China's Growing Presence in Africa, Recently Emphasizing Reciprocity

China still maintains its presence as Africa's largest trading partner despite the impact of the spread of the new coronavirus. At the same time, as part of the “One Belt, One Road” initiative, China is trying not only to finance infrastructure construction, but also to actively engage in technology transfer. Recently, efforts have been made to eliminate Africa's trade deficit with China, such as by launching cooperation in the field of agriculture, one of the major industries of African countries. As China's presence in Africa continues to grow, the proportion of Japanese companies operating in Africa that are concerned about competition with Chinese companies is also increasing.

In this paper, while introducing macro data on trade and investment between China and Africa, China's recent investment in Africa, including China's specific investment projects in Africa, such as infrastructure investment implemented as project finance, will be discussed. Review policy. In addition, we will review the results of a questionnaire survey of Japanese companies in Africa conducted by JETRO, and summarize China's influence in Africa.

In 2020, China will be the top trader of goods with Africa for the 12th consecutive year

According to the Annual Report on China-Africa Economic and Trade Relations 2021, announced on September 25, 2021 In terms of trade in goods in 2020, China's imports from Africa amounted to $72.7 billion, down 24.1% from the previous year, and the total bilateral trade totaled $187 billion, down 10.5% from the previous year. On the other hand, China's exports to Africa increased by 0.9% from the previous year to $114.2 billion, making China the largest trading partner in Africa for the 12th consecutive year (see Table 1).

By country, exports to Nigeria topped the list with $16.8 billion, followed by South Africa with $15.2 billion, and Egypt with $13.6 billion. was increased. Exports to Ghana also recorded a significant increase of 37.8% over the previous year. China's exports to Africa are mainly machinery and electrical products, accounting for 36.7% in 2020, more than one-third of the total. This was followed by daily necessities and textiles at 17.8% and 17.5%, respectively (see Figure 1).

Source: Created by JETRO based on "China-Africa Economic and Trade Relations Annual Report 2021"

In terms of imports, South Africa was the top with 20.6 billion dollars, but it decreased by 20.6% from the previous year. Angola followed with $14.5 billion, also down 39.1%. The main imports from Africa are mineral products, which in 2020 decreased by 31.3% from the previous year, but still account for 61.9% of the total (see Figure 2). In addition, exports of agricultural products to China, which are the major industries of many African countries, have increased for four consecutive years.

The value of trade in services is also on the decline, partly due to the spread of COVID-19. In 2019, China exported $6.6 billion to Africa and imported $4.2 billion from Africa, totaling $10.8 billion. In 2020, China exported $5.2 billion and imported $3.4 billion. total of $8.6 billion, down 21.6% (see Table 2). Under these circumstances, Ethiopia, which became China's largest service trade partner in Africa in 2020, exported $800 million to China in the same year and imported $300 million, for a total of $1.1 billion. We are running a US dollar trade surplus. Compared to 2019, exports and imports from China increased by $210 million and $100 million, respectively. South Africa followed with a total of $840 million, followed by Egypt with a total of $720 million, but both decreased from 2019. Services trade is centered on construction and transportation, accounting for 37% and 22% of the total, respectively.

Adoption of "Dakar Action Plan" to reduce Africa's trade deficit with China

The Forum on China-Africa Cooperation (FOCAC) held in Dakar, )”, the “Dakar Action Plan” was adopted at the 8th Ministerial Conference (see business brief dated December 7, 2021). With regard to Africa's expanding trade deficit with China, the goal was set at 300 billion dollars in Africa's exports to China over the three years until 2024, when the next FOCAC is scheduled to be held. Agricultural products, which are the main exports of African products to China, are on the rise. lanes)” was decided. In addition, it was decided to expedite inspection and quarantine procedures for exports, and to expand the scope of zero-tariff products for those with diplomatic relations with China. In addition, as financial assistance to African countries, a total of 400 billion dollars will be invested by Chinese companies in Africa by 10 billion dollars, loans to African financial institutions of 10 billion dollars, trade finance of 10 billion dollars, and special drawing rights of the IMF of 10 billion dollars. 100 million dollars of support has been decided.

Use of EC in Africa's exports of agricultural products to China

As mentioned above, exports from Africa to China are on the rise, and from 2018 to 2020, China's overall imports will increase. Although it has risen from 3% to nearly 6%, agricultural exports by African countries to China are dominated by seeds and fruits, tobacco, nuts, cotton and wool, which account for an average of 83% of total agricultural exports. %. China's vice minister of commerce Qian Keming said imports of cotton and coffee have doubled in the first seven months of 2021 compared to the same period last year, but these commodities still account for around 0.2% of total imports. .

