China's push into Africa's Industrial Zones

Yesterday I attended a World Bank discussion on "Chinese Investment in Africa's Industrial Zones: prospects, challenges, and opportunity for Africa". Such "one-stop shop" zones have captured the interest of a variety of Chinese businesses, in addition to the World Bank, which is in talks with Beijing to collaboratively set up low-cost factories in these zones. 

Industrial clusters have been widespread in Africa for decades, yet successes, up until very recently, have been limited. There are three main obstacles:

1. Planning (location, legal framework, overall strategy)
2. "Doing Business" (infrastructure, administrative weakness, poor management)
3. Wider Competitiveness (policy uncertainty, poor domestic business climate, lack of export competitiveness)

Yet in spite of these shortcomings, China is keen to include Africa in its strategy to build over 50 overseas economic zones. Why?

Five key factors are driving this investment:

1. China's Going Global Policy, where Chinese companies are looking to increase their international presence by investing abroad
2. The Chinese government's desire to increase its overall FDI
3. The need to develop new markets for Chinese goods
4. China's strategy to foster corporate national champions ("Dragon Heads")
5. China's push for industrial restructuring: move up the value chains in terms of its own domestic production, while investing in low-value production overseas.

A typical example of such a cluster is the recently-opened Suez Economic Zone in Egypt (China's strategy for Africa does not differentiate between North and Sub-Saharan Africa).

The zone is funded with roughly 80 percent Chinese and 20 percent Egyptian capital. It contains 16 companies, producing everything from textiles and electronics to automotive and petroleum-based goods, providing approximately 1,850 local jobs.

Speaking of jobs, over at our Africa blog, Shanta Devarajan has laid out the three most important challenges and opportunities for the decade ahead. Number one: job creation.

Throughout the developing world, productive-employment-intensive growth remains a challenge. In Africa, it is almost a crisis, with most of the labor force working in low-productivity, informal-sector jobs, and 7-10 million young people entering the labor force every year. That the unemployment rate in South Africa—the continent’s largest economy—has remained around 25 percent is particularly troubling.

It's little wonder that Chinese industrial investment has been welcomed with open arms.

(Photo Credit: AFP)