By Mark Esposito and Terence Tse
China’s economic growth has been a key narrative in the story of economic miracle over the past two decades. Its Outward Foreign Direct Investment (FDI) in particular has played a prominent role in economic interactions with many developing countries. China, once a major recipient of foreign direct investment (FDI) has recently become one of the largest ‘emerging’ investors, especially in Sub Saharan Africa countries, with its biggest investments being in Nigeria, Sudan, South Africa and Angola among others. In recent times China has become an important partner of East Africa with some of its biggest projects in Uganda with an estimated total investment of $596m in 2012 alone (Jaramogi, 2013). With a recently agreed $2b oil field contract with China’s national offshore oil corporation CNOOC, Kenya has now an estimated total investment of $474m in 2012 (Xinhua, 2013). Tanzania sees an even larger investment, estimated to be $1bn (Tanzania Invest, 2012). However China’s increased presence in East Africa has gradually raised concerns about the economic development of these countries as well as the environmental and social sustainability of their natural resources; what remains unclear is whether China’s recent FDI in East Africa has any real intention in helping to promote economic growth and development in these countries. In recent times, China has undertaken multiple investments in sub Saharan Africa that most people believe is due to China’s search for natural resources to feed its industrial output. But it has not always been the case.
Until a decade ago, China’s influence in Africa was very limited. Between the 1980’s and 1990’s, there was a great economic change in the East African region as a result of the adoption of economic liberalization policies. These changes were brought about by the governments of various countries in the region resolving to use the private sector as its main catalyst for economic development. Since allowing access, China’s involvement in Africa has increased significantly.
Its issuing out of foreign aid was hardly significant, and as a highly populated country, it was not very active in the global market. However, in recent times, China’s economic reawakening – especially in foreign markets – has demonstrated that the era of observers regularly naming the US, France and the UK as the only foreign powers to have substantial interests in sub-Saharan Africa is coming to an end.
Over the past decade China has established itself as an increasingly influential player across the continent. Given the impressive scale and scope of its engagement, China’s return to Africa may turn out to be one of the most significant catalysts for developments for the region (Tull, 2006). Such growth is expected to continue, with forecasts suggesting trade between these two partners reaching $1.7t by 2030, up from a mere $200b in 2012 (UNCTAD World Investment Report, 2013).
In addition, China has succeeded in strengthening its ties with Africa by establishing the Forum on China-Africa Cooperation (FOCAC) back in 2000. Such tie was further strengthened in November 2006 during the FOCAC Beijing Summit.
The inflow of FDI has grown and continues to play an important role in the growth and development of economies by contributing to their Gross Domestic Product (GDP). However, the role of FDI in stimulating economic growth in developing countries is increasingly becoming a controversial issue.
Indeed, China’s relationship with Africa has always been a controversial topic of discussion among world leaders. China’s relationship with Africa has often been described as “colonial”, in which most of the benefits are far from mutual and often accrued to China. FDI if allocated properly is a method of financing domestic investments especially for countries that have inadequate capital. It also promotes advanced technology and management that indirectly stimulate growth in an economy. In view of the aforementioned, it is expected that China’s active FDI activities in selected East African countries should have had a positive impact by stimulating economic growth in these countries.
But whether China’s recent investment activities have had a positive impact on the selected East African countries is perhaps debatable. Arguments have been made for and against this growing trade and investment relationship between China and Africa. In countries like Uganda, where China’s investment activities continue to escalate, and in Ethiopia – where the Middle Kingdom has multiple ongoing projects like the building the African Union headquarters, and the construction of rail lines and roads, it is expected that these projects will aid in promoting economic growth for these countries in the long run. However in countries like Angola, and some parts of Nigeria, where there have been cases of corrupt business practices by Chinese firms, it is difficult to say if China’s FDI activities in Africa is making a net economic contribution as a whole. In some cases, China has seemingly created a dependency for the African countries, without providing real structural help to show integration in the local communities. Exploitation of labor, protectionism of technologies and distance from the interests of a real wish for inclusion, the current activities of China in Africa, raise increasing doubts.
Despite the arguments made regarding the impact China’s FDI on Africa’s economy – to be more specific East Africa’s economy, a thorough analysis needs to be carried out to determine the extent to which China’s activities impact the selected East African countries and their economies. There is limited research on this area, and we cannot merely draw conclusions from the different points of views of this growing trade and investment relationship between China and East Africa. More needs to be done.