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Firms feeling their way across Africa

Updated: 2013-11-15 12:39
By Li Lianxing ( China Daily Africa)

Uncertainty still persists over extent and impact of Chinese manufacturing on development

When you arrive at Johannesburg's O.R. Tambo International Airport, you'll see a long advertisement stretching from the baggage claim area to the arrival exit proclaiming "New choice, new life. Haier inspired living".

Haier is a well-known Chinese company mainly producing home electrical appliances, which has taken major strides in several global markets, including Africa.

The international impression of China's engagement with Africa largely focuses around its involvement in infrastructure construction, such as building roads, bridges, dams, stadiums and harbors. There's also a widely held view that China is only interested in Africa for its natural resources.

Such views have overshadowed other development by China in Africa, especially in the manufacturing sector, which is desperately needed by Africans to embark on industrialization.

According to a recent research report, China's engagement with Africa is certainly not concentrated on resources. It is far more diversified, and has performed well in the manufacturing sector over the past few years.

The report, Survey Concerning Outbound Investment by Chinese Business in 2013, was released last month by the China Council for the Promotion of International Trade. It shows that state-owned enterprises are still responsible for most Chinese outbound investment, and that Chinese businesses are more likely to go to North America and the EU.

Firms feeling their way across Africa

Chinese investment in Africa, it indicates, is mostly concentrated in the manufacturing sector, not resources as befits the stereotype.

The report says manufacturing accounts for more than 30 percent of Chinese investment in sub-Saharan Africa, almost twice that of the mining sector.

Haier is among many Chinese companies choosing Africa as a new market. However, one of its main competitors in China, Hisense, established its factory in South Africa more than 10 years ago.

In that time, Hisense's share in the South African market has reached nearly 20 percent and is still growing. The company is now looking to expand its business and build more factories in other parts of Africa.

It is logical and sound that Chinese companies are moving their factories to Africa to be closer to raw material sources, and to get early tabs on a market with such a huge consumption potential.

But, more importantly, technology and skill transfer and job creation locally is the key to a sustainable development for Chinese manufacturing in Africa, as suggested by Justin Yifu Lin, former vice-president of the World Bank.

If you take a closer look at the Chinese-run factories in Africa, you'll find that they not only belong to big companies but increasingly to small and medium-sized ones, which signifies development success on both sides.

The costs for Chinese firms is greatly reduced in terms of labor and raw materials, while a more developed African market in return provides more opportunities for Chinese and local businesses, and more jobs.

Again, this is not a solo play by Chinese, but needs a collaborative effort, otherwise the hidden costs of setting up factories in Africa will be much greater. If, for instance, there is no improvement in local education and training, or social security risks are not dealt with, investment will wither.

Interestingly, although the Chinese engagement with Africa has been flourishing for more than a decade, we are only now seeing the beginning of a shift by manufacturing.

But from talking to some small and medium-sized Chinese manufacturers in Africa, it appears they are still wary of media exposure.

They say it is too early to evaluate their experience, and whether or not it was a smart move to open factories in Africa. They prefer to look on the situation as a trial period.

A Chinese proverb may be appropriate to describe Chinese manufacturers moving their factories and brands to Africa: "Wading across the stream by feeling the way."

The author is China Daily's correspondent based in Nairobi. Contact the writer at lilianxing@chinadaily.com.cn.

(China Daily Africa Weekly 11/15/2013 page12)

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