To engage with China, you need a strategy

Monday July 24 2017

By BITANGE NDEMO
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China’s engagement with Africa is often criticised, but most of the criticism has no basis.

This is the conclusion you will arrive at if you read the latestMcKinsey report, titled "Dance of the lions and dragons: How are Africa and China engaging, and how will the partnership evolve?"

Despite the stack of evidence of beneficial aspects to the Sino-African relations in this report, we continue to complain about the Chinese presence in Africa.

Much of what we know of Chinese engagement with Africa is derived largely from opinion pieces we read in the newspapers or from biased debates on the China-Africa partnership.

The McKinsey report is perhaps the first well-researched report to demystify the Chinese presence in Africa.

The report’s findings are based on interviews of more than 1,000 Chinese firms operating across Africa and more than 100 high-level African government and business leaders. The purpose of the interviews was to show the true impact of China in Africa as the report noted below:

“In a mere two decades, China has become Africa’s biggest economic partner. Across trade, investment, infrastructure financing, and aid, there is no other country with such depth and breadth of engagement in Africa. The Chinese “dragons”—firms of all sizes and sectors—are bringing capital investment, management know-how, and entrepreneurial energy to every corner of the continent—and in so doing, they are helping to accelerate the progress of Africa’s “lions,” as its economies are often referred to. Yet to date, it has been challenging to understand the full extent of the Africa-China economic relationship due to a paucity of data.”

China is Africa’s number one economic partner, infrastructure financier and leading source of foreign direct investment growth. It is third behind the United States and Great Britain in donor financing. 

To date there are more than 10,000 Chinese firms in Africa, 30 per cent of which are in manufacturing, with more than 90 per cent of the firms in private hands.

Of the firms surveyed, at least 89 per cent of the workforce in these Chinese-owned firms was local. The survey established that Chinese engagement in Africa had other benefits including:

  • transfer of knowledge especially in areas of manufacturing and construction (64 per cent of those surveyed provide training);

  • transfer of technology by introducing new products or services;

  • local sourcing whereby 47 per cent of Chinese firms source from local African firms;

  • employment of local mangers that on average is at 44 per cent, with some companies employing as high as 80 per cent. 

Not everything is rosy. The report says there have been “instances of major labour and environmental violations by Chinese owned businesses. These range from inhumane working conditions to illegal extraction of natural resources, including timber and fish.” There are also cases of corruption. On balance, the report says, “China’s growing involvement is a strong net positive for Africa’s economies, governments, and workers. But there are areas that need significant improvement.” Some of these improvements will be explored later in this article.

The key lesson from the report is the different ways that China engages with Africa. The report identifies four models of engagement.

First, robust partnerships where African countries have a clear engagement strategy; second, solid partnership where the African states have meaningful and growing relations but with no strategy. The third model is unbalanced partnership, where states have none or limited oversight from regulatory authorities, and the fourth is nascent partnership, where the partnership model is yet to emerge owing to relatively small engagements, largely in trade. 

OPPORTUNITY FOR THE DISCERNING

Only South Africa and Ethiopia have a clear engagement strategy. Kenya, Nigeria and Tanzania, although having meaningful engagement, need to develop well-defined strategic arrangements. Angola and Zambia have a clearly unbalanced engagement, with countries like Ivory Coast still at the very low end of engagement.

It is not too late for Africa to exploit the emerging opportunities that Chinese engagement with Africa presents, which the report estimates to be $440 billion,

Although we have tended to be pessimistic about the future of China in Africa, the Chinese say the opposite. More than 74 per cent of the respondents said they were optimistic about their future in Africa. Africans must see what is making Chinese people optimistic about their own continent.

Our problems in Africa present a great opportunity. Inefficiencies are everywhere and there lies immense opportunity for the discerning. As the report states, the Chinese see opportunity in housing, banking and insurance, agriculture, transport and logistics, ICTs and telecommunications.

To unlock these opportunities we need a more open legislative and regulatory environment that could enable innovation. 

For example, the recent capping of interest rates on bank loans in Kenya was a misinformed strategy that is now causing havoc in the economy. 

We looked inward instead of allowing more players in the banking sector to drive down interest rates.

Nothing beats market dynamics, but when a country has a bunch of belligerent legislators, the economy suffers greatly. That is why we must vote for open-minded members of Parliament this time round. 

CHINA ENGAGEMENT STRATEGY

The report makes recommendations to enhance China-Africa partnerships and below I attempt to expound on some of the key ones:

  • Each country must clearly define its China engagement strategy and make it public to avoid public speculation that is often damaging to an otherwise beneficial engagement. African nations must have strategies around technology transfer, development of talent and skills and link local industrial policies to Chinese intentions in Africa’s quest for industrialisation. They must also develop clear policies around immigration, financing polies as well as building of the local content.

  • Africa must build capacities capable of dealing with Chinese bureaucracy, including learning the language and building China-specific capabilities. This, in my view, is the weakest point of the African countries’ delegations in international engagements. There must be policies in place to always utilise experts in place of cronies who often have conflicting intentions.

  • In areas like agriculture, African countries must develop the supply chain, provide hybrid seed, build extension services and clearly decide at what point they need investment from the outside, otherwise there will be a major conflict resulting from production systems that might disenfranchise an industry that employs more than 70 per cent of the workforce.

  • Policymakers both from China and African governments must strive to provide lessons to private Chinese investors on responsible business guidelines as a strategy to ensure ethical practices, adherence to statutory obligations and satisfactory work conditions.

  • Switch debt financing infrastructure development model to public private partnership to avoid criticism like we have seen with the Standard Gauge Railway in Kenya and Tanzania.

  • The African private sector must begin to take the lead in identifying problems and opportunities and seek partnerships with Chinese companies to avoid unbalanced relationships.

I conclude by quoting from the report.

“For the foreseeable future, the dragons are here to stay. And with continued and likely growing Chinese involvement, it will become ever more urgent to address the gaps in the partnership, including a greater role for African managers and partners in the growth of Chinese-owned businesses.

"Moreover, both Chinese and African actors will need to address three major pain points: corruption in some countries, concerns about personal safety, and language and cultural barriers. In five of the eight countries in which we conducted fieldwork, 60 to 87 percent of Chinese firms said they paid a “tip” or bribe to obtain a license.

"After corruption, the second-largest concern among Chinese firms is personal safety. For their part, our African interviewees described language and cultural barriers that lead to misunderstanding and ignorance of local regulations. If these problems are left unaddressed, the misunderstandings and potentially serious long-term social issues could weaken the overall sustainability of the Africa-China relationship.

Whilst much of Asia developed with the aid of Western largesse, Africa spent years complaining about the Western world’s donor funding intentions. Today we complain about China’s intentions without leveraging data. That is our undoing. 

In his lecture at the University of Nairobi last week, Chinese billionaire Jack Ma said, “If your work is just to complain, you’ll never succeed.”

The writer is an associate professor at University of Nairobi’s School of Business. Twitter:@bantigito