China and Africa have been partnering on investments for approximately the last eleven years. In September 2018, delegates from both landmasses met at the seventh Forum on China-Africa Cooperation. The collaboration and cooperation makes Africa one of China’s greatest allies in the current global market environment. The level of China's investment in the continent of Africa has been increasing at a steady rate. At the 2018 China-Africa Cooperation Forum, China announced it would be providing $60 billion in financial support to Africa.
In this article, we'll review why China has prioritized and increased its investments in Africa. Some of the primary motivations that lie behind China's push toward increased investments in African nations include the desire to secure a solid base of raw materials to fuel China's own rapidly growing economy, the desire to increase China's global political influence, and the major growth opportunity presented by emerging market economies in Africa.
- China's amount of foreign direct investment in Africa has grown rapidly over the last decade.
- China focuses many of its investments on Africa's abundance of raw materials needed for the production of goods, such as platinum, cobalt, manganese, and uranium.
- China is politically motivated to invest in Africa because the continent represents a prime opportunity for China to significantly expand its global presence and influence.
- Africa is an emerging market and offers China a chance to achieve growth and high returns from its investments.
The Quest for Raw Materials
Mining and oil remain the primary focus of China's investments. However, the country's investments extend throughout virtually every market sector, including everything from infrastructure to food processing. China's investments in the largely undeveloped infrastructure of African nations are particularly strong, encompassing key areas such as utilities, telecommunications, port construction, and transportation.
China's investments have the country well-positioned to profit from continuing economic development in Africa. Many Chinese firms investing in Africa are state-owned. This gives them a notable competitive edge when, for example, bidding procurement contracts in African countries, since the companies can obtain substantial subsidies from the Chinese government.
The stakes in Africa are high due to the continent's rich abundance in raw materials. Africa is estimated to contain 90% of the entire world supply of platinum and cobalt, half of the world's gold supply, two-thirds of world manganese, and 35% of the world's uranium. It also accounts for nearly 75% of the world's coltan, an important mineral used in electronic devices, including cellphones.
China has also been expanding its military presence into Africa and rivaling the United States on investment and military activity there. Investment in the continent has also been a topic of discussion for the United States and China in its ongoing trade negotiations and political deliberations.
Fuel for a Growing Economy
China is a premier emerging market nation, and the well-being of its economy significantly impacts world markets. As the world's largest nation continues its economic expansion, Chinese leaders recognize the increasing need for natural resources, food, and product markets necessary for continued economic growth.
The focus on resource-rich Africa is a logical one for China. Mining investments account for nearly one-third of China's total foreign direct investment, or FDI, in African nations. By working to secure a solid base of critical raw materials, China strengthens its economy for decades to come. In part because of its need for an ongoing supply of raw materials, China considers Africa an important partner in its One Belt One Road (OBOR) initiative.
China's "One Belt One Road" is an elaborate economic development plan to improve cooperation and trade among approximately 78 countries spanning Asia, Africa, and Europe.
The African continent is a logical place for China to look to extend its geopolitical influence. China is already the preeminent power in Asia. India, a historically traditional rival of China, is not a realistic choice for China to look for an increase in political influence, but the largely undeveloped countries of Africa represent a prime opportunity for China to significantly expand its global presence and influence in the world.
The nature of China's political motivations are partially revealed by its extensive investments in African infrastructure, as can be seen in the funding it's provided through the China-Africa Development Fund. If China can rise to a position where it exerts major control over essential economic elements such as the utilities sector and telecommunications in African countries, while also developing military influence, then it also holds considerable political alliance in those nations.
Good Business Sense
China is known for its pragmatism, economic and otherwise. While it represents a major emerging market opportunity for developed countries, China itself has to consider where its primary emerging market opportunities exist. It is already heavily invested in other Asian emerging markets, as well as in Latin markets and South America. African economies provide another sensible choice to take advantage of excellent growth opportunities both for political reasons and investment returns.