Chinese Investment in Africa

Chinese Investment in Africa

China’s foreign direct investment in African countries has grown exponentially over the past decades since its entry in the African markets. The cash flows to the continent include aids for trade, foreign direct investments, and loans. The most significant percentage of China’s investment in developing countries is loans. China funds most of Africa’s infrastructural projects such as roads, dams and railway lines in an attempt to develop the nations. However, Chinese investments in Africa also pose a threat to the wellbeing of the countries. China’s loans are tied to market volatile interests as well as the requirement of natural resources as securities and payments for the loans. Moreover, the dominance of the Chinese firms in the projects is similar to neo-colonialism. Therefore, the financial relationship between China and African countries offers opportunities and threats both to the nation and the world’s economy. This paper is an analysis of Chinese investment in Africa showing opportunities and threats of this investment to African countries, China and the world economy as well as the advantage of Qatari firms.

The Chinese investment in African countries has been in the upswing since 2009. The stakes are diversified over various industries in the developing nations with the aim of funding development projects to spur economic growth in the continent. The Chinese offer investment funds in packages of loans and foreign aid. The African countries, in turn, apply for the funds and the World Bank confirms their ability to service the loans before china grants loans to the nation. Moreover, the World Bank investigates the loan contract agreement s to ensure that they are not exploitative before allowing the African countries to commit themselves into the relationship. The investment project by China has helped several African nations achieve growth goals. For instance, China funded the construction of Kenya’s Thika highway and is financing the construction of a standard gauge railway between Kenya’s largest cities Nairobi and Mombasa. Moreover, China is also backing the construction of two major standard gauge railways in Nigeria from Lagos to Kano and Lagos to Calabar. Other African nations with significant Chinese investments include Ethiopia, South Africa, and Angola. These countries have seen numerous opportunities due to the Chinese investment in the nations.

Chinese investment in Africa has led to the establishment of many infrastructural developments that are key in the economic development of the region. The loans from China fund projects such as roads, railways and agricultural establishments. The Nigerian government is constructing a standard gauge railway from Lagos to Kano and Calabar. The railway will be essential in the peacekeeping missions in the region. Since the area has numerous oil resources, the railway project will boost economic growth in the nation. Similarly, the standard gauge railway in Kenya connecting Mombasa with Nairobi up to Uganda is a boost for economic growth through the more comfortable transportation of goods to and from the port of Mombasa. Moreover, the construction of a superhighway in Kenya between the capital city and the industrial city of Thika was a significant establishment which has increased the industrial growth in the nation. Therefore, the Chinese investment opened up more opportunities for these nations through the construction of projects.

Furthermore, China funds several agricultural projects among African nations. Agriculture is the primary sector in most African countries. Therefore, China’s investment in the industry is a boom for the African nations. Agricultural development ensures food security in the nations as well as income growth through exports. Moreover, China has funded other critical sector such as the energy sector. China has overseen the improvement of the oil refineries in Nigeria a move that is helping the nation get on its feet after terrorism. Also, China launched a joint solar energy venture with Kenya in 2015 with the aim of training the local electrical solar experts on new technologies and the methods of expanding the solar capacity in the nation. Additionally, China granted Kenya another loan package worth over $100 million to help the country in training the youth on jobs. The various investment by the Chinese government increased the opportunities for African nations to develop.

Moreover, the Chinese investments in African nations have also given China more income opportunities through loans and exploitation of Africa’s natural resources. China finances the infrastructural projects among the African countries in exchange for the nations’ natural resources. Through the agreements, China acquires raw materials such as copper, zinc, oil, and iron. Since China is a resource-poor nation, the investments in Africa have given the country access to the scarce resources. Furthermore, China gives African nations loans to assist in the construction of infrastructural facilities. The servicing of these loans and the respective interest payments increase the GDP of the country significantly. Also, most of the projects funded by China in the African nations are done by Chinese firms. Thus, the income from contracts in the African countries also increases the revenue of the nation significantly. For instance, “the Chinese Ministry of Commerce reported $50 billion in new contracts in 2015. The following year, the China Railway Construction Corporation (CRCC) announced over $five billion in contracts within Africa” ( ). The investments in Africa put China closer to achieving the “Great Power” position. The extensive control of natural resources, market dominance and the rise in GDP attributed to the investments in Africa are driving China to lead the economic arena as a superpower.

Furthermore, China’s investments in Africa has also increased opportunities for the world economy. The world economy grows due to the economic growth in individual nations. The Chinese investments in Africa have spurred economic growth in the countries as well as in China. China funds developmental projects such as transport and agricultural systems which are essential for the general economic growth of a nation. Therefore, African countries have easier transport means as well as advanced agrarian production. On the other hand, China has also gained significantly through loan payments and the access to the continents natural resources such as oil and other minerals. The growth of the GDPs of the nations is a sign of the world’s economic growth. Additionally, the trade volume between China and African countries has grown significantly recently due to the increased investment in the nations. An increase in the amount of trade between nations is growth in the world economy. Therefore, Chinese investment in Africa has had a positive effect on the world’s economy.

