How China Changed Africa

By Asoka Ranaweera

The writer is the founder and CEO of a company that advises investors on structuring investments and developing projects in West, East and Central Africa

Africa’s GDP grew at the rate of 5.2% per annum between 2000 and 2010. In 2011 Africa is forecasted to be the 2nd fastest growing region in the world after you guessed it Asia. Just in case you did not know 7 of the 20 fastest growing economies in the world today are on the African continent.

Ghana as many respected economists are saying could end up being the number one fastest growing economy in the world in 2011. According to the African Development Bank (AFDB) during the last decade approximately 33% of the population of Africa, which is just short of a billion attained middle class status. And if it sounds like I am almost out of breath then you guessed it, I am.

Clearly something has been going on in Africa. And so what is it? There is a confluence of factors that is driving Africa’s growth including but not limited to: the demise of big man politics where power was concentrated in the hands of one authoritarian leader, usually for decades.

The ascendency of a central bankers and finance ministries that have set the stage for sustained macro-economic growth by planning and following prudential policies. A growing middle class that is demanding more economic and political transparency and of course a great number of indigenous entrepreneurs that are providing goods and services that individual markets need.

But there is also something else going on. A powerful catalytic force that has provided a foundation for growth the likes of which African has not seen in modern times. And that force is in a word China. In case you have any doubts about this lets consider the facts and figures.

Trade statistics between Africa and China I believe tell us some part of this story. In 1990 trade between Africa and China registered at barely $1 billion. By 2000 this figure had increased to $10 billion. By the end of 2010 trade between the two had blossomed to a whopping $126 billion. Whenever money like this flows there are bound to be profound if not long lasting changes in any region or area let alone Africa.

China today is Africa’s third largest trading partner behind the U.S. and Europe and will almost certainly eclipse both within a short period of time. When the global economy came to a virtual standstill in the aftermath of Lehman Brothers, China’s undiminished appetite for Africa’s natural resources ensured that the continent recovered far faster than anyone had anticipated. So how did this all come to pass?

To begin with China established its presence in Africa when no one wanted to go there. When in the west, Africa was regarded as a lost cause at worst or as an ideological battle ground between it and the U.S.S.R at best; the Chinese were busy establishing close relations. One country at a time and often in opposition to Taiwanese interests in Africa, China gradually won over African countries.

Having built up close relations with African countries in part through goodwill projects such as the Tanzam railway, which linked landlocked Zambia with a sea port through Tanzania (The project was completed in 1976, total length 1710 km), China itched in the minds of Africans a spirit of sacrifice and daring unlike any other country. Africans many of whom were struggling with the challenges of development identified themselves with the Chinese who were themselves confronting the very same issues back in north Asia.

When China began to grow its economy rapidly and when it began to look for the resources to feed its rapid economic growth it turned to Africa and Africans responded positively to Chinese overtures. This was after all business where you each exchange something that the other does not have for something of value.

Being enterprising and innovative the Chinese offered Africans what at the time were unique solutions such as for example minerals for infrastructure. In exchange for much needed copper, bauxite, oil and gas and timber, China offered Africa much needed infrastructure.

China also offered to build infrastructure at concessional interest rates on terms that were not that far removed from what the World Bank Group’s, International Development Association (IDA), offered. The IDA is the arm of the WBG that provides concessional lending to its poorest members.

Professor He Wenping one of China’s most authoritative experts on Africa recently compiled a list that outlined the country’s contribution to infrastructure on the continent. According to the professor, China has invested in approximately 10 hydro projects that has the potential to generate 6 gigwatts of electricity. Built 3,000 km of roads and 2,000 km of railways. Add to this list more than 100 hospitals and 60 schools throughout Africa and you begin to get a sense of China’s importance to Africa’s new found economic prominence.

China’s contribution is that it has allowed African countries to build up infrastructure at a pace that is unprecedented in its history. I should point out also that Professor He’s list in a way under states Africa’s infrastructure build out by the Chinese because it excludes telecoms, mining, oil and gas and agriculture. If you add these projects continent wide, then China’s contribution becomes even more impressive. Why might you ask is all this so important? The answer is because infrastructure is the lifeblood of modern economies and for decades it was one of the vital missing ingredients in Africa’s development continent wide.

The impact of China has been felt throughout Africa for a number of other important reasons. These include China’s emergence as an important market for Africa minerals and natural resources. The dominance of the U.S. and Europe has been challenged by China in Africa. This competition has given Africans the opportunity to provide their source of current comparative advantage on arguably better terms to China and to other countries that are emergent such as Brazil, India and Russia. China’s presence in Africa has definitely contributed to an escalation in competition for the natural resources of the continent.

Africa’s new found prominence as an investment destination is not however solely tied to natural and mineral resources. It is also tied to its people. As the AFDB recently cited up to 33% of the continents population is considered to have become middle-class. The definition of middle class is of course very different from what you would perceive to be in the west and the levels of disposable income might seem miniscule by our standards.

Yet Chinese exports of cell phones, television sets, air conditioners, washing machines, cars, trucks, clothing and accessories has allowed African middle-classes to enjoy what was once unaffordable to them. As African economies have grown and its middle classes expanded their demands for services such as retail banking, insurance and supermarkets has grown as well drawing in a number of western companies and investment groups eager to sell into what is an expanding market.

China’s diplomatic support for Africa at the United Nations (UN), the World Trade Organization (WTO) and at the WBG as well as other international organizations has provided leverage for the continent over the last decade. As China’s influence has grown so has the ability of Africans to ask China to support its positions on the basis of reciprocity. And so it seems the confidence of Africans on the world stage has been rising too. Witnessing for example the efforts of China to get South Africa onboard and engaged as a formal member of the BRICs.

Africa’s rise in the decade through 2011 has been swift. While we cannot certainly attribute its entire ascent to China alone, we can say that China has played a catalytic role and defining role. It’s hard to imagine what Africa would look like today without China’s engagement and involvement.

While we cannot say that everything about China’s involvement in Africa has been good and rosy, after all there are positives and negatives to everything in our lives, we can with confidence identify some of the keys ways in, which China changed Africa.