Raising the Red Lantern: Taming the Lion - Part 1

In a mere two decades, China has become Africa’s biggest economic partner. Across trade, investment, infrastructure financing, and aid, there is no other country with such depth and breadth of engagement in Africa. The Chinese “dragons”—firms of all sizes and sectors—are bringing capital investment, management know-how, and entrepreneurial energy to every corner of the continent—and in so doing, they are helping to accelerate the progress of Africa’s “lions,” as its economies are often referred to. Yet to date, it has been challenging to understand the full extent of the Africa-China economic relationship due to a paucity of data. These investments have lead to more than 1,000 Chinese firms and factories spread across eight African countries that together make up approximately two-thirds of SubSaharan Africa’s gross domestic product (GDP).

Chinese firms operate across many sectors of the African economy. Nearly a third are involved in manufacturing, a quarter in services, and around a fifth in trade and in construction and real estate. In manufacturing, we estimate that 12 percent of Africa’s industrial production—valued at some $500 billion a year in total—is already handled by Chinese firms. In infrastructure, Chinese firms’ dominance is even more pronounced, and they claim nearly 50 percent of Africa’s internationally contracted construction market. The firms we talked to are profitable; nearly one-third of them reported 2015 profit margins of more than 20 percent. They are also agile and quick to adapt to new opportunities. Except in a few countries such as Ethiopia, they are primarily focused on serving the needs of Africa’s fast-growing markets rather than on exports.

What of the years ahead? An overwhelming 74 percent of Chinese firms said they feel optimistic about the future. Reflecting this, most Chinese firms have made investments that represent a long-term commitment to Africa rather than shallower trading or contracting activities.

Ethiopia and South Africa have a clear strategic posture toward China, along with a high degree of economic engagement in the form of investment, trade, loans, and aid. For example, both countries have translated their national economic development strategies into specific initiatives related to China, and they have also developed important relationships with Chinese provinces in addition to with Beijing. As a result, China sees these African countries as true partners: reliably engaged and strategic for China’s economic and political interests. These countries have also created a strong platform for continued Chinese engagement through prominent participation in such forums as the Belt and Road initiative (previously known as One Belt, One Road), and they can therefore expect to see ongoing rapid growth in Chinese investment.

This dance will be a riveting—and important—one to watch, as a better and brighter future for the continent will need to involve Chinese partnership and participation.