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China's Investments in Africa

         Date: 2012-12-14

           Tag: China, Africa, investment

Summary: It is possible that in the past several years, China was the single largest bilateral source of annual foreign direct investment (FDI) in Africa's 54 countries.

There is agreement among those who follow China-Africa relations that state-owned and private Chinese companies have become major investors in Africa over the past 10 years.  Even Chinese individuals are investing small amounts in enterprises ranging from restaurants to acupuncture clinics.  It is possible that in the past several years, China was the single largest bilateral source of annual foreign direct investment (FDI) in Africa’s 54 countries.

There is, however, considerable confusion as to what constitutes Chinese investment in Africa.  Many analyses, especially journalistic accounts, conflate investment with multi-billion dollar loans from China to African governments that often use the loans to build infrastructure by Chinese construction companies.  These loans tend to go to resource rich countries such as Angola, Democratic Republic of the Congo and Ghana and are usually repaid by shipping natural resources to China.  These loans are not FDI; they are commercial deals, albeit often with a concessionary loan component.  It is important to keep them separate from investment.

So how much have Chinese companies and individuals invested in Africa?  I have concluded that no one, including no one in China, knows the answer to this question.  For that matter, it is not even clear how China defines FDI.  China’s Minister of Commerce, Chen Deming, stated in mid-2012 that as of the end of 2011 China’s cumulative FDI in Africa “exceeded $14.7 billion, up 60 percent from 2009.”  Also in mid-2012, China’s ambassador to South Africa, Tian Xuejun, in a wide ranging speech on China-Africa relations, said: “China’s investment in Africa of various kinds exceeds $40 billion, among which $14.7 billion is direct investment.”   He did not explain the difference between investment of “various kinds” and “direct investment.”

Many scholars from China and elsewhere have looked at China’s FDI in Africa.  There is no consensus on a total cumulative number except that it is considerably higher than the official figure.  When I raised this conundrum early in 2012 in Beijing with a room full of Chinese officials, including one responsible for determining the official figure, he acknowledged the total is based only on FDI reported to the government.  He commented that many Chinese invest without government authorization and these figures do not show up in government statistics.  In addition, there is no way to ascertain how much Chinese FDI is funneled to Africa through tax shelters like Hong Kong and the Cayman Islands.  Ambassador Tian’s undefined $40 billion plus total may well be close to the actual number.

More than 2,000 Chinese companies have invested in Africa. Most of the investment has gone into energy, mining, construction and manufacturing.  China’s state-owned oil companies are active throughout the continent.  The China National Petroleum Corporation, for example, invested up to $6 billion in Sudan’s oil sector.  The China Power Investment Corporation plans to invest $6 billion in Guinea’s bauxite and alumina projects.  Privately-owned Huawei and publicly-traded ZTE have become the principal telecommunications providers in a number of African countries.  While most of their activity is sales, their operations are so large in some countries that they have established huge local offices.  Increasingly, Chinese companies are moving into finance, aviation, agriculture and even tourism.  In 2007, for example, the Industrial and Commercial Bank of China purchased 20 percent of South Africa’s Standard Bank for $5.5 billion. Ever since, China has invested increasingly in the financial sector of African countries.

The bulk of China’s FDI has been concentrated in a relatively few countries.  Between 2003 and 2007, five countries—Nigeria, South Africa, Sudan, Algeria and Zambia—accounted for more than 70 percent of China’s FDI.  While these countries remain important recipients, others such as Guinea, Ghana, Democratic Republic of the Congo and Ethiopia have joined the list in recent years.  In 2010, Ethiopia had, for example, 580 registered Chinese companies operating with estimated investment capital of $2.2 billion.  Some of this new FDI is coming thru Chinese special economic and trade cooperation zones.  China is working with African counterparts to establish seven of them: two each in Zambia and Nigeria and one in Mauritius, Egypt and Ethiopia.

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