Raising The Red Lantern Part 4: 众人拾柴火焰高

众人拾柴火焰高

The fire burns high when everyone brings wood to it - Chinese proverb.

The private sector: Taking the Africa-China partnership to new heights As Chinese firms become a more prominent and permanent presence in African economies, there are exciting growth opportunities for both Chinese- and African-owned businesses.

As discussed earlier, Chinese firms can accelerate the growth of their own revenues—and of the broader economy—by developing new businesses in new sectors. Very often, the way to unlock these opportunities is to deepen collaboration between Chinese firms and their African suppliers, customers, and partners. We recommend three actions in particular. 6. Chinese firms can explore new market entry strategies. To date, the vast majority of Chinese investments in Africa have been greenfield investments, and only 12 percent of those investments are set up as joint ventures. This current state is in part due to the sectors Chinese firms have invested in to date: Chinese manufacturers and construction contractors find little use for local partners that may be less efficient and more expensive.

As Chinese investment expands into new sectors of investment, there will be a need to consider greenfield investment approaches. These new sectors of opportunity are characterized by incumbent firms in Africa with local market knowledge, substantial market share, and strong connections. In this regard, we believe the Industrial and Commercial Bank of China’s 20 percent stake in South Africa-based Standard Bank could be the herald of much more to come. Chinese banks seeking higher returns internationally can look to the slate of well-run African banks as acquisition targets. Another opportunity is in tech-enabled microsavings, microfinance, and microinsurance to reach the masses of unbanked and underbanked consumers and small businesses in Africa. Here, a mash-up of Chinese and African digital consumer finance models—for example, matching Alibaba’s small business services with the risk assessment intellectual property of Discovery, a pioneering South Africa-based health insurer—have the potential to create startlingly innovative models for financial inclusion.

The Chinese government can extend responsible business guidelines to private Chinese firms. If the Chinese government extends the availability of financing to private firms, it can also expect those firms to follow higher standards for responsible business. Private Chinese firms are typically nimble, decisive, and quick to localize, yet they can also be prone to insufficient due diligence, an ignorance of local regulations, and a tendency to cut corners. Even as it unleashes the energy of the private sector in Africa, the Chinese government should work to encourage better business practices in its private-sector companies operating there. As discussed in this chapter, corruption is common in the interactions between Chinese firms and African officials in several African countries, and on this issue, China could do more to lead the fight against corruption.

The Chinese government has a blueprint it could follow: it has already issued multiple guidelines for SOEs, including the 2007 Guidelines to the state-owned enterprises directly under the central government on fulfilling corporate social responsibilities.53 In addition, President Xi Jinping has led a highly publicized push within China to root out corruption domestically—an effort that has involved outlining limits for appropriate business dinners, gifts, and other business expenses for SOEs. The government should now consider extending these guidelines to the Chinese private sector as well. In addition, the Chinese consular offices should work with Chinese business associations in each African country to disseminate these guidelines and train firms on their application.

Beyond the country level, African leaders should consider regional strategies: on select issues such as trade, regional associations such as the East African Community (EAC), the Economic Community of West African States (ECOWAS), and the South African Development Community (SADC) may be more effective vehicles to advance collaboration on a more level playing field with China. In addition, regional bodies such as the African Development Bank and the African Union may play a role in encouraging cross-country initiatives, such as those on industrialization and infrastructure development.