In the meantime, efforts are being made to expand sales channels for African agricultural products in the Chinese market through EC (electronic commerce) platforms. At the opening ceremony of the "African Products Online Promotion Season" held prior to the aforementioned FOCAC Ministerial Conference, Wu Peng, Director General of the African Affairs Department of the Ministry of Foreign Affairs of China, said that the EC platform would further promote the import of African agricultural products. Stated. In 2022, Kenya signed a Memorandum of Understanding (MoU) with China to sell agricultural products such as tea, coffee, macadamia nuts and avocados online in the Chinese market. Chinese companies such as telecom giant Huawei Technologies, China Mobile and Xiaoyun Group have been pitching it, the people said. Such an online platform is said to be an opportunity not only to access the Chinese market, but also to overcome logistical challenges such as product supply delays from the perspective of the COVID-19 pandemic.

Even with the corona crisis, China's investment in Africa exceeded the previous year

With the spread of the new corona infection, global foreign direct investment (FDI, flow) in 2020 will decrease significantly. China's outward investment in 2020 increased by 3.3% year-on-year to $132.9 billion (see business brief dated January 29, 2021). China's investment in Africa has continued to grow since recording $75 million in 2003, reaching $5.4 billion in 2018. In 2019, it fell to $2.7 billion, half of the previous year, but recovered to $4.2 billion in 2020. Under such circumstances, according to the "Investment Trend Monitor (2.85 MB)" released by the United Nations Conference on Trade and Development (UNCTAD) on January 24, 2021, due to the decline in commodity prices, global investment in Africa in 2020 Total value fell 18% year-on-year to $38 billion. In other words, China accounts for 11% of global investment in Africa. By country (stock), South Africa accounts for 12% of the investment destination, followed by the Democratic Republic of the Congo (DRC), Zambia, Ethiopia, and Angola (see Figure 3). By industry (stock), construction is $15.2 billion, mining is $8.9 billion, and manufacturing is $6.1 billion (see Figure 4).

Looking at individual projects in 2020, greenfield investment included many investments related to the establishment of production bases and local offices. Construction machinery giant Zoomlion has announced plans to invest about $100 million to build two waste treatment plants in northern Ghana. China Electric Power Construction Corporation is working with Zambia Power Supply Corporation to invest a total of $548 million to build three solar power plants in Zambia. The project will bring the capacity to 200 megawatts. Guangzhou Senda International Trading Co., Ltd. is investing a total of US$323 million to set up new ceramic factories in Senegal, Mozambique, Cameroon, Zambia and DRC respectively. KEDA Clean Energy invested $1339 billion to open a new ceramic tile factory in Senegal. This will result in the production of 55,000 square meters of tiles per day. Elsewhere, Realm, a subsidiary of smartphone maker BBK Electronics, has invested about $200 million to open a new office in Cairo, Egypt.

Looking at recent projects, China National Petroleum Corporation (CNPC), a state-owned company that produces and supplies crude oil, will develop the second stage of a crude oil pipeline construction project in Niger and Benin in West Africa in October 2021. We are making a new investment of $183 million to The project is to build a 1,950-kilometer pipeline from the Agadem oil field in Niger to the Port of Cotonou in Benin in order to promote oil field development. (See Business Notes). With this investment, approximately 90,000 barrels of crude oil will be transported per day, and crude oil production capacity is expected to exceed 40 million barrels per year.

Looking at M&A, investment in the resource field stands out. China BaoSteel Group Co., Ltd. (Baowu) has acquired a $15 billion 39.05% stake in a state-owned mining construction project in Blocks 3 and 4 of the Simandou Iron Mine in Guinea, one of the world's largest undeveloped iron ore fields. is scheduled to be acquired by In December 2020, Luoyang Manchuan Molybdenum Industrial Group (CMOC) acquired Xanhu copper from U.S.-based Freeport-McMoRan in DRC, the world's largest producer of metallic cobalt for batteries.・Announced that it has acquired a 95% stake in a cobalt mining project for $550 million. In 2021, Wanboa, a subsidiary of China Northern Industrial Group, will acquire a 35% stake in Morocco's Managem Group's Gavgaba gold mine expansion project in Sudan for 250 million. announced that it would be acquired for US dollars. In addition, Jiangxi Ganfeng Lithium has announced that it will invest $130 million in the Gouramina mine project in Mali, acquire a 50% interest, and establish a joint venture.

China meets Africa's demand for infrastructure

The demand for infrastructure in Africa is high, and new construction projects in Africa undertaken by Chinese companies in 2020 amounted to 67.9 billion dollars, an increase of 21.4% from the previous year. I did. China's financing for energy and infrastructure projects in Africa peaked in 2017 (approximately $11 billion). In 2020 due to the corona crisis, it has risen to 3.3 billion dollars. For China, which aims to secure resources in Africa, large-scale infrastructure projects are important from the perspective of laying the groundwork for securing resources, such as reducing transportation costs and improving efficiency.

