China to kick start consumer revolution in Africa

[General Duke]

China to kick start consumer revolution in Africa

 

Sean Carey

 

Published 25 January 2010

 

Print version Email a friend Listen RSS China's economic might in Africa can develop the continent's consumption markets and reap the rewards

 

Geely automobile factory in Zhejiang province, China. Photograph: AFP/Getty Images

 

Africa is on the move. Over the last decade the sub-Saharan region grew at a rate not seen since the 1960s, improving on the 1 per cent growth for much of the intervening period to more than 5 per cent a year. Of course, this is not as good as China's progress. The country which started the decade as the world's seventh largest economy (excluding Hong Kong) is poised to overtake Japan and become second only to the US because its annual average growth has been running at over 10 per cent.

 

But there is no question that the change in both countries' fortunes is linked. By buying up vast quantities of oil and other commodities like copper, iron ore and diamonds, China has been key to Africa's development as well as its own.

 

In many respects it will be business as usual for China in Africa during the next decade. It will continue to make deals (often at the expense of Western companies) for the raw materials for its many refineries and factories. It will also maintain investment in a significant number of infrastructure projects like bridges, roads and airports as well as providing soft loans for its trading partners.

 

But the most important new element in China's relationship with Africa is that it now has an eye on one of the world's largest untapped markets of around one billion people for its consumer products and services.

 

Attempting to outflank Western and other companies who have ignored the business potential in Africa, dubbed 'the failed continent' by foreign investors in the 1980s, is a clever move. But will the strategy succeed? I think it can because despite some concerns about the quality of some exports, a growing number of Chinese companies have now acquired the minimum level of technological expertise to supply a range of goods and services to African markets at prices far below those available from companies operating in the advanced economies of North America, Europe and the Pacific Rim.

 

China also has the potential and capacity to stimulate economic demand in Africa through engaging more with areas under its influence, effectively all sub-Saharan countries except for the very small number which recognise Taiwan, by hiring labour and sourcing more locally than it has done up to now.

 

Such a strategy would not only strengthen economic and political ties but would also have a significant multiplier effect creating large pools of young, relatively affluent consumers very keen to try out the latest gadgets and services. It is worth noting, for example, that Africa is the world's fastest-growing market for mobile phones with subscriptions increasing from just 5 per cent of the population in 2003 to over 30 per cent today.

 

Many of the consumer items available in advanced countries are already made by Chinese companies although unfortunately for them they don't own the intellectual property rights.

 

Furthermore, the economic and political power that comes from owning and controlling the distribution of global brands, which is underpinned by a formidable capacity in design, technology and service delivery, should not be underestimated. This explains all the fuss made about the extensive counterfeiting and piracy carried out by Chinese operators.

 

Manufacturing in the US and other advanced economies may well be in long-term decline but the strength of brands as diverse as Apple, Coca-Cola, eBay, Gillette, Gucci, Intel, Nike, Nintendo and Toyota continues to climb and makes the global economy go round.

 

The Chinese authorities have been well aware of this problem for its economy for some time now and this is why they have flown in a small army of US and European marketing experts to help their companies develop their own range of branded products and services.

 

But this kind of knowledge transfer has not been nearly as straightforward as the Chinese once thought because the brand and design expertise to be found in cities like Atlanta, Florence, London, Paris, Santa Clara, Seattle and Tokyo has been built up incrementally over many decades, knowledge which is geographically bounded for the most part because it is embedded in specific trading systems.

 

This explains why the Chinese are now very keen to buy global brands, which may be deemed superfluous to requirements by some Western companies still feeling the effects of the credit crunch, but retain sufficient value and prestige to make them appear very good long-term investments for China.

 

It is undoubtedly this logic that lies behind last month's $1.8 billion bid by Geely, the largest independent vehicle manufacturer in China, for Ford's Swedish carmaker Volvo. Significantly, the deal has the backing of the Chinese government who have defined the auto industry as a key sector of its economy.

 

Volvo, which has a workforce of around 20,000, two-thirds of which is based in Sweden, has been promised by senior Geely executives that it will be well-positioned to access the Chinese and other new markets.

 

Assuming the deal is finalised in May it looks like Volvo, which has built up an enviable reputation for the safety and sturdiness of its vehicles, as well as more recently for its oil-electric hybrid technology, will not only be visible in increasing numbers on Chinese roads but African ones as well.

 

However, it will be the appearance of new, cheaper cars from Geely using Volvo's technology but without the Volvo brand that will undoubtedly come on stream a few years later that will herald the real Chinese-led consumer revolution in Africa.

 

Dr Sean Carey is Research Fellow at the Centre for Research on Nationalism, Ethnicity and Multiculturalism (CRONEM) at Roehampton University

[B]

Originally posted by General Duke:

But there is no question that the change in both countries' fortunes is linked.

