November 19, 2017

Chinese rake in $200 billion from African investments

This is how it is done for us
There are over 10,000 Chinese firms operating in Africa, four times the previous estimate.

June 30—The dominance of Chinese companies in sub-Saharan Africa has been given some clarity in a McKinsey Africa report out this week, that says collectively they are raking in nearly $200 billion a year in revenues. But China is still Africa’s single biggest investor.

In Uganda’s case while the country imports goods nearly worth $900 million annually, its exports to China are still well below $100 million, which is a similar situation with many other African countries dealing with China.

Through a study conducted across eight countries that together make up about two-thirds of sub-Saharan Africa’s GDP,  McKinsey report finds that there are already over 10,000 Chinese firms operating in Africa—four times the previous estimate.

Kartik Jayaram, a senior partner and co-author of the report said, “Chinese engagement with Africa is set to accelerate—by 2025 Chinese firms could be earning revenues worth $440 billion, from $180 billion today.

He said, “Additional industries could be in play for Chinese investment, including technology, housing, agriculture, financial services and transport and logistics. However, to unlock the full potential of the China-Africa partnership, we have identified 10 recommendations for Chinese and African governments as well as the private sector. To highlight two key ones—African goverments should have a China strategy and the Chinese government should open financing and provide guidance to Chinese firms.”

The Chinese trade imbalance with Africa is worsened by the fact that only 47% of Chinese firms’ sourcing was from local African firms, which is lost opportunity for these firms to benefit from Chinese investment.

McKinsey also found that too few locals are in managerial positions, (only 44 percent today, but in response the Chinese cite personal safety and corruption in some countries as their top concerns.

Other factors that remain sore points include language and cultural barriers together with instances of labour and environmental violations by Chinese firms.

Most of the Chinese companies are privately owned coming in all sizes and operating in diverse sectors, with about a third in manufacturing. These firms are bringing capital investment, management know-how and entreprenuerial energy to the continent, and in so doing, are helping to accelerate the progress of Africa’s economies.

Across trade, investment, infrastructure, financing and aid, China is a top five partner to Africa—no other country matches this level of engagement. The China-Africa relationship has ramped up over the past decade with trade growing at around 20 percent per annum. FDI has grown even faster—at an annual growth rate of 40 percent.

China’s financial flows to Africa are 15 percent larger than official figures suggest when nontraditional flows are included. China is also a large and fast-growing source of aid and the largest source of infrastructure financing, supporting many of Africa’s most ambitious infrastructure developments in recent years.

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