In black African countries most of the population is located in the rural areas, estimates say around 70% to 80% of the African labor force are in rural parts of the country. The industry sector only employs 10% of the population. These people are left with no other choice than engaging in agriculture and the livestock sector. Their skills and equipment are still very basic which has a big impact on the output of the production. Access to services is also lower in the countryside. Most of the African countries struggle to improve these two sectors. In this way China can invest more in these sectors, it will benefit from it because African nations will be willing to accept any supply of equipment or settlement of any company that invest into them.
These countries are also facing an important problem with access to water, which is most basic need for human beings, livestock and crops. As what is mentioned above, the majority of the population resides in the rural parts of their respective countries, access to water is sometimes the biggest occupation of the day for many families. Those who are lucky enough have dwells but need to wait for a long period of time. This is another field where China can take advantage of. It can supply these countries with new technologies and skills to alleviate the problem. The problem can also be resolved at a larger scale, there is one project to irrigate countries in the sub-Saharian part of Africa by replenishing the Lake Chad (Transaqua). By investing in areas such as agriculture and access to water, first Africa will definitely benefit from it , and China will benefit too, and second it will be easier for China to engage in business with Africa ( the countries will be ready to welcome investments like in the other developed countries)
On the journey to deploy the belt and road initiative there are some issues to consider first. One of the most important is the safety of any potential investment. It is not rare at all to see projects that started in many countries to finally stop and be abandoned. This is because of some reasons. Therefore both China and Africa need to take these reasons into a risk assessment process.
China is investing a huge amount of capital and opening the doors to many Chinese companies to expand. Failing to assess risks accordingly may lead to a failure, a waste of Chinese capital, and indebtedness of African nations. OBOR initiative is a plan from China, however all the parties need to plan it carefully in order to achieve it.
Below is a list that provides a standard framework for the analysis provided on risk in Africa. it has 24 indices, which are risks that can occur:
• Political stability
• Government effectiveness
• The legal and regulatory environment
• Macroeconomic risks
• Foreign trade and payment issues
• Labor markets
• Financial risks
• Tax policy
• The standard of local infrastructure
1. Overall evaluation investment security risk: 2. Political stability risk
a) Armed conflict a) Social unrest
b) Terrorism b) Orderly transfers
c) Violent demonstrations or strikes c) Opposition stance
d) Hostility to foreigners d) Excess in executive authority
e) Crimes and attacks e) International tensions
f) Organized Crime
3. Government effectiveness risk 4. Legal and regulatory risk
a) Policy formulation a) Fairness of juridical process
b) Quality of bureaucracy b) Enforceability of contracts
c) Corruption c) speed of judicial process
d) Credibility of officials d) Discrimination against foreign companies
e) Human rights concerns e) Expropriation
f) Price control
5. Macroeconomic risks 6. Foreign trade and payment risks
a) Exchange rate volatility a) Trade embargo risk
b) Recession risk b) Financial crisis
c) Price instability c) Discriminatory tariffs
d) Crowding out d) Excessive protection
e) Interest-rate e) Current-account convertibility
7. Financial risk 8. Tax policy risk
a) Devaluation risk a) Stable regime
b) Depth of financing b) Discriminatory taxes
c) Access to local markets c) Level of corporate taxation
d) Banking sector health d) Retroactive taxation
e) Stock market liquidity
9. Labour market risk 10.Infrastructure risk
a) Trade union a) Port facilities
b) Labour strikes b) Air transport facilities
c) Labour laws c) Retail and distribution network
d) Skilled labour d) Road network
e) Freedom of association e) Power network
From all these risks and potential issues cited above the worst one seems to be the political instability in a country. In general investors are willing to take risks whatever the conditions may be (poor infrastructure, high corruption, and very bad business conditions) as long as the resources are attractive enough. In 2009, the total foreign direct investment inflows to Africa have increased by 5%, then started decreasing because of some issues related to political instability. Over this period of time the Southern part Africa achieved the largest increase in FDI (foreign direct investment). Actually, there is a negative correlation between political instability and FDI.
Since 2010 the FDI in Africa, especially in North and East Africa have decreased because of the political instability that led to terrorism, kidnapping and various internal security issues, also because of the frequent change in government policies.
The biggest deterrents to FDI inflows, regardless of the quality of a countries geological base are armed conflicts, political uncertainty and security threats, as it can be illustrated from the reduced FDI inflows to North and West Africa in recent years to 2014. Yet Egypt, which is gradually addressing its security problems, experienced increased FDI inflows during 2015 of 40 %
On the African side, there are three big concerns: the fear of neocolonialism, hard competition with Chinese companies and concerns regarding the respect of the environment by Chinese companies. Firstly, in many countries people worry that Chinese companies will cut corners on quality, ignore labor or environmental concerns, and thus produce low-quality products. In a case in 2007 the Democratic Republic of Congo and Gabon shut down many Chinese companies because of environmental abuses.
