RENEW Strategies

What about China in Africa?

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Renata Makhoul
| July 26, 2017

In June 2017, McKinsey & Company published a report, "Dance of the lions and dragons: How are Africa and China engaging, and how will the partnership evolve?" about the Chinese presence in Africa.

The report analyzes data from on-site interviews with more than 100 senior African business and government leaders, as well as the owners or managers of more than 1,000 Chinese firms and factories spread across eight African countries. Together, they make up approximately two-thirds of Sub- Saharan Africa’s gross domestic product (GDP).

McKinsey evaluated Africa’s economic partnerships with the rest of the world across five dimensions: trade, investment stock, investment growth, infrastructure financing, and aid. China is in the top four for Africa in all these dimensions. No other country matches this depth and breadth of engagement.

All Images are from McKinsey & Company's Report linked below

The 8 countries surveyed were classified in four archetypes:

  • Robust partners: Ethiopia and South Africa -  both countries have translated their national economic development strategies into specific initiatives related to China.
  • Solid partners: Kenya, Nigeria, and Tanzania.
  • Unbalanced partners: Angola and Zambia.
  • Nascent partners: Côte d’Ivoire. 

Highlights:

  • McKinsey identified 10,000 Chinese-owned firms operating in Africa, which 90% are privately owned.
  • 1/3 are involved in manufacturing, 1/4 in services, and around 1/5 in trade and in construction and real estate. In manufacturing, they estimate that 12% 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 surveyed are profitable; nearly one-third of them reported 2015 profit margins of more than 20%.
  • It concludes that there is a net positive balance of Chinese involvement in Africa: job creation (From the surveyed companies, 89% of the employees are Africans); transfer of new technology and knowledge and; financing and development of infrastructure.
  • They also mention areas that require significant improvement: Only 47% of Chinese firms' sourcing was from Local African companies.
  • Major labor and environmental violations by Chinese-owned businesses (ranging from inhumane working conditions to illegal extraction of natural resources).
  • In the last two decades, China has become Africa’s biggest economic partner. Across trade, investment, infrastructure financing, and aid. The Chinese “dragons”—firms of all sizes and sectors—are bringing capital investments, management know-how, and entrepreneurial energy.
  • They argue that there is considerable upside for Africa if Chinese investment and business activity accelerates. 
  • At the macroeconomic level, African economies could gain greater capital investment to boost productivity, competitiveness, and technological readiness, and tens of millions more African workers could gain stable employment. 
  • At the microeconomic level, however, there will be winners and losers. Particularly in sectors such as manufacturing, where African firms lag in global productivity levels, African incumbents will need to dramatically improve their productivity and efficiency to compete—or partner effectively— with the new "dragons".
    • They also identified 3 gaps to be overcome by African countries with this partnership: corruption, personal safety, and language and cultural barriers.

    Overall, the report provides an idea of the size and depth of the Chinese influence, and Ethiopia is one of the biggest partners. However, the report does not provide any critical perspective on the impact on African SME's, which is extremely relevant to address with the countries surveyed. 

    Read a full copy of the report, Dance of the lions and dragons: How are Africa and China engaging, and how will the partnership evolve? by McKinsey & Company.


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