Introduction
Africa has been and remains the subject of debate and controversy of large countries. Over the years, the composition of the global players and their methods change, but the price of “African cake” only increases. The last 15 years for many African countries have been marked by the strengthening of trade relations with China, which has today become a major investor. Unlike European countries, which, guided by a complex of guilt for a colonial past of the continent, has long been focused on humanitarian aid and the reduction of African debt, China immediately made an emphasis on trade and investment. This led to the fact that from the continent, dependent on humanitarian aid, Africa has overnight become a continent, dependent on private investment. China’s interest in Africa is absolutely clear. The region has vast reserves of natural resources, about 60% of uncultivated agricultural land, a huge internal market with rising purchasing power and an army of potential and, moreover, low-wage workers (Pigato and Tang, 2015).
Therefore, today, China is the largest trading partner of Africa, as well as one of the main investors in the African continent. Thanks to the development of infrastructure projects and financing in Africa, China creates more favorable conditions for its own interests. The question of what determines the success of China in Africa relates not only to study of the successful experience of a foreign country in a globalized world on the subject of the use of this experience, but also to the “new world order” that currently China tries to approve in Africa (Chen and Heiwai, 2014). The current model of the emerging Chinese domination in Africa inherently contains certain common historical destiny of the Chinese and Africans opposed to “Western imperialism”. The Chinese in Africa position themselves as part of the anti-Western (developing) world. However, with the caveat that they are today, for obvious reasons, are no longer so poor and oppressed, and can even act as a leader of this world. This role, as known, requires helping others and sharing with them the fruits of their success. The purpose of the paper is to analyze the economic impact of Chinese investment in Africa. It is necessary to discuss the role, which China plays in the African continent, present statistics of Chinese investments and make proper conclusions on the further cooperation between Africa and China.
Literature Review
China’s African policy began 600 years ago from visits of ships of Admiral Zheng He to the east coast of Africa, but for many centuries, these contacts neither left any noticeable trace in the development of Africa, nor in the history of China. China began to actively penetrate into Africa in the late 50-ies of XX century. If in the 1990s, the main objective of China was to obtain access to the mineral resources of the penetration in Africa, in the 2000s, China’s presence in Africa has reached a new wide-ranging and systematic level. China has engaged in Africa at the same time all its resources, namely financial, economic, technological, humanitarian, historical, ideological, political, diplomatic, and more recently even military (Pigato and Tang, 2015). Virtually no state left in Africa that has not felt the influence of China. The main motives of the Chinese economic expansion in Africa at the beginning of this century are to master the sources of raw materials; find areas of investment applications, thus getting rid of the falling dollar and US government securities and replace them with raw material assets; solve the problem of excess population due to the transformation of the Chinese workers in Africa; and develop African markets for sale of Chinese products (Chen and Heiwai, 2014).
China’s investments are allocated for such relatively rich countries of the continent as Nigeria and South Africa, and less wealthy countries such as Ethiopia, Kenya and Uganda. For example, South Africa and China signed 26 agreements on cooperation worth about $6.5 billion. Documents relate to the priority areas of cooperation, such as industrialization, special economic zones, infrastructure, access to credit, and others. The trade turnover between the two countries reached $60.3 billion last year, and China’s investment in the leading economy of the African continent made up $13 billion (Chutel, 2015).
In addition, China is present not only in the oil or resource African market. The principle of the Sino-African cooperation is characterized by the exchange of goods and resources for infrastructure development (Kuo, 2015). So, in addition to exports to the country, which includes oil, gas, copper, aluminum and agricultural products, the Chinese private companies provide rail service in Eastern and Central Africa, are engaged in the construction of major energy projects, the establishment of telecommunications networks, etc. Chinese company Huawei Technology provides communication in countries such as Nigeria, Kenya and Zimbabwe. ZTE Company invests in the modernization of the television and the telephone network in Africa. Recently Wechat Africa Company, a subsidiary of China’s largest WeChat messenger, announced for funding 3.48 million in technical startups in Africa to support and stimulate the development of the continent technologies (UNCTAD, 2015).