Secondly, there are concerns about the competition that Chinese firms might bring with them. For instance, in 2008 and 2007, a big supply of cheap goods, especially garment and textiles, has weaken and bankrupted many local industries, putting hundreds of thousands of Africans out of work, especially in South Africa, this led in return to protests especially in Zambia and Lesotho . China has since decided to limit the exportation of cheap goods that can harm the economy in South-Africa. This is a good initiative for solving the problem, China should definitely do it in all the African nations, because the local industries are not competitive enough to face Chinese companies. In some African countries Chinese companies have spread at a big range and Chinese people have started investing in small businesses, this is creating an atmosphere of anxiety and taking customers from local African competitors, as for example the market vendors in Cameroon face a strong competition from Chinese entrepreneurs who offer cheap goods (retailing, foods…). In Nigeria there is a dramatic impact on Nigerian textiles industries because of the Chinese textiles imports. However Nigerians are more concerned about Chinese imported labor to their soil. This is a spread phenomenon in Africa, Chinese companies tend to bring labor from China instead of hiring local workers in infrastructure projects, this result in the deprivation of countless job opportunities for locals. In Angola for example, even if China invests and helps the construction of infrastructures such as roads and railways, it employs Chinese entrepreneurs and workers in general.
Lastly, there are also concerns about a possible neocolonialism. This is because most of the countries in Africa have been colonized by Western countries, they still have memories and many of the consequences still exist today. The first issue regarding neocolonialism is that some countries fear that China will help them build infrastructures and give them loans they cannot pay back. Therefore they will be indebted to China and fear China might use this in their advantage. The second one is about the military expansion of China. In the recent three years, China has opened its first military base on the African continent, in Djibouti particularly. This has raised the concern of some African countries, because they fear in the future the soldiers can be deployed to interfere in either regional conflicts or to other nations.
5 Trends and recommendation:
The Belt and Road initiative is a very important plan, for China and the countries involved in. it has the potential to bring enormous benefits, however it has to be planned wisely before. During my four-year journey as an economic student, I was able to learn some economic tools and more important to learn more about the Chinese culture. In this way, according to the knowledge and experience I have got, there are some essential key points China and Africa should address in priority:
5.1 Mutual trust:
For the initiative to be successful, there are many variables to consider, such as the capital, the risk, benefit and so on… however the most important point is the trust between China and Africa. All the variables can have imperfections and problems within, but the mutual trust should be perfect, because it is the cement and the foundation of the initiative. As for now, a big trust exists between the two parties, first this is because of their similar history: China and Africa have both been victims of colonial powers in the past. They now share some special link which brings them closer. It is also notable to add that neither Africa of China has tried to conquer or to colonize any nation in the past. When you look back in history, we see that China has been willing to build schools, bridges and roads for free; China has also forgiven more than $3 billion of loans to Africa. More recently, China has given new headquarters to the African Union in Ethiopia, the sum is estimated to more than $200 million, but more important that the money spent, the symbolic present is the most important.
In the African side, fear is decreasing in general, because Africans do business more and more with China, either by engaging Chinese contractors for projects or by coming to China for business purpose. Zimbabwe is a country where trust with China has manifested itself in the daily lives of people. After years of economic issues and huge inflation, Zimbabweans now use the Chinese currency RMB in their daily business activities. By doing so, China has helped Zimbabwe with its inflation problem and Zimbabwe has shown its trust to rely on the China. That was a very sensitive decision to make, because the economy of Zimbabwe is now linked with the Chinese one, therefore if there is any devaluation Zimbabwe will suffer to.
5.2 Advice for a better cooperation:
For a better cooperation between African countries and China, I suggest the creation and implementation of certain laws that can protect investments in case of any problem (political problem such as change of government). These laws should be signed and respected whatever the circumstances. This will lead to more investments coming to Africa because entrepreneurs and contractors will have a guarantee of the safety of their capital.
As the idiom say “it is better to teach someone how to fish than giving him the fish” the second important advice is for China not only to build infrastructures in Africa, but to transfer the technology and skills to the African nations it is dealing with. This will definitely lead to more trust and make the African nations less dependent on other nations.
And finally there should be more transparency and guarantee from China because it has the upper hand in this deal. As cooperation is increasing, fears are also increasing, because the economic and political influence of China is spreading across the continent. Therefore all the deals and agreements should not only benefit China and Africa, but they should be clear without any hidden motive.
6 Conclusion :
2013 has seen the announcement of the Belt and Road initiative, which is a plan to connect and trade more with countries in the European, Asian and African continent. As for now more than 50 countries have taken part into it. After it’s achievement it will generate tremendous benefit for all of them. However African countries in the OBOR initiative are very few, actually they should be more present, because taking part into the initiative will bring to them investments and capital they lack. Countries in Africa are also full of natural resources and business opportunities China can benefit from.
The OBOR initiative is comprised of the Silk Road Economic Belt and Maritime Silk Road which is to connect with African countries. Through the Maritime Silk Road China has constructed many ports in Africa, they are to connect with China and facilitate the import and export of goods.
Taking part into the initiative will provide many benefits for Africa most of them are the investments in infrastructure, buildings and creation of jobs. This will lead in return of better standard of life and reducing poverty across the continent. The tourism industry will also boost in Africa due to more cooperation and closer link with China.
China will also gain from inserting more African countries into the initiative: opening the doors for Chinese firms to acquire contracts in Africa, the potential natural resources in Africa such as oil, wood and minerals, and also allow China to expand its presence in the world.
However there are some issues that should be dealt with in priority. These issues are one the first hand the risk of political instability, corruption and terrorism in Africa; one the other hand fear of China might have a hidden motive in investing in Africa.
Therefore there should be rules and regulations to protect Chinese investments and more transparency in the actions of China. It is important to say add the relevance of the transfer of skills which will show Chinese firms as good partners rather than selfish opportunistic firms. This in return will increase the trust towards China.