China’s (textile) influence in Africa

China’s (textile) influence in Africa

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China was not only securing its demand for commodities in Africa, it made also investments in other sectors. It seeks political and economic influence, and the investments made are also strategic. Sino Chinese – African trade is also of importance, among textiles and clothing

According to a recent publication of DB Deutsche Bank Research – author is Hannah Levinger – reveals Africa’s importance for Chinese external trade that has been steadily increasing over the last ten years to 2012 to USD 196 billion. Topping the list are South Africa and Angola (commodities), however it represents only a share of five percent of China’s external trade.

It is a given fact, that over the next five years 13 African countries will likely join the ranks of the world’s 25 fastest growing economies, including commodities exporters such as Nigeria, Zambia and Sierra Leone.

China’s foreign direct investments in Africa grew in 2012 on a year to year basis 34 % to USD 21.7 billion or to 4 % of total Chinese Investments. The majority of investments went to South Africa, followed by Zambia and Nigeria, but the largest investments went to Angola and the Democratic Republic of Congo. But there are also growing investments from emerging countries.

China’s foreign investments development is shown in Table 1

map-chinese-investments-in-africa

As we all recall, China’s share of global demand for commodities amounts to 25 %, while Africa is home to around 10 % of global oil reserves and a range of 40 % to 85 % of global deposits of gold, chrome and platinum. China covered in 2012 70 % of its iron ore needs from imports and South Africa became the third biggest supplier. China’s crude oil imports climbed from 30 % in 2001 to 60 % in 2012.

The development of China’s imports by category from Africa can be had from Table 2

China’s main import products from Africa  
in % of each category 1995 1997 1999 2001 2003 2005 2007 2009 2011
Minerals 29 41 60 59 61 70 78 70 59
Textiles & Clothing 12 21 22 40 50 51 48 50 70
Precious stones and metals 29 19 21 32 40 51 49 50 59
Base metals 29 12 21 29 40 42 49 52 60
other unclassified goods 15 20 24


In 2012 China’s major export partners in Africa were South Africa (30 %), Angola (19%); Nigeria, Egypt, Libya each 5 %, and others 36 %.

The development of China’s exports by category since 1995 can be had from Table 3

Chinas Top Export products to Africa
in % of each cateogry 1995 1997 1999 2001 2003 2005 2007 2009 2011 2012
Transport Equipment 1 2 none 1 0.5 0.6 1.2 3.9 4 3.8
Textiles & Clothing 6.9 4.1 2.1 2.3 4.1 2.6 2.6 7.1 4.2 0.6
Machinery 8.8 4 5.9 6.2 6.1 8.5 10 13 10 6
Footwear 13 8.8 11 12.1 11 10.8 13 15 10 9
Plastic Products 14.6 9.3 11.7 12.2 13.9 11.9 15 18.1 16 11.9

It is expected that China’s future activities in Africa will still focus on commodities, but these investments will be more directed to other sectors.

DB Research considers Africa as an increasingly attractive market where products can be sold, and not only labour intensive imported items.  In 2010 Chinese textiles amounted to 18 % of Chinese exports, in 2006 the share amounted to 25 %. Machinery and electronics made up the largest share 2012 with 29 %.

Chinese manufacturers are making more frequent use of local labour and are relying on their own experience of industrial development driven by companies from Taiwan and Hong Kong. Since wage costs are on the rise, it is likely that it becomes more important to future exploit the difference in wage costs by generating more added-value from Africa.

In addition, nowadays Chinese activities are no longer dominated by state owned companies, because in 2011 45 % of China’s direct investments originated from the private sector, including small and medium seize enterprises.

In addition China will speed-up knowledge and technology transfer benefitting both sides via its special economic zones in Africa, however there the need of the private sector local decision makers becomes compulsory. Also the training of local workers will become essential for China due to the growing competition in Africa.

The up to now adopted model, in which Chinese infrastructure projects in Africa – often the critical prerequisite for extracting raw materiaIs – such were tied to export guarantees or asset stakes, but these can no longer utilised easily. Until 2008 preferential infrastructure loans were a constant feature of China’s foreign policy strategy. However, only a few of the stakes acquired as collateral for infrastructure projects are productive. Despite their substantial financial leeway, Chinese state-owned companies will probably have to operate more efficiently in the future in order to match the competition when operating outside their domestic comfort zone.

DB Research concludes: Numerous projects may decisively advance industrialisation in Africa, these entail extensive investments and long amortisation periods. China possesses the necessary means to fund such projects. A more complex range of activities will not only provide opportunities for China, but can also generate an increasingly positive contribution to Africa’s economic development by establishing better integrated local manufacturing.

In a paper of Columbia University (USA), some further benefits for Africa through Chinese investments are listed. China’s emphasis on cooperation and its non-interventionist policy have generated very favourable conditions for many African nations to take advantage of Chinese government loans, infrastructure projects, and trade in natural resource. Many African governments identify their own development as parallel to that of China! Some African officials cite the “Chinese model” of economic and political development as a successful instance of rapid economic growth under non-representative political system.

On the other hand, China has also expectations, some of them were already made clear, we cite only the additional ones: Large scale project for Chinese firms, new jobs for Chinese citizens, since already around 750’000 Chinese work in Africa. Further China expects the help of cheap local labour, in order to supplement Chinese labour on infrastructural projects, and a favourable backing from Africa’s 53 nations at the UN United Nations (!) and an increased solidarity with the One China Principle (Taiwan).

www.dbresearch.de


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