Chinese investment 'geese' flocking to transform Africa

28 April 2019 - 00:27 By Noah Smith

African industrialisation has to be one of the most important things happening in the world right now. The continent, with more than 1.2-billion people, is home to an increasing fraction of people who are still mired in extreme poverty: By 2030, the World Bank projects that almost all those in extreme poverty will live in Sub-Saharan Africa. The reason is twofold. First, Africa's population is growing rapidly. Second, Africa has lagged in the industrialisation necessary to generate mass employment.
The lack of strong, stable governments - a legacy of colonialism - has made it difficult to provide the education and infrastructure that help prepare countries for the leap from subsistence farming to factory work. Well-meaning Western aid and international development agencies couldn't fill the gap. Meanwhile, nations in East Asia and Southeast Asia became the world's factories before Africa did.
But late doesn't mean never. Rising labour costs in China and the threat of US tariffs are finally causing manufacturers to diversify their supply chains. Some factories will go to Vietnam and Bangladesh. But those countries won't be big enough to replace China, meaning that if manufacturers really want to keep costs down, many will have to look to Africa.
This process is well under way. In her book, The Next Factory of the World: How Chinese Investment Is Reshaping Africa, Irene Yuan Sun - a development-aid worker-turned McKinsey & Co researcher - describes the wave of private Chinese investment sweeping through Africa, Chinese business people moving to Africa and building factories.
In 2017, Sun's research team estimated there were about 10,000 such factories in Africa. Nigeria, Zambia, Tanzania and Ethiopia have the largest concentrations. Although China still has less capital invested in Africa than elsewhere, it's catching up. Foreign direct investment and manufacturing generally are the reasons African growth is taking off.
The picture Sun paints of Chinese capitalism in Africa is not always pretty. She cites anecdotes of corruption, pollution, overwork, injuries and managers' disdain for local workers - phenomena that seem universal to every country in the early stages of manufacturing. But Sun argues powerfully that this ugly, costly process is still the only way countries can escape poverty. The programmes of liberalisation and deregulation offered by Western countries in the 1990s under the name of the Washington Consensus failed to produce the desired results. Development aid from rich countries has done some real good (and occasionally some bad) in Africa, but it hasn't been enough to change the continent's basic economic conditions. And with a few small exceptions like Botswana, natural resources have generally been more of a curse than a blessing.
The only thing that reliably appears to transform poor countries into rich ones seems to be the so-called flying geese theory - the idea that manufacturing moves in waves, looking for the next cheap, politically stable production base. Now the geese are flocking to Africa. This isn't the neocolonialism some fear - Sun finds Chinese factories overwhelmingly employ local African workers rather than Chinese labourers. Nor are there signs that automation has made labour-intensive manufacturing obsolete. The process that brought Europe and Asia out of poverty is starting to work in Africa.
African development is the key to a stable world. An underdeveloped Africa, with an impoverished population, would fall prey to climate disasters and wars. That would create global tensions, as the US, Russia and other powerful countries jockey for influence over war-torn regions, as in Syria. It would also create waves of refugees, knocking at the doors of rich countries - as Syria has, but on a larger scale.
The US and other rich countries need to encourage imports of African-made goods. The African Growth and Opportunity Act, passed in 2000, was a good start, but more can be done.
• Samantha Enslin-Payne is away

This article is reserved for Sunday Times subscribers.

A subscription gives you full digital access to all Sunday Times content.

Already subscribed? Simply sign in below.

Registered on the BusinessLIVE, Business Day, Financial Mail or Rand Daily Mail websites? Sign in with the same details.

Questions or problems? Email or call 0860 52 52 00.