Chinese companies are setting up shop in Africa, creating new manufacturing hubs across the continent and making an impact on the economy.
Since 2000, Chinese companies have gone from making two investments a year in Africa’s manufacturing sector to making 150. And in all likelihood these data, from the Chinese Ministry of Commerce, fall short of the reality. As scholars doing fieldwork on the subject report, many Chinese companies are not reflected in government data. The number could be two or three times as high.
Examples of Chinese companies manufacturing in Africa abound – and they are having a resounding impact. In Nigeria, Africa’s biggest economy, Chinese steelworks are fuelling a construction boom. In Ethiopia, Chinese pharmaceutical company Humanwell has broken ground on a $20 million production site, and plans to invest an additional $100 million in Ethiopia’s pharmaceutical sector. In Lesotho, Chinese and Taiwanese companies are making apparel bound for America, and in the process making the clothing industry the country’s largest economic sector.
The investments of Chinese manufacturing entrepreneurs are reshaping Africa’s economy, providing formal employment to millions, many for the first time, and creating new business opportunities. Wherever factories cluster, local suppliers flourish. Acknowledging that these entrepreneurs are “not saints”, Irene Yuan Sun writes in the Harvard Business Review, “Chinese manufacturers are arriving in larger and larger numbers in Africa, and manufacturing – unlike natural resources or services – leads to the possibility of industrialization. An industrial revolution in Africa: This is no longer a far-fetched notion.”
Part of what’s driving Chinese entrepreneurs to Africa are changes in China’s labour force. The one-child policy has shrunk the labour pool. Labour costs have risen dramatically, with hourly wages increasing by 12% annually since 2001. As Justin Yifu Lin, a former chief economist at the World Bank posits, “China is on the verge of graduating from low-skilled manufacturing jobs…That will free up nearly 100 million labor-intensive manufacturing jobs, enough to more than quadruple manufacturing employment in low-income countries.”
Africa seems tailor-make for a country with loads of manufacturing jobs and too few workers. It is at the beginning of a population boom expected to reach 2 billion people by 2050, creating the biggest labour pool in the world. The need for jobs is certainly present. In Nigeria, the official unemployment rate is over 12%, with many more adults recognised as “underemployed.” Youth unemployment has surpassed 42%. Chinese companies are seizing the opportunity, and increasingly filling their manufacturing jobs with locals.
While Africa remains challenging, other factors make it attractive to foreign investors. Nigeria has a massive domestic market with high margins and minimal competition in consumer goods. Lesotho has tariff-free access to the US market, as well as proximity to South Africa’s infrastructure and logistics services. Ethiopia offers tax breaks and ready access to Middle Eastern markets. In all cases, companies benefit from valuable local knowledge. All signs point to a growing trend.
