AFRICA BUSINESS AND ECONOMICS

Five Reasons Why Chinese Private Investment is Flowing Into Africa

April 6, 2021 by Eric Claude Olander from The China Africa Project

Almost a decade, China passed the United States to become Africa’s leading source of foreign direct investment. LSE Senior Visiting Fellow Shirley Ze Yu explains why Chinese companies are looking to Africa for new opportunities and how today’s African market is reminiscent of what China was like in the 20th century:

  • CHINA NO LONGER HAS THE LABOR PREMIUM: China is aging at turbo speed. In 2022, China will become a deeply aged society and, by 2050, the median age is expected to be 51… With these figures in mind, Africa’s young labor force is exactly what China’s labor-intensive manufacturers seek today.
  • CHINA IS NO LONGER LOW-COST: China’s per capita GDP hit $11,000 in 2020, placing it in the upper range of a high middle-income country and touching the high-income country territory. Consequently, it no longer has the labor cost efficiency essential for middle to low-end global supply chains.
  • CHINA HAS SHIFTED FROM A LARGE AGRARIAN ECONOMY INTO THE WORLD’S LARGEST AGRICULTURAL IMPORTER: China’s rapid urbanisation has eroded much fertile soil and lured the farming population away from rural areas to the cities, deserting land for salaries.
  • AS CHINA TURNS ITSELF FROM THE WORLD’S FACTORY INTO THE WORLD’S CONSUMER MARKET, AFRICA’S EXPORTS TO CHINA CAN ONLY RISE BY INVESTING IN UPSTREAM PRODUCTION: China’s FDI stock in Africa totalled $110 billion in 2019, contributing to over 20% of Africa’s economic growth. Chinese FDIs have scaled up African supply to satisfy the rising middle-class demand.
  • AFRICA IS A FAST-GROWING CONSUMER MARKET: A rising middle class in Africa shares similar desires to consumers back home, with demand rising for smart city development, energy, consumption, education, entertainment, finance, and health. Savvy Chinese private companies are venturing into all these areas, exporting China’s business models, IP and technology platforms fit for emerging markets.

Read the full report on the London School of Economics blogs website.

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