Chapter 4 - Developmental impact of China's role in the region

Does China’s role in Africa – and particularly Southern Africa – promote development or is it purely a form of exploitation, fuelling Chinese growth at the expense of African economies?

Claude Kabemba's picture

Director of the Southern Africa Resource Watch (SARW)

October 9th, 2012

Does China’s role in Africa – and particularly Southern Africa – promote development or is it purely a form of exploitation, fuelling Chinese growth at the expense of African economies?

Governments clearly take a positive view of the Chinese role. They embrace China as a strategic development partner, enter into economic agreements with it, and in some cases are prepared to waive rules to encourage Chinese investment. (See Chapter x). In 2006, at the Economic Forum in Davos, Switzerland, Mozambican President Armando Guebuza denied allegations that China was solely interested in exploiting Africa’s natural resources, stating that the bilateral co-operation had been ‘mutually beneficial’. Carlos Nuno Castel-Branco notes that foreign capital often enters Mozambique in close alliance with national capital. Therefore, Chinese investment and trade relations between the countries have provided business opportunities for Mozambique’s elites. Similar patterns are evident elsewhere.

Civil society groups and commentators sometimes take precisely the opposite view, labelling China’s involvement ‘neo-colonial’, as our Zimbabwe study puts it – a purely exploitative relationship in which it takes from the continent what it needs and offers no sustainable development in return. This view is perhaps best expressed by a critic from Farai ...... when he says “  Whilst there is no dispute that China has taken advantage of the fall-out between Zimbabwe and the West to intensify its relations with Zimbabwe, questions  have arisen on the actual economic value of the influx of Chinese companies in Zimbabwe extractive sector.  In terms of labor, Chinese companies have a penchant for bringing their kith and kin to take up jobs which Zimbabweans can easily do, thereby deflating the employment creation claim.   Further, they pay low and insulting wages to locals and evade paying tax to government.” They have been fined on several occasions by Environmental Management Agency (EMA) for showing no regard to the environment and workers have repeatedly complained of human rights abuses at Chinese companies. There is limited technology transfer to locals, owing to the secretive nature of Chinese operations in Zimbabwe, their policy of shipping only raw materials to China with no commitment to value addition inside Zimbabwe. For example there are no sign that China intends to neither cut or polish in Mutare or Harare nor process the chrome it is mining in the Great Dyke region.       

The answer, as it so often does, lies somewhere in the middle. Our research finds that the developmental impact is mixed. Resources are indeed provided for local citizens, jobs are created and much-needed infrastructure is provided. Where Chinese money is invested in joint ventures with local firms or with firms based in other countries, opportunities are created for local businesses. But these impacts are far more limited than the elites who see Chinese resources as a solution to African development constraints are willing to acknowledge. In those countries with significant domestic manufacturing capacity, Chinese investment does threaten the viability of local industries. Skills and technology transfer are limited, and in some cases the investments do not generate the tax revenues which would normally be recovered. There is often little evidence that areas in which Chinese money has been invested have become more viable and are more likely to become sources of sustained development. Joint ventures seem limited mainly to countries which already have a substantial industrial base.

Chinese investment is thus not an unqualified boon or bane. Governing elites tend to overstate the development benefits, and the critics of Chinese investment understate them or deny them entirely. The challenge for the countries of the region is, therefore, not how to deter Chinese investment but how to ensure that the positive developmental potentials are enhanced.

It Depends on Where You Sit? General Impacts

Recent research has attempted to analyse the developmental impact of China’s role. It has echoed the point made here by stressing the mixed impacts, but it also makes an equally important point – that the impact depends on the nature of the African economy in which Chinese resources are invested. They suggest that countries with more developed industrial infrastructure may find Chinese investment more of a problem than those which rely on the export of raw materials.

Globally, according to our South Africa study, trade is the most visible impact of China’s growth. A recent study by Barry Eichengreen and Hui Tong (“How China is Reorganising the World Economy”) confirms that labour-abundant economies (such as South Africa) increasingly feel competitive pressure from China. On the other hand, capital- and technology-abundant economies enjoy a strong and increasing demand for their exports to China, creating new lines of comparative advantage. Their conclusion is that countries specialising in the production and export of components, capital goods and raw materials have positive spin-offs from China’s growth, while countries specialising in the production of consumer goods are impacted negatively. The pattern in foreign direct investment (FDI) flows is similar, in that countries which compete with China for horizontal FDI (such as South Africa) find it more difficult to attract investments. Some Asian countries have been able to build a supply chain relationship with China, but Africa’s geographical disadvantage excludes it from this process.

Most countries in the region are not exporters of capital goods and components – exports of finished goods to China are hardly a feature of the relationship. This analysis would suggest that they would benefit by finding a ready market for their raw materials. South Africa does export some finished products to China but, in the view of this analysis, the benefits are more than cancelled out by the effect on manufacturing industry. Raphael Kaplinsky, Dorothy McCormick and Mike Morris’s investigation into China’s growing impact on sub-Saharan Africa concludes that China’s intervention in the Southern African region poses a major threat to manufacturing, while welfare gains from increased commodity exports often turn into a ‘resource-curse’ with little benefit for the overall population. Chinese businesses do reduce costs for local consumers – for example, in South Africa, Chinese firms play a major role in importing low-cost clothing which cut prices for the domestic poor. But there is scepticism about the degree to which this benefit outweighs the negative impact on local manufacturing.

Their study does, however, appear to confirm that raw materials exporters benefit from the relationship. They note that much of Africa’s estimated 5 percent economic growth in recent years was attributed to China’s rapidly growing demand for African commodities. By the end of 2010, China-Africa trade was expected to total over US$110 billion, but it accounts for less than 4 percent of China’s total world trade and Chinese officials see significant potential for further trade growth.

It should be stressed, however, that the gains to raw material exporting countries are not necessarily developmental. While exports to China do clearly bring in revenue, if this does not generate sustainable local economic activity then the benefits – to citizens in the area where Chinese resources are invested as well as to central governments – are certain to be limited at best, and Chinese investment will not be a source of prolonged development. Chinese investment thus offers only potential gains to these countries. Unless Chinese investment prompts local beneficiation and value addition, the financial gains for some African countries will not have a longer-term developmental impact.

This broad analysis needs fleshing out by reference to concrete evidence in the countries which our research teams studied.

About the author(s)

Claude Kabemba is the Director of the Southern Africa Resource Watch (SARW). In 2006, the Open Society Initiative for Southern Africa (OSISA) asked him to spearhead the formation of SARW. He holds a PhD in International Relations (Political economy) at the University of the Witwatersrand (Thesis: Democratisation and the Political Economy of a Dysfunctional State: The Case of the Democratic Republic of Congo). Before joining SARW, he worked at the Human Sciences Research Council and the Electoral institute of Southern Africa as a Chief Research Manager and Research Manager respectively. He has also worked at the Development Bank of Southern Africa and the Centre for Policy Studies as Policy Analyst. Dr. Kabemba’s main areas of research interest include: Political economy of Sub Saharan Africa with focus on Southern and Central Africa looking specifically on issues of democratization and governance, natural resources governance, election politics, citizen participation, conflicts, media, political parties, civil society and social policies. He has consulted for international organizations such Oxfam, UNHCR, The Norwegian People’s Aid, Electoral Commissions and the African Union. He has undertaken various evaluations related to the work of Electoral Commissions and civil society groups interventions in the electoral process in many African countries. He is regularly approached by both local and international media for comments on political and social issues on the continent. His publication record spans from books (as editor), book chapters, journal articles, monographs, research reports, and newspaper articles.

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