However, the investment has several threats to the African countries, China as well as the world economy. The Chinese investment in Africa threatens the economies of the African countries in several ways. Primarily, the China-Africa relationship is highly exploitative. China finances the construction and establishment of facilities in African nations in exchange for raw materials. The African countries export their raw materials such as oil, iron, and copper to China at lower prices as a fulfillment to the agreements for the infrastructural financing. Therefore, China gains access to cheap raw materials critical for its economic growth. The exploitation ofthe raw materials threatens the economic growth of the African nations. Continual utilization by China will deprive the countries of their natural resources which are critical in ensuring economic growth.

The interests on loans to African nations threaten the economic growth of the countries. China’s loans to African nations are non-concessional implying that the interest rates are market based. The fluctuating interest rates make the loan repayment difficult for African nations. The interest rates increase the total amount the nations are expected to pay back to china. Compared to other western nations who offer loans with low or no interest, china’s loans are more oppressive to the African nations. Thus, the loans threaten the possibility of economic growth since most of the nation’s resources and income will be focused towards the repayment of the loans. Also, some of the projects funded by china take a very long time before returns from the project are actually realized. In this regard, the African nations have difficulties repaying the loans since the projects are not yet bringing returns to the nation. Other projects are developmental in nature and do not have any financial gain to the nation. Therefore, raising funds to pay for such projects is a challenge for most African nations.

Additionally, the Chinese investment in Africa also threatens the economic growth of the African countries by inhibiting capital growth. For instance, majority of the infrastructural projects in Africa that are funded by china are undertaken by Chinese firms. The entry of companies from china in the projects deprives African firms of the opportunity of capital growth and experience. Therefore, the African companies still remain lagging behind in the international arena. Therefore, Chinese companies prevent the African companies from growing which threatens the economic growth of the nations. Furthermore, these companies employ Chinese workers to complete the projects. Therefore, the contracts on infrastructural projects give china massive profits while depriving the African citizens an opportunity to grow their skills an earn income. Chinese companies who employ African workers have faced criticism due to the working conditions and exploitation of workers. The Human Rights Watch published a discouraging review showing the unfair and inhuman treatment of African workers in Chinese owned copper mines in Zambia. The report also claimed that the workers were exposed to unsafe working conditions and overworked. Moreover, the laborers who posed complaints about the working conditions received threats from the management. Thus, the projects threaten economic development in African nations.

The Chinese investment relations with African nations also threaten china’s economy. China largely depends on the African nations’ natural resources to fuel its economic growth. It acquires the resources through agreements to fund developmental projects. However, most of the natural resources are limited and therefore in the case their supply is terminated, china will have difficulties acquiring such resources. In addition, china gives African nations very large amounts of loans. Due to the economic state in majority of the African nations, it is likely for the countries to have difficulties repaying the loans. Therefore, china has the risk of incurring tremendous losses in the case where the nations are unable to repay the loans. Moreover, the Chinese loans to African nations are non-concessional. Therefore, with the business cycles and fluctuating interest rates markets, china may end up receiving very insignificant amounts as payment for the loans offered to African nations. As a result, the economic growth of the nation will be at stake.

Since the world economy depends on the individual economies, a threat to china’s economy or the economies of the African nations affects the world economy. For instance, the Chinese investment in Africa has posed the threat of neo-colonialism through the utilization of the continents resources in exchange for financial assistance. Exhaustions of the resources will leads to a decline in the rate of the world economy. Also, the flooding of African markets with cheap Chinese manufactured products threatens the world economy. Moreover, the threat to china’s economy through the loss of raw materials and inability of the nations to repay the loans will reduce the rate of world’s economic growth. Generally, the success of the china-Africa relationship defines the nature of the world economy. Additionally, the Chinese investment in Africa has change the way western nations perceive the development projects in Africa shifting from pure foreign aid to aiding African countries with the aim of trading with them. The shift threatens the growth opportunities for African nations who are still in the developing phase of economic growth and development. The African nations still need aid from the developed nations to leap to the next stages of development.

The Chinese investment in Africa can benefit Qatari firms through getting contracts to oversee the completion of projects in Africa. China is facing criticism for the use of Chinese companies to undertake projects funded by the Chinese government. In this regard, African countries are including exemptions of Chinese firms in the contracts for projects that are funded by china. The regulations give firms from other nations an opportunity to take advantage of the contracts. Qatari firms can therefore gain from the Chinese African investments by grabbing the projects funded by china. However, the firms will face stiff competition from African firms who want to take advantage of china’s investment in Africa to grow their capital and experience. Moreover, Qatari firms can also benefit from china’s relationship with African nations through engaging in other trading activities with the nations. The firms can acquire raw materials from Africa at lower prices due to the presence of the Chinese investments in the nations.

In conclusion, china’s investment in African nations has both positive and negative effects on the African nations, china and the world economy. The Chinese investment grew rapidly from 2009 seeing the establishment of various infrastructural projects funded by china such as roads, schools and hospitals. The construction of infrastructural facilities has developed the African nations and china economically. However, the Chinese investments are also depriving African nations of their natural resources. Furthermore, the loans are a burden for the developing nations. The Chinese cheap products have flooded African markets competing with the locally produced goods. Thus, the investment threatens the African nation’s economy as well as the world economy.