While oil and mining remain an important focus, Chinese foreign direct investment (FDI) has flooded into everything from shoe manufacturing to food processing. Chinese firms have also made major investments in African infrastructure, targeting key sectors such as telecommunications, transport, construction, power plants, waste disposal and port refurbishment. Given the scale of Africa’s infrastructure deficit, these investments represent a vital contribution to the continent’s development.
What’s driving this intensifying interest is the recognition in China that the economic landscape in Africa has fundamentally changed. Over the past decade and a half, much of Africa has enjoyed uninterrupted growth. Even during the global economic crisis, Africa proved remarkably resilient, confounding the fears of African policymakers and the international donor community, alike. Chinese investors have been far quicker than their counterparts in developed nations to acknowledge — and benefit from — this economic outperformance.
Africa’s greater economic resilience has not come about by accident. In large part, it’s a result of hard-won economic reforms. Over the past two decades, African policymakers have built a much more solid economic foundation. Among other measures, they have liberalized trade policies, reduced entry barriers to new businesses, privatized many state-owned enterprises, and boosted the reliability of critical infrastructure such as electricity generation and distribution. The vast scale of investment now taking place in Africa would not have been possible without such policy advances.
Chinese investors are particularly well positioned to take advantage of the improved economic environment in Africa. The typical Chinese firm operating there is a large state-owned enterprise. These tend not to be the most efficient companies. But they do have a major competitive edge: they can avail themselves of subsidized credit from their deep-pocketed home government, enabling them to out-compete other bidders for African procurement contracts, not only other foreign investors but also African firms. Whatever their concerns about the conduct of foreign investors, many Africans recognize the benefits of their presence.
Chinese companies will need to act responsibly, even in this lax regulatory environment. But it’s equally important for African policymakers to take responsibility for protecting their own society’s best interests. Among other things, they must ensure that the contracts signed by foreign investors include provisions to safeguard the environment and the health of African workers.
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