It is worth mentioning that Huawei Technologies opened five training centers in Egypt, Tunisia, Kenya, Nigeria and South Africa. To date, China has invested in two thousand African projects, including agriculture, infrastructure facilities, manufacturing, resource development, finance, trade and logistics (Wharton University of Pennsylvania, 2016). The largest investment of the main Asian tiger in the continent economy was a contract for the construction of the railway in Nigeria, which would take place along the coast of the African country. Construction will cost Chinese investors solid $11.97 billion. The state construction company China Railway Construction Corporation Limited (CRCC) was assigned as contractor. Nigerian Railway is a vivid example of the presence of China on the continent, which increasingly invests in its economy (Mitchell, 2014).
There are two special economic zones of China-Africa economic cooperation based in Nigeria. In each of the zones, more than a dozen of Chinese companies, in which both Chinese and African employees work, operate. Ogun is characterized by the manufacture of building materials, ceramics, hardware, accessories, food, computers and medical devices. Lekki is characterized by the production in the transport equipment, textiles, home appliances and telecommunications. However, there are more special economic zones in Zambia, Mauritius, Egypt and Ethiopia (International Poverty Reduction Center in China, 2015).
Direct Chinese investment in African countries increased from $500 million in 2003 to nearly $15 billion in 2012, and in 2014 loans for infrastructure development of sub-Saharan Africa reached $26 billion (Kuo, 2015). China exports a wide range of machinery and transport equipment, communications equipment and electronics to African countries (UNCTAD, 2015). Chinese oil companies try to establish a joint venture in Madagascar to exploit newly discovered oil reserves of the island. After Equatorial Guinea has become a major oil producer, the cooperation between Malabo and Beijing began to actively develop. The country operates a number of Chinese companies involved in the production of hydrocarbons, building and public works (Pigato and Tang, 2015).
Thus, contrary to popular belief that all areas of cooperation with African countries are already fully considered, the Chinese were able to find free niches here and fill them with efforts of their business with the active support of the state. The Chinese companies expect to turn in the XXI century into transnational, and Africa can be regarded by them as a test field for this task (UNCTAD, 2015).
Methodology
The selection of method for conducting a research is based on a strong announcement of objectives and aims of the paper analysis, on the consideration of the details of information being examined and approaches of various types of analysis. The set of particular theoretical values, terms, logical approaches and special techniques of exploration is entitled methodology (Ruane, 2005).
During the completion of the research, the secondary sources of data were applied to examine theory and empirical information. Necessary information was taken from UNCTAD and World Bank reports. Articles from Forbes and Financial Times on China’s investment in Africa were considered. The collection of information from primary sources (prepared questionnaires will be sent to companies’ management and received answers will be processed properly) and secondary documents gives reliable, objective-driven, fast and comparatively economical access to essential statistics.
In modern empirical studies, the existence of the positive impact of FDI on country-recipient and negative on other companies in the same industries is noted. Positive impact on local companies without foreign ownership is observed only from suppliers of TNCs (transnational corporations). In addition, the more country becomes developed, the less differences in the activities of the two groups of companies are manifested (Kurtishi-Kastrati, 2013).
where
Y is the total annual sales volume; i is the firm’s index; L is the number of permanent staff over the year; K is the total annual balance sheet value of fixed assets; M is the total annual cost of materials and components; FDI is dummy, the presence of the foreign co-owner is expressed by “1”; FDIs is alternative variable for FDI, the share of foreign ownership in the capital; and REG is dummy equal “1”, if the firm operates in the Southern region. As an additional variable, presumably affecting the performance of enterprises, EDU (the proportion of employees with higher education) will be used. The data will be assessed on the basis of received answers from respondents (two African companies-recipients of Chinese investments in South Africa and Nigeria). Application of regression analysis shows that Chinese companies have positive impact on the performance of African recipient companies, regardless of ownership interest. It is noteworthy that a high proportion of employees with higher education in the company is significant “factor of production”. Location of the company in the Southern region is “conditionally” significant.
