Africa becoming low cost manufacturing hub for Chinese investments

Over the past several months there have been a variety of newspaper reports outlining China’s increasing investment footprint across Africa. Some of these announced deals and projects include the following:

- In April First Automobile Works (FAW), the Chinese car marker, announced a US$100 million project in South Africa through the China-Africa Development Fund (CADF) for a manufacturing facility for spare parts component.
- In May, the second largest investment deal worth US$877 million was announced between Jinchuan Mining, a Chinese state owned mining company and Wesizwe Platinum Ltd., a junior South African mining company in the platinum industry. The deal would see the Chinese company take a 51 per cent stake in Wesizwe. Jinchuan would purchase the stake in Wesizwe for US$227 million while the CADF would raise the rest of the US$650 million to help finance the Frischgewaagd-Ledig mine near Pretoria. Once the mine is built Jinchuan will be the recipient of the platinum produced.
- In May China International Fund (CIF) agreed to invest US$2.7 billion in a Guinea iron ore project. The project would entail investment in 286km of rail and port for Bellzone’s Kalia Iron Project. Bellzone is an Australian company.
- In Niger, the Chinese ambassador announced a multi-billion dollar energy and infrastructure project. Already a Chinese company, Sino-U, is digging China’s largest African uranium mine at Azelik. Part of the project would include a 2000 km pipeline to export oil from the landlocked country that would either connect to the West African coast in Benin or Chad where China has vested oil investments. The project will only be decided upon once the country starts producing the crude. China National Petroleum Company (CNPC) is already in the market with a US$5 billion investment for which it paid a US$300 million signature bonus. Niger is also attractive because of its major uranium deposits.
- A US$100 million loan to assist Ethiopia to complete a railway networking system that links Addis Ababa to various regions of the country.
- The Nigerian National Petroleum Corporation (NNPC) announced in May that it had signed a memorandum of understanding (MOU) with China State Construction Engineering Corporation Ltd. to construct three oil refineries (about 250,000 barrels per day capacity each) and a petrochemical plant. The total cost would reportedly be $28.5 billion.
- The China Development Bank (CDB) is to fund construction of a cement factory in Beluluane, in Mozambique’s Maputo province, costing US$100 million funded through the CADF.
- Kenya's Equity Bank announced that it had signed a US$50.82 million financing agreement with the China Development Bank for lending to small and medium businesses.
- Women Investment Portfolio Holdings Limited (WIPHOLD), a black women-owned company, and Continental Cement, a South African limestone mining company, signed a major deal with Jidong Development Group, the largest cement producer in Northern China, to build a US$217 million cement plant, which makes it one of China's biggest investments in the country.
- Plans to spend US$1 billion to help build a power plant to boost Zambia's electricity supply by 600 MW.
- Pledged economic aid to Seychelles worth approximately US$6 million for development projects.
- Pledge of US$15.6 million for various development projects, in addition to the US$7.1 million grant signed in January 2010, following a visit by President Kibaki after attending the opening of the Shanghai Exposition.

Clearly the above planned deals and projects confirm that China’s economic footprint is not withdrawing anytime soon. While this maybe interpreted as significant in revitalizing Africa’s economic growth and leveraging Africa’s integration into the global economy, there are of course important inquiries that must be made about whether this creates the necessary conditions for Africa’s path to sustainable development and improved livelihoods.

But the most strategic and perhaps critical to the Chinese engagement in Africa are the several industrial development zones that are being set up across Africa. While these zones are being identified as important economic interlockers between the Middle Kingdom and African economies, they also represent an important space for China to move its low cost manufacturing base offshore.

It is only natural that a country, like China, that has enjoyed such spectacular growth rates and sustained economic prosperity over the last decade should be seeking to move up the global value chain, especially as Chinese labour is becoming a little more expensive domestically. Some may remember that this was what Japan did during its own economic modernisation success. Termed the ‘flying geese model’ or, more appropriately, what the Chinese refer to as the ‘going global’ strategy, Africa seems to have become the last economic frontier for this shift in the global production chain.

As much as the economic gurus and the markets may dictate that this is part of the way that the global structures of production evolve, it is hard not to ignore the costs associated with this type of economic restructuring and shifting of production spheres.

Most obvious of these is whether the model is sustainable. Not only does it seem that China maybe shifting its low cost production offshore, but in the process it may also be exporting its environmental costs along with it. So what is the long-term impact on Africa’s ecology and environmental sustainability?

Second, as the Chinese firm entrenches itself in the African market, there are of course corresponding questions of skills transfer, economic governances issues and the protection of workers’ rights including both African and Chinese labour that will raise new forms of class struggles.

One aspect of this is to be found in the third related point as to whether a new form of African private sector (with business links to Chinese counterparts) is going to emerge whose power, outreach and ambitions may continue to marginalise the interests of Africa’s politically and economically indigent through different forms of capitalist class structures and formations.

Fourth, by enabling these special economic zones to become purveyors of cheap goods it would appear that China is giving up its image as a cheaper producer. If so, what implications would the label ‘made in Africa’ have on the continent’s own global economic integration, how would this impact on the position of African countries in the World Trade Organisation (WTO) and to what extent are these low cost manufacturing hubs aimed at taking advantage of preferential trade agreements with other regions? Would Africa have to pay the price for undermining the doctrines of trade liberalisation that China was able to overcome because Western investors were willing to ignore protectionist policies in their own backyards so that they could profit out of China’s economic modernisation programme? Will it be the same for Africa, or not?

Fifth, how would other Southern actors like India, Brazil and South Africa react to this? Would they see this as challenging their presence in African markets through increased competition or would they want to negotiate a share for themselves? Or would they also want to set up similar zones in Africa? India has already proposed a rural agricultural zone in Ethiopia.

Then, of course, is the issue of political stability and sovereignty in most African countries, which may become further complicated by the security threats that these zones may pose to the livelihoods of ordinary Africans.

So, while there are those who may applaud that these zones are going to rescue Africa’s moribund development framework, these zones represent new forms of challenges for social movements and peoples’ justice organisations. How they are conceptualised, the impact they have on labour rights, their environmental consequences and social development effects point to the hardening reality that such economic restructuring requires more than just a superficial understanding that China and other actors are going to be panaceas for Africa’s development or merely that they represent the next set of neo-imperialists. What is critical to define is where the benefits to Africa’s people can be identified and to protect against any infringement of these rights.

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* Sanusha Naidu is research director of the Emerging Powers in Africa programme based with Fahamu in South Africa.
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