Investing in Africa

China Plays U.S. in a Great Power Game

By | Updated Feb 22, 2016 7:24 PM UTC

Africa has long been a battleground for world powers. Two giants playing there these days are China, which is spending freely throughout the continent to scoop up resources and tap some of the world’s fastest-growing economies, and the U.S., which is looking to do more business. Both Chinese and U.S. companies expect to profit from their African stakes. The question is whether Africans can win, too.

The Situation

China’s investments in sub-Saharan Africa have grown 40-fold since 2003 and have been made in every country on the continent, building things like hydroelectric dams, highways to oil regions and railways to carry iron ore. China’s government joined with the African Development Bank to create the $2 billion Africa Growing Together Fund. While Chinese companies have been criticized for importing Chinese labor rather than training and employing locals, they’re now building garment manufacturing plants to take advantage of Africa’s cheap labor amid high unemployment. U.S. development in Africa has been private-sector driven and concentrated in just a few countries including Liberia, Mauritius and South Africa. In 2014, U.S. companies pledged $14 billion in investments at the U.S.-Africa Leaders Summit in Washington. And the U.S. began the Power Africa initiative in 2013 to create the capacity to build electricity grids and generators across six countries by working with African companies and American partners with top-of-the-line technology, including General Electric. PowerAfrica pledged $7 billion in financial support and loan guarantees over five years to achieve 60 million new connections and generate 30,000 megawatts of power — a lofty goal. By July 2015, the initiative reported that it had helped complete financing on projects expected to install 4,100 megawatts of power, potentially generating 4 million new connections. Meanwhile, power shortages are cutting into African growth.

 

Source: Brookings Africa Growth Initiative from International Monetary Fund data

The Background

European imperialism left deep scars in Africa. During the Cold War, the U.S. and Soviet Union intervened to put dictators in power who lined their own pockets and left legacies of poverty, famine and conflict. Foreign aid was often misused and diverted for weapons. Food aid imported to combat famines depressed prices for local farmers. Unrest led to little investment in infrastructure; even now about 600 million sub-Saharan Africans — about 70 percent of the population — lack electricity. Though Africa is rich in minerals and energy sources, few Africans have benefited from exports of those materials. Some economists and policymakers have even argued that dependence on natural resources does more harm than good — a phenomenon they call “the resource curse.”

Sources: United Nations Conference on Trade and Development (investments); UN (populations); World Bank (electricity)

The Argument

China’s rapid-fire, state-funded building provides quick fixes for infrastructure needs in Africa, though some critics say construction can be shoddy. China also isn’t fussy about working with controversial political regimes, bestowing legitimacy on leaders in countries that U.S. companies won’t touch. Though it sometimes pays little heed to the political and environmental impact of its investments, China’s government has stepped in when its investments were threatened — as it did in South Sudan in 2015 — and thus could help promote calm. Yet Chinese growth is cooling and its investment in Africa has slowed, dropping 40 percent in the first half of 2015, according to the Chinese Ministry of Commerce. At the same time, the Chinese model shows signs of shifting. In December 2015, Chinese President Xi Jinping pledged $60 billion to promote cooperation and development efforts in Africa, saying “China strongly believes Africa belongs to the African people and African problems should be handled by the African people.” The U.S. has more consistently used development as a way to shore up regional stability, but its investments can take longer to get the jobs done, since companies have to satisfy shareholders and projects often undergo environmental vetting before they can get off the ground. U.S. companies are also subject to anti-corruption laws that make it almost impossible to do deals in places where bribery is common. U.S. and Chinese investments in transportation and electricity should make it easier for African businesses to get goods and services to and from the continent. African planners hope this will eventually help lift the average per-capita income in many countries past $10,000.

The Reference Shelf

  • Video: President Barack Obama’s speech at the U.S.-Africa Business Forum in Washington
  • The White House put a U.S. Power Africa page on its website to promote its plan to double access to electrical power on the continent.
  • The Brookings Institution has analysis on China and the U.S. in Africa at this topic page.
  • The Forum on China-Africa Cooperation tracks joint efforts throughout the continent.
  • Howard W. French has detailed China’s efforts in his book, “China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa.”
(This QuickTake includes a corrected description of the Africa Growing Together Fund.)

First published July 31, 2014

To contact the writers of this QuickTake:
Jeanna Smialek in Washington at jsmialek1@bloomberg.net
Jeff Kearns in Beijing at jkearns3@bloomberg.net

To contact the editor responsible for this QuickTake:
Anne Cronin at acronin14@bloomberg.net