The Chinese Investments in Africa - Essay Example

?Does Chinese Investment Really Benefit Africa? Table of Contents Introduction 3 A Brief Overview of the Chinese Investments in Africa 4 Critical Evaluation of the Chinese Investments in Africa 7 Conclusion 10 References 11 Introduction The conception of investment can be studied from both the viewpoints, of finance as well as of business. From the perspective of finance, the idea of investment is fundamentally defined as the procurement of any financial product or any other valued items with the purpose of expecting future favourable returns in terms of revenue or earnings. In general, the notion of investment is often defined as the execution of money in order to generate the expected return in the long term. In terms of business, the aspect of investment signifies the acquisition of any physical product and/or services which is duly purchased by the producers expecting a considerable enhancement in their future business operations (Myles, 2003). The importance of the aspect of investment is immense for every business organisation. The proper and adequate investment eventually raises the wealth and widens the financial freedom of the business organisations. The idea of investment generally fulfils the personal goals of the investors and also increases the social responsibility towards employees’ family members as well as the community (Myles, 2003). This particular paper broadly aims towards establishing whether the Chinese investments made especially in African continent can be regarded as beneficial. In this connection, various aspects that include the overall investment scenario made by China particularly in Africa along with critical evaluation of Chinese investments in Africa will be presented throughout the discussion. A Brief Overview of the Chinese Investments in Africa The African continent is recognised to be a significant emerging player, especially in the global market. It is also viewed as the most prominent destination for making investments followed by other countries that include China as well as India globally. This is owing to the fact that the establishment of modern technologies along with raising revenues especially from the few of the commodities that include oil and other valuable products in Africa which eventually boosted the financial development along with the advancement of the country. Due to these significant reasons, Africa is emerging as a great investment destination for several nations similar to China. Particularly, the western part of Africa is observed as one of the rapidly growing destinations in terms of investments, especially in the mining segment (Deming, 2010). In this connection, China continuously is forming up better as well as enhanced financial relations with Africa by taking into consideration the emerging worldwide scenario of the African business market. It has further been observed that the African continent is very rich in terms of natural resources that might boost the economy of China to a large extent. However, the country is observed to lack superior infrastructure as well as technology. Thus, the requirement of superior infrastructure as well as technology in Africa include telecommunication systems, roads, computer network systems and power generation among others eventually broadened various opportunities for the Chinese industries or companies to make investments in the African continent (Deming, 2010). It has been apparent that between the year 2007 and 2008, the business trade value between China and Africa was raised by 45 percent. During that year, the total business dealings between the two nations were estimated to be approximately $106 billion (Deming, 2010). However, due to the emergence of worldwide financial crisis, a few of the developed Western countries had decided to reduce the volume of investments particularly in Africa. On the other hand, China viewed this particular fact as a business opportunity with the intention of expanding its market share in Africa. It has also been observed that the interest of the long-term investment by China remained almost intact in spite of economic slowdown owing to the emergence of economic crisis worldwide. Notably, the chief export destination investment of China in African continent comprises of South Africa, Nigeria, Algeria and Egypt (Deming, 2010). In terms of the business functions, even in its traditional performances, China followed and has adopted the strategy of ‘going global’ which ultimately boosted the Chinese industries to make noteworthy investments in foreign countries to access enhanced as well as highly developed technology, energy, raw materials and foreign exchange along with export markets. In relation to Chinese investments in Africa, the private as well as the state-owned business enterprises of China have followed or adopted one of the business strategies i.e. joint ventures with the national governments as well as the private firms belonging to Africa. Notably, a significant number of Chinese companies have been reported to perform their business operations in Africa. These Chinese companies are mainly performing their business functions in Africa, especially in the sector of oil and gas, construction and development and significantly making large investments in certain areas such as telecommunication, textile manufacturing and engineering works. One of the chief reasons for China to make huge investments in the African telecommunication industry is that Africa is speedily developing in the world market of telecommunication (Arkhurst & Laing, n.d.). It can be stated that there lie certain important motives for the Chinese enterprises or industries for the purpose of making huge investments in several business areas in Africa. The crucial motive for the Chinese industries to invest significantly in Africa is the fact that the Chinese industries or enterprises have realised the utmost necessity of various natural resources which is very much essential for them in order to sustain in financial development along with attaining competitive position. According to the report published by the Chinese Ministry of Commerce, it has been viewed that the Foreign Direct Investment (FDI) of China in Africa has increased considerably by an average of 46 percent as compared with the figure in the last decade. The stock was assessed at USD 7.80 billion in the year 2008 while the stock was amounted to 56 million in the year 1996. Moreover, during the phase of the initial three quarters of the year 2009, it has been estimated that the flow of FDI from China was evaluated $875 million with an increment of 78.6 percent in Africa (Osei & Mubiru, 2010). The major FDI flow of China generally comprised the sectors of mining, telecommunications, transport and retail as well as wholesale business trade. Apart from these momentous sectors, the flows of FDI of the Chinese firms or enterprises also include oil and gas, ores and infrastructures. It is worth mentioning that the Chinese industries magnificently focused upon these sectors of natural resources. This is due to the fact that the African continent is very rich in natural resources which might deliver valuable input towards the Chinese economy (Osei & Mubiru, 2010). Critical Evaluation of the Chinese Investments in Africa There are certain significant factors which ultimately offer greater benefits to Africa, but at the same time certain crucial facets relating with the Chinese workers as well as materials may not be observed as much beneficiary to Africa as expected. In relation