How Chinese Entrepreneurs Are Quietly Reshaping Africa
WHY YOU SHOULD CARE
They’re setting up base by the thousands and could shape the continent more than Beijing’s large investments.
Wilson Wu has big plans for the free trade zone he manages in Igbesa, a scruffy town in Ogun state, some 37 miles from the frenzy of Lagos, Nigeria’s huge commercial capital. Casting his gaze over a small cluster of industrial warehouses surrounded by mud roads and bush, Wu can see a brighter future. “We will have a five-star hotel, a golf club, a Walmart,” he says in a well-rehearsed pitch. “It will be like Dubai.”
An electrical engineer by profession, Wu arrived in Nigeria in 2011, where, still barely 30 years old, he was tapped to manage the Ogun State free trade zone, a private-public project in which the local government provides the land and Chinese enterprise the capital.
Wu is one of an estimated 1 million Chinese citizens who have ventured to Africa over the past two decades to seek their fortune. Like many others, he sees in Africa’s raw energy and ambition an echo of the forces that were unleashed by Deng Xiaoping’s reforms of 1978.
“It is like the China of the 1970s and 1980s when you could open a business and maybe earn a fortune,” Wu says. “Those kind of fortunes are not possible in China today.”
People like Wu have been persuaded to test their ambition in far-flung corners of the world amid rising labor costs, industrial overcapacity and more stringent environmental standards back in China. While many entrepreneurs have looked closer to home, to countries such as Cambodia, others have struck out to Africa.
Nigeria has the conditions to be a factory of the world.
Zhou Pingjian, China’s ambassador to Nigeria
It is China’s massive infrastructure projects, including dams, railways, ports and telecommunications networks, that capture the most attention. Between 2000 and 2014, the stock of Chinese investment in Africa went from 2 percent of U.S levels to 55 percent. McKinsey estimates that, at the current breakneck pace, China will surpass U.S. levels within a decade.
Yet large companies are not the only Chinese actors reshaping the continent. Thousands of hardscrabble entrepreneurs like Wu, involved in everything from retail and factories to farming, are having just as big an impact.
Irene Yuan Sun, an associate partner at McKinsey and author of a book on Chinese investment in Africa, says the influence is particularly strong in manufacturing.
“Chinese manufacturing investment is the best hope that Africa has to industrialize in this generation,” she says. “Chinese involvement in Africa is not just about state-driven efforts. A just as large, if not larger, component is these private enterprises, which are more job-intensive, which localize quicker and which have a much larger economic and social impact.”
When Wu first came to Ogun, there was virtually nothing in place. The state’s free trade zone he manages is majority-owned by Guangdong New South Group, a private Chinese conglomerate with interests in everything from medicine to coal mining. Wu’s team was given a 0.86-square-mile patch of land and told to get on with it.
Nigeria, like countries across Africa, has a huge infrastructure deficit. It lacks reliable power, water and all-weather roads. New South Group has had to build almost everything from scratch, including natural gas–powered generators and yet-to-be paved roads connecting the zone to Lagos and beyond.
“It is like managing a country,” Wu says of the zone, which is designed to be an enclave of efficiency and stability in Nigeria’s notoriously unpredictable business environment. “We have our own customs, our own police, our own operations.”
After seven years in operation, the free trade zone has 50 registered companies, including two ceramic manufacturers producing tiles and plates, a steel-pipe plant and factories making everything from furniture to tomato sauce. There is a printing business, a plastic recycling company and another specializing in construction materials. “In the future, we will have a university for research and development,” says Wu. He expects 10,000 companies to set up base in the next 15-20 years.
“Nigeria has the conditions to be a factory of the world,” says Zhou Pingjian, China’s ambassador to Nigeria.
For now, though, Wu and thousands of Chinese entrepreneurs in the country like him have to contend with the present. Manufacturing made up just 9 percent of GDP in 2017, according to the World Bank, and President Muhammadu Buhari — who was re-elected in February — has complained that Nigeria imports everything from toothpicks to tomato puree.
Like other African countries, Nigeria’s manufacturing ecosystem has withered since the 1980s, partly because the state lavished billions of dollars on white elephant projects. Ironically, the import of cheap Chinese goods was another factor in destroying local production. Nigeria has also been hit by the oil exporter curse, which pushed up the exchange rate, making it cheaper to import finished goods than produce them. The country’s once-thriving textile industry is today a pale shadow of itself.
Because of a shortage of all but the most basic raw materials, most Chinese factories in Nigeria are limited to final assembly. They rely on imported parts, which means they need to access scarce foreign currency and coax supplies past sometimes obstructive port officials.
“When there is profit, a fluctuation in currency exchange rates can wipe it all out,” says Wing Liao, the founder of Winghan, a Chinese furniture brand with a factory in Ogun state.
