The Globalization of Investment: Chinese Companies in Africa

The Globalization of Investment: Chinese Companies in Africa

by
Adams Bodomo
February 7, 2013
University of Hong Kong
The term, marginalization of Africa, was a preponderant term within African studies in the 1990s. With the end of the cold war in sight, it was thought by many observers of the African continent that Africa would no longer be a strategic battleground between the Superpowers of that time. However, with the turn of the Millennium, and with China's dramatic intensification of its presence in Africa, the idea of marginalization all but disappeared, and has been replaced with the idea of intensification of investment from all corners of the globe. I have coined the term globalization of investment in Africa to describe this phenomenon in my book La Globalizacion de las Inversiones en Africa (Los Libros de la Catarata, 2011).

In the book I have extensively described the different aspects of the globalization of investment by mainly Europe, China and India, but also countries like Brazil, Russia, Korea, Indonesia, Malaysia, and Turkey. In this essay, I shall focus on the role of Chinese companies in this globalization of investment constellation, addressing questions such as: What is the nature of the globalization or internationalization of Chinese companies? Which Chinese companies are currently investing in Africa and why? Are their management styles so different from those of African companies? What are their relationships with African governments? How does one see the future developments of Chinese companies in Africa and Chine-Africa relations in term of business? Can Chinese companies really compete with American and European ones in Africa? Can one really say that what China is doing in Africa in terms of investment is "neo-colonialism" as some critics in the West tend to conceptualize things?

Along with China's ever increasing stature as a world Superpower geopolitically, Chinese companies are becoming more and more international. Indeed, the global expansion of Chinese companies is an essential aspect of China's growth as a Superpower, already the second largest economy in the world. The vast majority of the companies that are establishing branches and investing internationally are indeed State-Owned Enterprises (SOEs) that are given government subventions and other kinds of support to internationalize.

With respect to Africa, the top 10 Chinese companies are SOEs or, at least, State-controlled. These include Sinopec, China National Petroleum, State Grid Corporation, Industrial and Commercial Bank of China, China Railway Construction, Sicofor (Sino Congo Foret), CITIC-CRCC, China International Fund (CIF), China State Construction Engineering Corporation Limited (CSCEC), and Federated Steel. As may be seen even from their names the main reasons why they invest in Africa is to take advantage of Africa's vast mineral resources and to address Africa's infrastructure needs such as the constructions of roads, railways, ports and dams. Information gathered from their websites and from several published works on Chinese companies in Africa (e.g.Serge Michel and Michel Beuret's 2008 book titled La ChineAfrique and Deborah Brautigam's 2010 book titled the Dragon's Gift) indicates, just to mention three of these 10 companies, that Sinopec is involved in the oil industry and is located mainly in Algeria, Nigeria and Gabon. China National Petroleum is also within the oil industry, concentrated mostly in West Africa. The State Grid Corporation, on its part, is involved mainly in utilities provision such as the building and provision of electricity. It operates in Chad, Nigeria, Niger, Mauritania, Libya (before the 2011 invasion by NATO), Algeria, Equatorial Guinea as well as 30 odd countries world-wide. All these 10 companies and many more Chinese companies have within just a decade of intensive investment become very successful, far more successful than most local African companies and even many other foreign companies such as those from the West.

One of the main reasons why Chinese companies are so successful in their internationalization drive, not just only in Africa but world-wide, is that they are very efficient in terms of meeting their output targets. As I have described in my book, compared to the local African companies they compete with and even compared to many western companies, which often have to go through long convoluted processes of assessment, legalese, and bureaucratic government bottlenecks, Chinese companies quickly bid for projects, immediately start working on them, and in no time deliver the finished products most often on schedule.

What does the future look like for these top Chinese companies in Africa? As long as there are vast mineral reserves yet to be tapped and as long as Africa needs huge infrastructure developments, these Chinese companies will continue to expand in Africa and even out-compete their rivals from Europe, the US, India, Brazil and many other competing countries within Africa's globalization of investment constellation. Moreover, relations between these companies and most governments in Africa are very cordial. Supported by the Chinese government, they don't make huge demands or place conditionalities at the hands of African governments such as the need to deregulate, privatize or even democratize before investment begins. For Chinese companies in Africa, politics is politics and business is business.

Finally, there has been criticism, sometimes rather acerbic, mainly emanating from western circles that China's investment engagement in Africa is one of neo-colonialism. One reason some western critics give is that by investing so much in these countries African governments tend to be at the mercy of the Chinese since the Chinese invariably control a large chunk of each country's economy which can lead to the Chinese government hijacking the political structures of these countries. Well, I have heard this, for a countless number of times, especially during a lecture trip to France in 2012 that I had to develop a standard response to this question that was addressed to me on many occasions. To the question, do you agree that China is practicing neo-colonialism in Africa, my standard answer was and is: if neo-colonialism is defined as hijacking and controlling the economies and thus the political decision-making processes of a country through huge investments, then China is involved in neo-colonialism, not only in Africa, but indeed in the entire world! A lot of statistics back my position. For instance, even though China gets more than a third of its oil imports from Africa as of 2011, only less than 10% of its total foreign direct investment outflows go to Africa! Could it be that China practices only 10% neo-colonialism in Africa and as much as 90% of its neo-colonialism on the rest of the world, including the West?

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Professor Adams Bodomo, a native of Ghana, is author of La Globalizacion de las Invesiones en Africa [The Globalization of Investment in Africa] (Los Libros de la Catarata, 2011)). He is currently Director of the African Studies Programme at the University of Hong Kong, China; and from August 2013, Chair Professor of African Languages and Literature at the University of Vienna, Austria, where he will also direct a new Centre of Global African Diaspora Studies.