Relax. Africa is not top of China’s agenda

Deputy trade, industry & competition minister Fikile Majola says a strong foundation must be built to ensure inclusive economic growth in Africa and help the African Continental Free Trade Area (AfCFTA) become a platform for trade on the continent.

Launched on January 1, once operational AfCFTA could become the largest free trade area in the world based on the number of countries involved, which have a combined GDP of $3.4-trillion and a population of 1.3-billion.

Conversations around the free trade area are looking at the biggest challenges that need to be addressed to unlock the promise of intracontinental trade. Some commentators are wondering how it will affect China, the world’s largest exporter and second-largest importer of goods.

One report went so far as to suggest it could negatively affect relations with China, which is responsible for setting up much of the recent infrastructure for trade on the continent.

There have even been suggestions that AfCFTA may put Chinese and African trade interests in competition. Dennis Juru, president of the International Cross Border Traders Association, based in SA, has said: “The mindset of AfCFTA doesn’t work. As crossborder traders we know China moves our goods in a cheaper way than anyone else.”

At the heart of these arguments lies a common conceptual confusion. China is not the largest source of foreign direct investment in Africa — nor is it the largest investor in African infrastructure.

It is certainly the largest source of public sector borrowing, with at least 80% of the $153bn lent to African countries between 2000 and 2019 to finance infrastructure projects, mainly roads and bridges, power, telecoms and water. These loans normally stipulate that Chinese construction companies are given the contract to build the projects. Over 60% of infrastructure continentwide, and over 90% in Zambia, is built with this funding from Chinese financial institutions. These loans will have to be paid back — with interest — at rates agreed to by the relevant African authorities.

At the moment, Africa is also a relatively small market in terms of Chinese manufactured goods, which mostly head to the US, Europe and the rest of Asia. Even as a source of raw materials, Africa provides less to China than Australia.

It therefore seems somewhat of a jump to see a new Chinese peril when the facts indicate that Africa is not at the top of Beijing’s economic agenda. I would agree with Stephen Chan, professor of world politics at the School of Oriental and African Studies in London, who said in Africa Report that Chinese manufacturers will not be too bothered by competition from African manufacturers.

It must also be noted that it is not the huge Chinese stateowned enterprises, which dominate headlines and whose investments are politically directed, that make a difference to African economic growth and job creation. Rather, it is the thousands of small and medium Chinese enterprises — most of them in manufacturing in Africa — that are making a measurable difference in improving lives on the continent.

According to a comprehensive McKinsey report published in 2017, there are more than 10,000 Chineseowned firms operating across Africa, mainly in SA, Zambia, Angola, Tanzania, Kenya, Ethiopia and Nigeria. Most of these companies are in manufacturing, services, trade, construction and real estate.

They are described as mostly profitable and agile — and quick to adapt to new opportunities. More importantly, of the Chinese companies surveyed by McKinsey 89% had local employees, translating into 300,000 jobs for African workers. This suggests Chinese-owned businesses may employ several million Africans across the continent.

For example, Hisense announced in September 2020 that it would be opening a new electronics factory in Atlantis, north of Cape Town. This will be the company’s second factory in the area, employing more than 200 people to make washing machines. Its first, opened in 2013, manufactures fridges and televisions. The company employs 800 people and exports to 13 other African countries.

The establishment of the AfCTFA is undoubtedly a good move for the continent. It will help African governments and companies negotiate with the rest of the world, strengthening inter-African trade and giving companies bigger backing when it comes to exporting goods. It has the potential to streamline operations and reduce opportunistic corruption at border posts.

Rather than worry about competition from China, it seems more helpful to look at how AfCTFA could help entrepreneurs and business owners in Africa — including the Chinese-owned companies — to create more jobs as well as products and services.

It is estimated that 98% of SA companies are SMMEs, which provide jobs for up to 60% of the local workforce. Investment in SA has dropped over recent years and the political climate in the country, coupled with the lack of structural reforms, is cause for concern. Civil service incompetence and political manoeuvring are not conducive to a climate of economic growth and development.

This explains why business confidence was at a low in SA in 2020. When we talk about the potential success of AfCTFA more needs to be said about improving business and entrepreneurial conditions for local and other business owners. This should start by cutting red tape for anyone wanting to set up shop. It can take years to get a mining licence or have working visas approved.

Improving business opportunities for entrepreneurs could be the best way to help the AfCTFA become the African economic success story we all want.

THE ESTABLISHMENT OF THE AFCTFA IS UNDOUBTEDLY A GOOD MOVE FOR THE CONTINENT