To get hold of foreign exchange, many Chinese entrepreneurs buy Nigerian raw materials, such as timber and marble, which they then export to buyers in China or Europe in exchange for Chinese renminbi. Rings of Chinese money-changers specialize in matching those needing foreign currency with willing Chinese buyers of Nigerian imports.
“Once the ship leaves port and has its papers signed by the port authorities, you can collect your money,” says Ban Yushi, manager of a Beijing-based mining company.
Rightly or wrongly, Chinese entrepreneurs also complain about the skill levels of Nigerian workers, the product of a state education system that has deteriorated over recent decades.
“The machines are often too difficult to operate for local employees,” says Chen Donghua, a shoe factory manager at the Lee Group, a manufacturer owned by Hong Kong entrepreneurs. “But because local labor is cheap they can still package them by hand.”
Chinese businessmen also have to negotiate past Nigeria’s bureaucratic gatekeepers for permits and licenses. “To visit a government official here, you best have around $6,000 to $10,000 with you,” says Ban, the miner. “Otherwise, forget about getting an appointment.”
There are cultural obstacles too. Across the continent, Africans accuse Chinese workers of refusing to integrate, working in unmarked offices and dormitories. They are accused of bringing in their own labor, though companies have quickly learned they need to provide local employment if they want to stay in business.
From the perspective of Chinese workers, thousands of miles from home in an unfamiliar environment, life can also be tough. “This place is very lonely,” says Peng Hong, who manages a medicine manufacturing company in Lagos and Kano, which employs around 350 Nigerians and 45 Chinese.
Peng arrived in West Africa in 2005 from landlocked Hubei province, in central China, where he says, “life is too hard.” Life has been hard in Nigeria too. “We import most of our food and cook for our Chinese employees,” he says. On the weekends, Peng organizes company outings for his mostly male employees to the supermarket or to Lagos’ only Chinese-style karaoke bar.
Like others, Peng has had to battle. “We had to clear all the trees, drill our water wells, rig our own electrical transmission lines,” he says. “When I first came here, we had to light candles after 4 pm because there was no stable electricity. We could not sleep because of the heat, so we would sleep outside in the courtyard.”
Chinese views about their host communities can be blunt. “Nigeria has the most thieves in the world,” says Thomas Liu, who runs the medicine company where Peng works, using the sort of uncompromising language that grates from Accra to Kinshasa.
Yet despite their myriad complaints, they say fortunes beckon. “If I could give advice to my former self, it would be ‘move faster,’” says Kent Chan, manager of Grand Shine Construction Materials. He set up his first factory in Nigeria in 2015. “I actually wanted to come in 2014 but then Ebola broke out. If I had come that year, I think business would have been even better.”
The influx is by no means limited to Nigeria. McKinsey estimates there are more than 10,000 Chinese businesses operating in Africa, 90 percent of them privately owned.
Drawing on the “flying geese” concept of Japanese economist Kaname Akamatsu, researchers at the China-Africa Research Initiative at Johns Hopkins School of Advanced International Studies (SAIS) argue that, as costs in China rise, manufacturing will gradually shift to regions like Africa. Between 2000 and 2015, Chinese companies registered more than 1,000 African manufacturing proposals with the Commerce Ministry in glass, recycled steel, ceramics, gypsum board, textiles, dying, tanneries and shoe factories to name but a few.
Chinese companies, including garment-makers in Tanzania and Lesotho, relocated not only because of cheaper labor costs. They were also drawn by the prospect of tariff-free exports to the U.S. under the African Growth and Opportunity Act, and to the EU under the Everything but Arms agreement. In Ethiopia, Huajian from China and New Wing from Hong Kong were attracted by the country’s high-grade leather, the researchers at SAIS found.
Once companies gain a foothold in one country, many seek to expand. New South Group aims to open 10 industrial zones like the one in Ogun across Africa, starting with a 700-acre facility near the Kenyan city of Eldoret that began business in February. It plans to open in Ghana and Angola, where, as in Nigeria, reliance on oil exports has devastated local manufacturing.
In Nigeria, as in much of Africa, Chinese investment provokes suspicion as well as praise, but for the most part officials welcome the attention. Jonathan Coker, Nigeria’s former ambassador to Beijing, says Western warnings about Chinese investments are hypocritical.
“Diplomats say we will become slaves of China. This is the propaganda of the West,” Coker says. Instead, he adds, Nigeria has much to learn. “China is 10 times the size of Nigeria’s population but they have developed a system that can take care of their people. These are the examples we want to adapt.”
Not all Chinese entrepreneurs have a positive impact. In Madagascar, they are blamed for illegal exports of rosewood and zebu, a type of cattle. Chinese demand for African wildlife also fuels poaching, from Zambia to Mozambique.
Nor does Sun see the arrival of Chinese entrepreneurs as a magic bullet. The author accepts that, along with the promise of factories and jobs, they may bring environmental degradation and friction with African communities.
“But they are extremely entrepreneurial and they are doing profoundly important things,” she says. “Not all good, not all bad. But we have to pay attention.”
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