to the beneficial factors to Africa by the virtues of Chinese investments, it can be stated that the noteworthy investments that are made by the Chinese industries or enterprises have delivered manifest benefits to Africa. In this connection, the Chinese investments delivered superior as well as enhanced livelihood, better quality advancement opportunities and greater business alternatives to the local people. Moreover, the investments made by China also largely contributed towards generating employment opportunities in African continent. In this context, the Chinese investments increased as well as enhanced Sino-African liaison which had a vital effect upon the economy of both the nations. It has been further recognised that Chinese investments have been increased considerably which covers approximately 49 countries of the African continent and focuses on the wide assortment of business segments that include mining, construction, telecommunication, forestry, manufacturing and agriculture. For instance, China has been making deliberate efforts for the purpose of enhancing the self-development abilities of Africa by advancing a modern oil industry in Sudan (FOCAC, 2011). According to the information that was released by Zambia, in the year 2010, the Chinese investments generated an extensive quantity of approximately 15,000 job opportunities in the African continent. Along with the benefits that were acquired by the country, the local people of Africa also witnessed developments regarding much enhanced livelihood with accelerated construction of roads, buildings, housing and schools through the valuable investments that was performed by China in Africa. They also believe that like the Chinese investments, additional foreign investments are continuously becoming the chief resources towards the development as well as the advancement of the African nation (FOCAC, 2011). Certain broad as well as noteworthy estimations were made by the Standard Bank Group Ltd of South Africa regarding the Chinese investments which depicts that the investments made thereby may rise significantly by 70 percent to a level of $50 billion by the year 2015 as compared to the investment made in the year 2009. Besides, the bilateral business trade between Africa and China would reach a level of $300 billion by the year 2015 which is quite a bit higher than in 2010. In addition, as the Chinese industries or enterprises are seeking large number of acquisitions in Africa, it is predicted that the Gross Domestic Product (GDP) will grow by a level of 6 percent yearly through the year 2015 (Bloomberg L.P., 2012). The above discussed factors eventually deliver greater benefits to Africa by virtue of Chinese investments. However, there are certain issues which might not be beneficial for the African continent by forming Chinese investments. The major issue in this context can be related with the conditions of working people or the workers of China. The country basically prefers to bring their own materials as well as workforce when they arrive in any country in their course of international expansion. The main disadvantage regarding this fact is that most of the Chinese workforce was illegal which partly disturbed the smooth relationship between both the nations in terms of Sino-African relationship. Another momentous issue that might pose crucial disadvantage to Africa is the mentality and the business practices that are perceived and followed by the Chinese workforces which is quite dissimilar to the business cultures that prevails in Africa. This particular distinction in the mentalities as well as the business practices of the Chinese working people eventually becomes much antagonistic and openly discriminates against the labour forces of Africa and also ignores the local civil society of the country to a certain extent (Gong, n.d.). In this connection it can be said, the rising dissatisfaction amid the labour forces of Africa being employed in Chinese-owned enterprises due to the large distinction of the mentalities amid the workforces of both the nations impose crucial disadvantages for the African continent to a considerable extent. Moreover, along with bringing their own workforce in Africa, Chinese companies also tend to import their equipped materials to perform their business operations in Africa. This might bring huge disadvantages for the African continent due to the fact that owing to the increase in demand, the expected enhancement of technology products shall become quite challenging to be attained by the African companies. These two particular issues might possess certain disadvantages for the African continent by a significant level that can shatter minimising the overall benefits anticipated with the enhancement of Chinese investment in the country (Gong, n.d.). Conclusion After acquiring a brief idea regarding the valuable Chinese investments, particularly in African continent, it can be stated that the Chinese industries or enterprises largely emphasised the mining sector among other mention-worthy business segments that include agriculture, telecommunication, forestry and transport among others. The GDP as well as FDI of China rose substantially and are further predicted to rise considerably in the future years. The chief reason for the Chinese enterprises to concentrate largely upon making valuable investments in Africa, is due to the reason that the African country is considered to be rich in natural resources which can prove beneficial for the economic development of China as it is identified to witness a lacuna in terms of the availability of such resources. Noticeably, the Chinese investments that are made in African continent bring both major benefits as well as disadvantages to the development process in African nation. Apart from the benefits, the two momentous issues dealing with migrating Chinese workforces and materials eventually deliver greater disadvantage towards the country. With due consideration given to these issues or factors, it can be stated that the Chinese investments can deliver towards the overall development of the African countries, but with the imposition of these disadvantages the contributions might prove to be insignificant. In this context, these issues should be resolved adequately for the purpose of delivering maximum benefits towards African continent. References Arkhurst, I. I. & Laing, J, No Date. Investments. The Impact of the Chinese Presence in Africa. [Online] Available at: http://www.davidandassociates.co.uk/davidandblog/newwork/China_in_Africa_5.pdf [Accessed April 24, 2012]. Bloomberg L.P., 2012. China's Investment in Africa to Increase to $50 Billion by 2015, Bank Says. News. [Online] Available at: http://www.bloomberg.com/news/2011-02-22/china-s-investment-in-africa-to-increase-to-50-billion-by-2015-bank-says.html [Accessed April 24, 2012]. Deming, C., 2010. China, India Invest in African Markets. Markets in Motion, Vol. 1, No. 15. FOCAC, 2011. Latest News. China’s Investments in Africa Bring Multiple Benefits: Special Envoy. [Online] Available at: http://www.focac.org/eng/zxxx/t821268.htm [Accessed April 24, 2012]. Gong, S., No Date. Chinese Workers in Africa. Media. [Online] Available at: http://www.international.ucla.edu/media/files/80.pdf [Accessed April 24, 2012]. Myles, G. D., 2003. Investment Analysis. Investment Fundamentals. [Online] Available at: http://people.exeter.ac.uk/gdmyles/Books/IA.pdf [Accessed April 24, 2012]. Osei, B. & Mubiru, A. M., 2010. Chinese Trade and Investment Activities in Africa. Policy Brief, Vo. 1, Iss. 4, pp.1-11. Read More