Among infrastructure investments, investments in transportation infrastructure such as railway stations and airports account for 30% of the total. For example, China is pushing ahead with plans for an East African rail network as part of its One Belt, One Road initiative. In 2014, when China and Kenya signed a contract for financial and technical cooperation, the Chinese side invested approximately $3.8 billion, and the central company (Note), China Transportation Construction Group (CCCG), was responsible for construction. became. In November 2017, the Standard Gauge Railway (SGR) connecting Kenya's capital Nairobi and the port city of Mombasa opened, and in October 2019, the Nairobi-Maraba SGR 1st Project was extended to the border with Uganda for passenger transport. in December of the same year. Currently, as the second plan, the extension work to Naivasha in the northeast of Kenya is underway. Furthermore, as a goal by 2030, the extension to Kampala, the capital of Uganda, has been set, and eventually it is planned to extend to neighboring countries in East Africa such as South Sudan, Rwanda, Burundi, Tanzania, DRC, and Ethiopia. ing. The project is expected to create more than 26,000 jobs, boosting the Kenyan economy, and in the future, it is expected to contribute to reducing distribution costs within the region.

Japanese companies are concerned about competition with Chinese companies, and some companies see them as partners in third-country collaboration

Regarding China's ever-expanding presence in Africa, local Japanese companies commented: There is also growing concern about competition with Chinese companies. In the 2021 survey of Japanese companies operating overseas (Africa edition) (1.96MB) conducted by JETRO, 22.6 of them answered that Chinese companies were the most competitive companies in Africa. %, second only to the top European company with 24.9%. After taking the top spot at 22.9% in FY2018, Chinese companies continued to decline to 18.8% in FY2019 and 17.3% in FY2020. It has become. By country, among the countries where 10 or more companies responded, 38.5% of Japanese companies based in Senegal responded that they were Chinese companies, followed by Nigeria at 36.8%. In addition, although the number of responses is small, 3 Japanese companies based in Ethiopia (out of 9), 3 in Côte d'Ivoire (out of 9), 2 in Tunisia (out of 4), and 1 in Angola ( 2 companies) say they are competing with Chinese companies. Many of the companies that say that they are most competitive with Chinese companies cite competition between their own products and Chinese products.

On the other hand, 7.0% of respondents said that Chinese companies would be their "partner countries" when doing business in Africa, up from 6.0% in the previous year. The partner country with the most responses was France at 17.1%, followed by South Africa at 10.1% and India at 9.7%, followed by China in fourth place. By country, among the countries where more than 10 companies responded, Japanese companies based in Senegal also accounted for the highest percentage, with 23.1% of respondents considering Chinese companies as partners. Mozambique followed with 20%, Egypt with 19.2%, Nigeria with 10.5% and Ghana with 10%. Elsewhere, Ethiopia (out of 9), Zambia (out of 6), Rwanda (out of 5), Tunisia (out of 4), Madagascar (out of 4) and Angola (out of 2) each They answered that they are considering Chinese companies as partners. The reasons why Chinese companies can become partners in Africa are that they can make use of the networks of business partners that Chinese companies have, and that businesses related to projects that China is promoting are progressing or there is a possibility of entering the market. It is increasing,” he said.

China seeks reciprocity in its relationship with Africa

China's aim in expanding into Africa is said to be to secure abundant resources and to create pro-China public opinion in Africa. As mentioned above, under the Belt and Road initiative, China has poured huge amounts of money into African countries, mainly for infrastructure projects. Some have criticized it as "debt-ridden diplomacy." Against this backdrop, China has recently taken a proactive stance in non-financial areas as well, increasing its presence in areas where Japan and other countries have traditionally excelled, such as health, environmental protection, and education, including technology transfer. ing. At the 2021 FOCAC ministerial meeting, concrete measures and numerical targets aimed at reducing Africa's trade deficit with China are presented, and there are reciprocal elements in the policy. In the midst of these developments, Africans' impressions of China are also positive. According to the "Afrobarometer 489th Report (611.89KB)" released on November 15, 2021 by Afrobarometer, which conducts public opinion surveys in Africa, 63% of Africans believe that China has political and economic influence. I have a positive impression of power. This is the top number, surpassing the United States (60%), UN agencies (57%) and former colonial powers (46%).

For Japan to strengthen its presence in Africa, the power of private companies is important. However, price competition with Chinese companies is tough for Japanese companies. Nonetheless, there are quite a few local voices demanding high-quality Japanese-made products (see regional analysis report dated September 9, 2021). Rather, it is a fact that many companies see European companies that develop low-cost, high-quality products and services as competitors. For Japanese companies, the challenge is to form partnerships in the untapped African market, where the business environment is very different. . While doing business in Africa, it will be necessary to examine what kind of benefits can be brought about by partnering with companies from which countries.