Monday, November 23, 2015

China faces same problems in Africa as the West

Western worries about China’s burgeoning influence in Africa may be overblownnoting that Chinese projects are struggling with the same problems that hinder Western investment in African nations. Making the case that working in Africa work is not as easy as it looks. According to the Chinese Ministry of Commerce the net annual flow of Chinese direct investment into Africa was $3.2 billion, an eight-fold increase between 2005 and 2014. The total Chinese investments grew twenty-fold, to $32 billion, making China one of Africa’s biggest investors.

Deborah Brautigam, a professor at the School of Advanced International Studies in Washington, DC, said the hype about Chinese firms buying up vast amounts of industry in Africa is overblown because investment growth has slowed in recent years. Chinese investment in Africa constitutes less than 3% of all Chinese foreign investment. Most of that money goes to Asia.

In the book “Will Africa Feed China?” Brautigam wrote that a common problem is that Chinese firms “sort of assume that it works the way it does in China. In China, a company comes in, makes an arrangement with local government, and the government delivers.”

She said they then discover that promises by African governments to build infrastructure, provide power or supply land are not as credible as they thought. Public land turns out to be occupied by squatters, who may have farmed it for generations; private land may not be owned by the people selling it. Local politicians do not accept deals struck by national ones.

Increasingly, Chinese firms are adapting to these conditions.

“If you told banks you’re going to Africa, it was easy to get a loan.” Huang Hongxiang told the Economist. Huang runs China House, an organization in Nairobi that helps Chinese firms understand how to do business in Kenya, He said there was a gold-rush mentality for a while, but now investors are aware that projects in Africa can take a long time and cost a lot more money than they expected. Huang says they are now doing the sorts of things Western firms have long done: investing in corporate social responsibility programs, hiring African managers and doing scrupulous due diligence.

While the worries of Western politicians that China is conducting a new form of imperialism in Africa and that they are getting deals because they are wiling to work with unscrupulous governments and break rules has a grain of truth, the evidence shows Africa presents the same challenges to Chinese projects that Western companies have had to deal with

This comes as a relief for Western policymakers, said the Economist, but for African leaders, desperate for development but unwilling or unable to fix problems that deter all but the hardiest of investors, it may come as a disappointment. Asia Unhedged

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