GUEST COLUMN: BY LIVINGSTONE KAZIZI
Increased reliance on cheap Chinese goods has, however, had detrimental effect on Africa. It is vivid that in the case of light consumer goods, there are important but has adverse long-term implications for Africa industrialisation. Local industries in Africa are dying a silent death while Chinese industries continue to develop rapidly.
A number of attempts have been made to assess the impact of indirect trade links. They have focused their effects on product prices, the similarity (or lack of it) between Africa’s and China’s exports, and the identification of winners and losers from trade with China.
These studies have provided useful insights into the indirect effects of China’s trade on Africa, the impact of competition from China in third world countrys’ markets; poverty and livelihoods is very substantial. Some of this is positive, insofar as reduced prices of clothing, imports enhances the utilisation of power of consumers. But the negative impacts are very large, and focused, and hence demand attention.
Since there are so few backward connection into textiles, the major conduit for income-dispersal in the clothing industry has been through direct employment.
Job loss in South Africa has been much greater since 2001, reflecting the inability of its clothing manufacturers to source fabrics from Asia and growing import penetration in both textiles and clothing, much of it sourced from China.
It is not just the degree of job loss (particularly in Lesotho and Swaziland) which is of concern, but the nature of the jobs which have gone. Most workers are women, and the impact on their families is severe. For countries without alternative sources of employment, this employment decline has major poverty implications. We also know from global experience that rapid economic growth can be a significant factor in reducing poverty levels, and the loss to both GDP and exports arising from a sharp contraction of the clothing sector will have a further negative impact on poverty levels.
Often unrestrained deepening of scientific, technical, trade, investment, and cultural co-operation causes criticism from the portion of the African electorate (including some elites), focused towards building constructive relations with the rest of the World.
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Pro-Western supporters in Africa usually raise the question of who is the real beneficiary of friendly relations with Beijing, they believe that their leaders fulfil the will of Chinese investors, who reportedly control some of Africa’s key enterprises. On a general overview, the discontent of a part of Africa’s population, primarily concentrated in large cities, in the context of Afro-Sino relations is linked with social and economic issues. For illustration, some pro-Western Zimbabweans, complain that national producers cannot compete with the Chinese, since their goods are traded at a low price.
In addition, some Zimbabweans are not satisfied with the sanitary and epidemiological norms adopted at Chinese enterprises and are reportedly run counter to local legislation. Other issues of concern for some Zimbabweans working in Chinese companies are “low wages and non-compliance” with Zimbabwe’s labour laws. Often, the Chinese behave, in the opinion of some Zimbabweans mostly pro-Western, as “new colonists” who allegedly enslave the local population.
The notion that China controls most enterprises in Africa seem to be an overstatement and lacks grounding, in Zimbabwe for instance, the Zimbabwean Indigenisation and Economic Empowerment Act, adopted in 2007 and delegalised in 2016, did not allow foreign companies to own more than 49% of the shares of an enterprise as such it was highly unlikely that before its de-enactment.
In general, China’s negative image in Zimbabwe is formed by low-quality Chinese products (as 48% of the Zimbabwean population believe), using the country as a raw material appendage (18%), an excessive number of Chinese specialists depriving Zimbabwe’s jobs (9%).
It seems, that a greater problem is strong ties with Beijing, which are extremely beneficial to the elites in Africa.
These elites arguably often disregard the opinion of their population, giving preference to their own political and economic influence and, what is maybe more critical, their own enrichment.
Impact of Chinese foreign direct investment (FDI) and production in Africa
There was petite Chinese FDI in Africa until around 1990. Then from US$20 million per year in the early 1990s, Chinese FDI in Africa shot to close to US$100 million in 2000 and reached more than US$1 billion in 2006. This represents a growth rate higher than Chinese FDI to any other part of the world. According to Unctad (2007), China’s FDI stock in Africa had reached US$1,6 billion in 2005. If this figure is correct, then 2006 alone witnessed an increase in Chinese investment in Africa of 62,5%.
Chinese FDI is qualitatively different in kind from European and North American sourced FDI. Historically, Western and Japanese FDI in Africa came from privately-owned corporations focused on profit maximisation, generally with relatively short time-horizons. By contrast, much of Chinese FDI in Africa comes from firms which are either wholly or partially state-owned.
They have access to very low-cost capital, and hence can operate with much longer time-horizons. Moreover, many of these investments are either explicitly or implicitly linked to achieving strategic objectives, often those which are focused on long-term access to raw materials, and are closely bundled with Chinese aid.
Furthermore, Chinese FDI is at least partly driven by an active government policy. In the late 1990s, the Chinese government began encouraging outward FDI and announced its “going global strategy.”
The policy has been developed and strengthened over the years, until at present Chinese companies enjoy four types of incentives: special and general tax incentives, credit and loans, foreign exchange allowances, and a favourable import and export regime.
