Will the global financial crisis affect the presence of China in Sub-Saharan Africa?

Chinese President Hu Jintao will visit Mali, Senegal, Tanzania and Mauritius this month to discuss a series of measures to help African countries cushion the impact of the global financial crisis.

Over the past decade, China has been consolidating its economic relationship with various African countries.  Given the crisis, I thnk it would be interesting to discuss if China will maintain its aid, trade, investment and migration flows to Sub-Saharan Africa and if there will be opportunities for new innovative financing mechanisms.

In her recent book, "Dead Aid," Dambisa Moyo mentioned that “if you start to look towards China for example, which has $4 trillion of reserves, all of a sudden you could see there might be another opportunity to do a bond issue in the Chinese market." 

Some recent developments on this front: 

• China is confident to deliver on its aid package by the end of this year announced at the China-Africa summit in Beijing in 2006.
• Loans are still coming: Angola is close to securing an additional $ 1 billion loan.
• Chinese firms are still investing in Africa: Tanzania plans to sell a 49% stake in its state-run Air Tanzania to a Chinese firm.
• In Liberia, China Union just signed a $ 2.6 billion contract to develop the Bong iron-ore deposit.

I visited four countries – Ghana, Senegal, South Africa and Tanzania in 2006.  We interviewed several Chinese firms operating in Africa in order to  gain perspective on China-Africa cooperation and to see how goods, capital and labor movements facilitate the formation of business links.

Some observations from that trip:

1. Chinese Aid: There has been a lot of progress since the establishment of the first China-Africa Cooperation Forum in 2000 including tariff cuts, debt exemptions and the establishment of the China-Africa Development Fund. Chinese aid does not impose political and economic conditionality requirements, making it an attractive source of aid.

   China is investing in areas that western aid agencies and private investors have long neglected: physical infrastructure, industry and agriculture. Much of China’s recent official economic aid to Africa is in the form of China Ex-Im Bank loan financing. China also provides cooperation in human resources development. By the end of 2008, China has sent 125 youth volunteers and some 100 farming specialists to Africa. It has also trained about 11,000 local experts.

2. Loans: Beijing’s loans are oil-backed and many are targeted at infrastructure projects that facilitate development of the petroleum industry. Angola received as part of a larger package $ 2 billion in loans in 2004 and “it is close to securing an additional  $ 1 billion loan.”
     
3. Investment by Chinese firms: By 2003, Chinese investors had already established 602 businesses in 49 African countries, covering such areas as trade, industry, and agriculture. Chinese firms have been investing in African infrastructure (hydropower plants, pipelines, factories and hospitals). Chinese firms are competitive in countries where political situations, sanctions or other potential liabilities keep multinationals from investing in countries presenting such risks. Chinese companies have been active in the mineral rich countries of central and southern Africa. 

   Chinese expatriates were helping their firms to overcome information costs in doing business with China. Several of the interviewed firms reported that they imported their new machinery and equipment from China. (See Box 5.14 on "Africa’s Silk Road: China and India’s New Economic Frontier").

4. Chinese  Migration: Chinese migration to Africa has surged since the year 2000, according to a joint study by Barry Sautman, and Yan Hairong. 

   There were still some barriers to the free movement of labor between China and Africa countries. I found that Chinese firms in Tanzania and South Africa faced several problems to get study permits for children of expatriates.  In Tanzania, a firm paid $ 600 for a two-year working permit and a. Chinese expatriate had to show a return ticket to China at the point of entry.

Both China and Africa have recognized the potential economic gains in fostering cooperation. Chinese companies are attracted to the possibility for large profits in markets with less competition from multinational firms.  Deeper engagement with China is both desirable and inevitable for Africa despite the crisis. The purpose is to assess each aspect of this relationship and to measure carefully potential gains and losses to Africa.