Author: Liu Xiang, Executive Director, Department of Regional Development and Planning, China Development Institute
Editor’s Note: Chinese investments in Africa should promote industrialization and strengthen the continent's self-development capacity. In recent years, China-Africa cooperation has been hit by Africa's uneven development, Africa's inability to develop itself and its debt crisis since the beginning of the century.
There are clear signs Africa's debt problem needs to be addressed. Unlike the charitable assistance from Western countries, which comes with various affiliated conditions, China is able to provide "coordinated industrialization" aimed at cultivating African countries' self-development abilities. Most African countries gained their independence in the 1970s. In the early days of independence, Africa's debt problems were not serious. During the Cold War, both the Soviet Union and the West tried to draw Africa to their side and provided huge loans that led to a rapid rise in the debt ratio of African countries.
By 1980, Africa's overall debt ratio had risen to 24.22 percent. Since 2000, Africa's economy has enjoyed strong growth. From 2000 to 2015, its average annual GDP growth rate reached 5.5 percent. Western financial markets have provided a lot of capital to Africa because of their optimistic assessment of its economic prospects.
The aid provided by Western countries did not solve Africa's development and debt problems, as it did not help Africa strengthen its capacity for self-development. It ended up being charitable assistance with various conditions attached. So if China is going to really help African countries, it needs to help them find the path of industrialization, support manufacturing capacity which suits the different development stages of African countries and attach great importance to the relationship between the transformation of China's manufacturing industry and Africa's industrialization needs.
China is still a developing country; its industrialization drive is still under way. But through the implementation of the Belt and Road Initiative and its overseas development assistance, China hopes to change the predicament faced by African countries to help build a community with a shared future for all mankind.
Four things are required to advance Africa's industrialization in a coordinated way:
First, China should concentrate its investment in countries and regions with better conditions. Seen from the current debt crisis there are obvious differences among African countries, some countries are still stuck in a debt crisis, while others have been able to deal with it, and have a strong ability to maintain sustainable development and political stability. When selecting which African countries to invest in, China should opt for those with good economic conditions, stable political situations, good industrial structures and strong sustainable development capacity, such as South Africa, Nigeria, Ethiopia, Kenya, Cote d'Ivoire and Angola. African countries generally suffer from unbalanced development. After selecting the countries in which to invest, we also need to evaluate the cities. Due to the current strong demand for export-oriented industries in Africa, it is suggested that port cities on the east and west sides of the continent be the priority. Some countries and cities with large population bases and strong consumption capacity can also be considered.
Second, China should increase its investment in manufacturing. The last round of large-scale investment was in infrastructure construction in Africa, which did not directly bring self-development to Africa, but laid a good foundation for the development of the manufacturing industry with ports, airports, other transportation networks and energy supplies.
Third, investment projects should be located in industrial parks. At present, the investment and business environments in African countries are still unfavorable. To create conditions for the manufacturing industry to take root, industrial parks are needed as the means to create a sound business environment quickly. Developing the manufacturing industry in industrial parks can also improve the industrial chain and supporting industries, which is conducive to the agglomeration and development of manufacturing. China's establishment of overseas industrial parks in Africa over the past 10 years points the direction for this round of overseas industrial parks. Also the current situation of manufacturing transfer is much better than it was 10 years ago, so the probability of success is higher.
Fourth, the current project contracting mode has many disadvantages. Since the project contractor does not bear investment risks, it is easy to cause low investment efficiency. For example, it is easy to exaggerate the significance of the construction project, and raise the project scale and level, and there is insufficient consideration of the demand for the operation period during the construction. To improve the efficiency of investment and promote the sustainability of China-Africa infrastructure cooperation, the mode of infrastructure cooperation and investment and financing should be changed.
For example, once a project contractor participates in the investment of a contracted project, it needs to bear the corresponding investment risk, and carry out more scientific demonstration of the construction scale and standards of the project. At the same time, the loan repayment ability and economic benefits of the project need to be considered to avoid the investment being wasted, and improve the efficiency of investment and avoid a large amount of debt to the host country.
In addition, local staff in Africa, both general technical workers and local managers, should be trained in the operation process. After a long period of operation, the whole project should be transferred to the host country. Training local staff and providing long-term and stable employment opportunities for local people will create favorable public sentiment for Chinese investments and will promote cultural integration between China and Africa. Training should also be provided for management personnel in African countries. The advanced corporate governance experience and management processes of China's operating companies should be taught to local management personnel to realize the localization and sustainable operation of projects.