China’s FDI to Africa has been further supported by common efforts by the Chinese and African governments. The Summit of the China-Africa Co-operation in November 2006 increased commitment for Sino-Africa co-operation.
Chinese FDI mainly takes the form of equity joint ventures with local entrepreneurs and/or national parastatals. In some cases these are multi-million-dollar joint ventures with local counterparts. The most obvious examples are in the energy and resource sectors, in which China has invested heavily in Sudan, Nigeria, Gabon, Angola, Mali, and Zambia.
China also has few large joint ventures in manufacturing, including textile factories in Tanzania and Nigeria, and soya and prawn processing in Mozambique. By 2005, the Chinese had invested in 48 African countries.
Ventures in infrastructure and construction projects ranges from stadiums in West Africa, to Presidential Palaces (in Kinshasa), dams (a US$650m tender for Nile River Merowe Dam project), pipelines (Sudan), roads, railways and government buildings.
It is clear that Africa’s FDI in China is marginal as compared to that of China in Africa. Although a number of African companies, mostly from South Africa and Nigeria, have been set up to conduct investment promotion activities in China, these seem to be mainly aimed at attracting Chinese capital into Africa rather than at establishing production in China (Unctad 2007). This rapidly increases Chinese growth while African States only benefit from foreign investment. It could have been more beneficial for Africa to invest in China to increase its Gross National Product (GNP). Impact of Chinese Aid in Africa The history of formal aid links between China and Africa dates back to the Bandung Conference in 1955. Until the mid-1990s, much of this aid went towards liberation movements and the attempt to isolate Taiwan. Since the 1990s, this appears to have changed, with aid being increasingly directed towards broader strategic goals, especially the development of links with resource-rich African economies. In October 2000, the China-Africa Co-operation Forum, which was held in Beijing, emphasised the need to enhance co-operation between China and financial institutions in Africa. In the past five decades, over US$1 trillion in development-related aid has been transferred from rich countries to Africa. In the past decade alone, on the back of Live 8, Make Poverty History, the Millennium Development Goals, the Millennium Challenge Account, the Africa Commission, and the 2005 G7 meeting as a few examples, millions of dollars each year have been raised in richer countries to support charities working for Africa. In the past five decades, the most aid-dependent countries have exhibited an average annual growth rate of minus 0,2%. Between 1970 and 1998, when aid flows to Africa were at their peak, the poverty rate in Africa actually rose from 11% to a staggering 66%. This fall can be attributed to the fact that the receipt of concessional (non-emergency) loans and grants has encouraged corruption and conflict, while at the same time discouraging free enterprise. Aid-fuelled corruption can be understood in the case of Zaire; during his catastrophic reign, President Mobutu Sese Seko is estimated to have stolen a sum equivalent to the entire external debt of his country: US$5 billion. No sooner had he requested a reduction in interest payments on the debt than he leased Concorde to fly his daughter to her wedding in the Ivory Coast. The presentation of loans and grants on relatively easy terms promoted this kind of thing as surely as the existence of copious oil reserves or diamond mines. Not only is aid easy to steal, as it is usually provided directly to African governments, but it also makes control over government worth fighting for. And, perhaps most importantly, the influx of aid can undermine domestic saving and investment. This is the case with Chinese aid, it has little conditionalities hence it is susceptible to abuse. Aid and corruption At a hearing before the United States Senate Committee on Foreign Relations in May 2004, experts argued that the World Bank has participated (mostly passively) in the corruption of roughly US$100 billion of its loan funds intended for development. When the corruption associated with loans from other multilateral development banks is included, the figure roughly doubles to US$200 billion. Others estimate that of the US$525 billion that the World Bank has lent to developing countries since 1946, at least 25% (US$130 billion) has been misused. Vast sums of aid not only foster corruption, they breed it. Aid facilitates corruption, bottlenecks: absorption capacity, corruption, aid-dependency, aid chokes off the export sector. More-so, aid can he inflationary, aid reduces savings and investment, facilitate civil war. In Zimbabwe, infrastructural development aid has not come in the form of cash but rather in the form of “cash value worth of deals” without the actual cash coming into the country. Zimbabwe has allegedly been given conditionalities for loans. One such condition percieved by some Zimbabweans is that technical labour, and building material has to be exported only from China. This means that the bulk of the loan funds are returned by China. Disappointingly, as perceived by some Zimbabweans, the country is expected to repay the loans in the form of raw natural resources such a diamond; gold and ivory. This if indeed true, is unfair as raw natural resources are valued less due to lack of value addition. This also reduces local productivity, hence Sino-Zimbabwe development co-operation can be viewed as greatly disadvantaging Zimbabwe. One of the outcomes of China’s new trade dominance in Cameroon can be observed in the pattern of trade between the two countries. Trade deficit with China has become a momentous part of Cameroon’s
