a lot in Africa.”
Yet China’s growth is waning. Its export-led economic model, which enabled its GDP to reach a peak growth of 14.7% in 2007, brought with it its own distortions. As its rapid growth has elevated millions of citizens from poverty to the ranks of the middle classes, an expanding cadre of Chinese workers have begun demanding higher wages.
The alignment of this internal pressure, combined with declining global demand for China’s exports following the 2008 financial crisis, culminated in the government’s decision in 2011 to shift its economic policy away from an export-focused model. Although Africa has benefited from China’s appetite for commodities, in a recent report Beazley maintains that China’s economic restructuring towards a more domestically driven growth could harm Africa’s economic prospects.
“In 10 years, the demand for commodities will slow in China as its economic model begins to shift to a less industry-heavy one and policies to improve efficiency also weigh down on demand,” says Elizabeth Stephens, head of credit and political risk analysis at insurance brokers Jardine Lloyd Thompson.
Today, China accounts for 20% of Africa’s trade and most of its investments have gone to resource-rich countries such as Nigeria, Zambia and the DRC. Yet the effects of China’s economic rebalancing have become visible already. China’s imports of copper, steel and aluminium slumped by 29%, 54% and 60%, respectively, in the first 10 months of 2012, according to Standard Bank. As African countries adjust to this new reality, Beazley maintains that they “anticipate a degree of economic and political instability” among their principal trading partners.
A new focus
As China’s economy shifts towards a domestically driven growth model, it is inevitable that its demand for Africa’s resources will decrease. Yet Ms Russell-Cook contends that it would be a mistake to assume that China’s investments in Africa will decline. In fact, rising input costs and a slowly depreciating renminbi are creating new opportunities for Africa’s markets, as Chinese businesses start to look to Africa as a cheaper outsourcing destination. “With the [rising] cost of labour in Asia, Chinese manufacturers may look to Africa to produce more cheaply,” says Ms Russell-Cook. “This is very beneficial for Africa as outsourcing will be a logical development. China needs cheaper labour resources, which happen to be in Africa.”
The high-tech industry will be a key pillar in Beijing’s economic restructuring, as the Chinese government has highlighted its integral role in powering a domestically driven market. The government has actively encouraged its enterprises to move up the manufacturing value chain, and as it shifts its focus away from low-end manufacturing, Africa could become a significant outsourcing destination for Chinese businesses involved in textiles and light manufacturing. This, coupled with the fact that Africa is home to the world’s fastest growing middle class, means Africa’s appeal as an export destination will increase.
“In the past, China saw Africa as a pot of gold in terms of its resources,” says Dr Guo Yu, senior China analyst at risk analysis firm Maplecroft. “Yet China now sees Africa as a rapidly expanding market which has a great potential in terms of its consumption and production of goods. Similar to the situation 20 years ago when Western countries saw China as a high-potential market, in coming years Chinese companies will see Africa as an equally high-potential market for investment.”
Indeed, data from fDi Markets reveals that Chinese investment into Africa is becoming increasingly diversified and, in recent years, the manufacturing sector has gained a greater share of FDI. Between 2003 and 2012, manufacturing was the top business activity that received the most FDI, worth $24.7bn, yet a closer look at the data reveals that project volume actually peaked in 2008 when 14 projects were tracked. This shows that the 2008 financial crisis significantly eroded the competitiveness of producing goods in China and, as a result, Chinese enterprises began opting for cheaper locations in Africa. FDI into manufacturing has remained relatively constant, as Africa received 12 and 13 manufacturing projects in 2011 and 2012, respectively.
Rare earth materials
For Ms Russell-Cook, China’s economic restructuring will actually result in more FDI in non-traditional sectors across Africa. “The middle class in China is going to demand more high-tech and sophisticated machinery,” she says. “There is a major technology race and China is working to develop its competitiveness, so China will also likely become a net importer of rare earths.”
Rare earth materials, which are an essential component of electronic devices ranging from mobile phones to rechargeable batteries and iPod headphones, will be of strategic value to China’s future. Thus, African countries such as the DRC, which holds 80% of the world’s reserves of coltan, a mineral used in electronic devices, stand to benefit from this shift in policy.
“In the next five years, we expect to see China move into textiles and manufacturing in Africa,” says Ms Russell-Cook. “Also, some mineral resources such as rare earths will be a focus for China. Last year, the country doubled its credit line to Africa by another $20bn and the new president [Xi Jinping] pledged his continued support to the continent. I think that indicates how high China holds Africa on its agenda.”