I stop reading at this point. Africa is a continent, china is a country. yet the author cant tell the difference.

[General Duke]

^^^Indeed, the author was wrong in this instances, a typo at worst, however what he was highlighting is the economic relationship between the two...

 

The rest of the article is spot on and better than the usual Western view of Africa as a no hope basket case.

[Nin-Yaaban]

Well it won't be long until western media start calling the Chinese the new colonial masters. As long as they are not actively meddling in the internal affairs of others, no one cares what they're called.

[General Duke]

China & India are the alternative to the West for Africa...

[General Duke]

China Woos Africa — And Not Just For Its Resources

 

Workers at Imboulou Dam, in the Democratic Republic of Congo. The 120-megawatt power plant is funded by the China National Mechanical and Equipment Corporation.

 

On Oct. 20, China announced, almost casually, that it was canceling 150 items of maturing government debt owed to it by 32 African countries. The announcement came a few days before a meeting between China's top legislator Wu Bangguo and Kenneth Marende, the Speaker of Kenya's National Assembly, to discuss cooperation between the two countries. Further, on Nov. 8, Chinese Premier Wen Jiabao was to attend the opening ceremony of the 4th Ministerial Conference of the Forum on China-Africa Cooperation to be held in Sharm el-Sheikh, Egypt.

 

Top-level meetings between China's leaders and their African counterparts have been occurring at the frequency of at least one every month. What is Beijing up to? When China declared 2006 to be the "Year of Africa," hosted 48 African nations at the annual 2006 China-Africa summit and rolled out the red carpet for 17 African heads of state, we assumed it was all about gaining access to oil and minerals to fuel China's awesome economic growth. But there is much more going on than a meet, greet and grab from the African continent. China has big economic plans and ambitions in Africa that go beyond oil and minerals. While much of the world still views Africa as a basket-case continent, Beijing is thinking ahead and busy establishing a foothold in Africa's potentially large consumer markets.

(See pictures of how the Chinese are changing life in Africa.)

 

Our common impression of Africa owes more to Joseph Conrad's Heart of Darkness than we would like to let on: Africa is inscrutable, wild, primitive and decades away from genuine modernization. Like the European businessmen in Conrad's 1902 novel, we assume Africa's only assets come from the land or beneath it. In the Heart of Darkness it was ivory. Now it is oil and minerals.

 

But China has caught on to something that eludes most governments and companies in the West. Chinese state-owned and private enterprises believe African consumers could be the great untapped gold mine. Beijing's engagement with African leaders and governments is increasingly about ensuring that Chinese firms are best placed to sell their products when Africans start buying.

(Read "Africa: Open for Business.")

 

While India is seen as a potential mass-consumer market in the future, statistics for Africa (if treated as one entity) are remarkably similar. For example, the African economy has been experiencing similar growth rates to India's of 6% to 7% over the past decade, and will likely see 3% to 4% growth in 2009 — impressive in the current global environment. GDP per capita in Africa is similar to that of India and, like India, the population in Africa is growing and will be similar in size to China's population in several decades.

 

Vijay Mahajan, author of Africa Rising, says there are 50 million to 150 million economic élites in Africa with similar spending power to middle classes in the West. More importantly, there are 350 million to 500 million people in the African aspirational classes — from households with stable jobs — that resemble counterparts in China and India being courted by Western firms. These African aspirants drink Coca-Cola, want mobile phones and yearn to own a car or motorcycle. The West focuses on the bottom half of Africans living in appalling poverty; Beijing is looking at the other half who might soon buy Chinese-made T-shirts, shoes and bicycles. China's Ministry of Commerce, through banks and export agencies, is offering cheap loans and tax and export credits to Chinese state-owned companies seeking to build a base in Africa. Incentives are given to Chinese manufacturing and retail businesses in addition to exploration and construction companies. In return for so-called "no-strings-attached" aid and cheap loans to African countries, Beijing expects privileged access to oil and resources, political support in institutions like the U.N., and African governments — be they good, bad or despotic — to give Chinese companies the first opportunities to reach local consumer markets.

 

There are weaknesses to Beijing's great plan. For example, cheap Chinese goods flooding the continent sacrifice African jobs, sparking a backlash against the Chinese presence. Corruption is serious, institutions are weak and political risk in various African countries remains high, meaning the possibility of social and economic breakdown is real. No one will bet their house on continued growth in many African countries. But the West should take note: China has a plan to seize the advantage should the African consumer take flight.

 

Lee is the foreign policy research fellow at the Centre for Independent Studies in Sydney and a visiting fellow at the Hudson Institute in Washington