Reshaping Emerging Markets: A Relationship between China & Africa

Is investing in Africa within China’s strategic interest?

by Calvin Okwuego, EMI Fellow

The stewardess announces the descent from 30,000 feet and passengers begin to buckle up. You anxiously wait in excitement as the plane pierces through the clouds. The visibility of the land comes closer within eye sight. An unfamiliar, yet familiar feeling consumes you coupled with an airy feeling of hesitation. Before you know it, the plane lands and the onset of this experience is in existence. Arguably, these are some personal experiences felt by travelers. Most notably, this has been my personal experience traveling into various emerging markets over the last 5 years

Emerging markets are filled with excitement, potential growth, and a sea of untapped intellectual creativity. A simple innovative ideal, can lead to a successful business. This should not be taken as a general solution because each market differs on the basis of unique characteristics. However, finding a particular market niche may not be presented with the same level of challenges as they are in advanced countries. Although the level of risk is higher in emerging markets, the returns can be bountiful.

Yet, there is still a level of cloudiness when applying the terminology “emerging market” to a particular country. People sometimes subconsciously use emerging markets and developing countries interchangeably. Most often people refer to one of the BRICS countries as an emerging market: Brazil, Russia, India, China, and South Africa. While, we can attest to the successes of these countries. In recent years, China and Brazil’s growth has slowed. India continues to maintain a strong GDP growth. Colombia’s economy is regaining momentum as indicated by upsurge in the GDP growth rate. In addition, Nigeria has emerged as Africa’s largest economy.

We are experiencing a reshaping of what defines an emerging market. Globalization has contributed to the interconnectedness of countries working with each other. Aside from the economic growth, political instability threatens the future of countries. To ensure future stability within a country, it rests within the leadership and governance of that country. For example, Nigeria has proven to be a good example and arguably an exceptional case. To date, Nigeria has been challenged with providing a solution to handling corruption, reducing poverty, and combating Boko Haram. Amid these obstacles, Nigeria continues to prove itself as a solid economy and a place for foreign investment.

China has benefited immensely from this bilateral trade relationship with Nigeria. The Nigerian – China Business Council estimated in 2014 the bilateral trade volume between the two countries was $23.5 Billion dollars, which grew from $2 Billion in 2002. China is making significant inroads within the continent, recently pledging $60 Billion in loan assistance to African nations. While there may be some trepidation from other country’s investing in Africa, China’s recent behavior signals a wise strategy.

Is investing in Africa within China’s strategic interest? Depending on the person this questions is asked to, the responses may vary. For example, an academic, student, or practitioner, native from either an African country or China may respond differently. Nonetheless, they will all coalesce around fact that Africa has much potential. In 2000, the Forum of China Africa Cooperation (FOCAC) was created as means to exchange in dialogue to address the specific needs within Africa and China. Despite, the vast amounts of natural resources within African countries, many countries are still faced with critical challenges such as infrastructure, poverty, agriculture modernization, security, unemployment & education, and public health. To address these challenges, China’s $60 Billion funding aims to target some of these areas. Some of the highlights from this package are $ 5 Billion in interest free loans and free aid, $ 35 Billion in preferential loans and export credit for countries on favorable terms, $ 5 Billion to contributed to the China – Africa Development Fund and special loans for small and medium sized enterprises as per China’s President Xi Jinping announcement to FOCAC. Additionally, the Chinese government has agreed to providing educational, vocational and employment opportunities to thousands across the continent.

Although, this is aimed to provide assistance for many countries to fulfill certain development and social needs. Some would argue that China’s involvement in Africa has been advantageous to China’s interest. With an increase number of Chinese firms now established in Nigeria, it is still difficult for many natives to find gainful employment. The National Bureau of Statistics – Nigeria (2015) reports an unemployment rate of 9.9% in Q3 in a country of approximately 177.5 million. Finding employment is difficult for citizens and some have expressed sentiment toward Chinese businesses suggesting the lack of available jobs because these companies have also brought over labor to fulfill these roles. As there are pros and cons to this relationship between China – Nigeria, and larger Africa. The relationship cannot be fully captured in an analysis. Nigeria has also benefited from a growing consumption of oil in China.

While economic growth is a strong benefit to a country, it is equally important to have the proper institutions in place to facilitate growth. Without the enforcement of regulations, policies, and laws governing institutions and government entities a sudden wealth can lead to a step back within an economy. Especially, in emerging markets where wealth is relatively new, if not managed properly a country could suffer from an increase in political instability, distrust in political leadership, and corruption. Therefore, as newly emerging markets begin to develop, providing a solution to efficiently redistribute the wealth within the economy is equally important for the growth of a country.