China Seeks to Unleash Africa’s Potential

Comments Off on China Seeks to Unleash Africa’s Potential
China Seeks to Unleash Africa’s Potential

To China, the “Dark Continent” is a golden opportunity. Africa first became known as the “Dark Continent” because nineteenth century Europeans had not yet mapped its jungles. Today, the name still applies because, as Google founder Larry Page once pointed out, the lack of electricity throughout much of Africa makes it nearly invisible in satellite photos.

And where there’s no electricity, there’s no Internet usage, no economic growth, and no prosperity.

Africa’s desperate need to build a power grid and to attract other types of infrastructure investments makes it a perfect partner for China, which has billions in capital to invest.  In recent years, those investments are growing swiftly. Data from the Chinese Ministry of Commerce show that privately owned Chinese companies made two investments in African manufacturing businesses in 2000; today, they’re making more than 150 investments a year. According to a Harvard Business Review article by Irene Yuan Sun, “The real figure is probably two or three times as large: Scholars doing fieldwork on the topic routinely encounter Chinese companies that have not been captured by government data.”1

Sun, who is an engagement manager at McKinsey, found several examples of Chinese entrepreneurs who have opened businesses in Africa, such as Sun Jian, who discovered that the heaviest product Nigeria was importing was ceramics, so he invested $40 million to build a ceramic tile factory in Nigeria with a workforce of 1,100. Even though electricity is unreliable and expensive, Sun’s profit margin in Africa is 7 percent, a significant increase over the 5 percent margin he earned when he located his plant in China.

As this example illustrates, Chinese investments in African manufacturing make sense because of rising consumer demand in Africa for cheap, mass-produced goods, even as demand for those products falls in China and throughout the developed world. In addition, China’s low-cost manufacturing advantage, which fueled its rapid economic growth earlier this century, is crumbling for a variety of reasons:

  • China’s labor pool is shrinking because its shortsighted one-child policy lowered its birth rate to the point that China’s factories now face shortages of young workers.
  • At the same time, increasing competition among employers for factory workers has driven wages up, with hourly wages rising 12 percent per year since 2001...

    To continue reading, become a paid subscriber for full access.
    Already a Trends Magazine subscriber? Login for full access now.

Subscribe for as low as $195/year

  • Get 12 months of Trends that will impact your business and your life
  • Gain access to the entire Trends Research Library
  • Optional Trends monthly CDs in addition to your On-Line access
  • Receive our exclusive "Trends Investor Forecast 2015" as a free online gift
  • If you do not like what you see, you can cancel anytime and receive a 100% full refund