Ethical Considerations
China’s influence on Africa is very different from the effect on it by the West by the fact that the Chinese influence combines commercial and social side, namely Chinese “harmony” cannot fail to attract African people and their leaders. Popularity of Chinese assistance is obvious in health care. China supports African integration. Even when African countries were fighting for national independence and the establishment of their statehood, China helped many of them with weapons and experts, China organized the Block of Southern countries (Chen and Heiwai, 2014). Today, Chinese companies and financial institutions take part in transnational and trans-regional infrastructure development of Africa (Klasa, 2015). Thus, China has made great strides in Africa due to its huge financial resources, elaborated comprehensive strategy, support for the integration process, sophisticated diplomacy, creation of new institutions to facilitate trade and economic cooperation with African countries, simplicity and justice of aid environment (Kuo, 2015).
Timeline (Gantt chart)
References
Chen, W. and Heiwai, T. (2014). The Dragon is Flying West: Micro-level Evidence of Chinese Outward Direct Investment, Asian Development Review, 31(2), pp. 109-140.
Chutel, L. (2015). Chinese president in South Africa to discuss trade. Daily Herald. [online]. Available December 2, 2015, from <http://www.dailyherald.com/article/20151202/business/312029847/> [Accessed: 30 March 2016]
International Poverty Reduction Center in China (2015). Comparative Study on Special Economic Zones in Africa and China. [online]. Available from <http://www.cn.undp.org/content/dam/china/docs/Publications/UNDP-CH-Comparative%20Study%20on%20SEZs%20in%20Africa%20and%20China%20-%20ENG.pdf> [Accessed: 30 March 2016]
Klasa, A. (2015). Chinese investment in Africa plunges 84%. Financial Times. [online]. Available October 21, 2015, from: <http://www.ft.com/intl/cms/s/3/10648918-773b-11e5-a95a-27d368e1ddf7.htmlf> [Accessed: 30 March 2016]
Kuo, S. (2015). China’s Investment In Africa – The African Perspective. Forbes. [online]. Available July 8, 2015, from: <http://www.forbes.com/sites/riskmap/2015/07/08/chinas-investment-in-africa-the-african-perspective/#62e584016e2c> [Accessed: 30 March 2016]
Kurtishi-Kastrati, S. (2013). The Effects of Foreign Direct Investments for Host Country’s Economy, European Journal of Interdisciplinary Studies, 5(1), p. 26-38.
Mitchell, T. (2014). China rail group signs $12bn Nigeria deal. Financial Times. [online]. Available November 20, 2014, from: <http://www.ft.com/intl/cms/s/0/259e9c42-7098-11e4-8113-00144feabdc0.html> [Accessed: 30 March 2016]
Pigato, M. and Tang, W. (2015). China and Africa: Expanding Economic Ties in an Evolving Global Context. [online]. Available from: <http://www.worldbank.org/content/dam/Worldbank/Event/Africa/Investing%20in%20Africa%20Forum/2015/investing-in-africa-forum-china-and-africa-expanding-economic-ties-in-an-evolving-global-context.pdf> [Accessed: 30 March 2016]
Ruane, J. M. (2005). Essentials of Research Methods: A Guide to Social Research. Oxford: Blackwell.
UNCTAD (2015). World Investment Report. [online]. Available from: <http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf> [Accessed: 30 March 2016]
Wharton University of Pennsylvania (2016). China’s Investments in Africa: What’s the Real Story? [online]. Available January 19, 2016, from: <http://knowledge.wharton.upenn.edu/article/chinas-investments-in-africa-whats-the-real-story/> [Accessed: 30 March 2016]
