MGMT1120 Case Study – China in Africa: A Big Step Forward

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MGMT-1120 Introduction to Business

China in Africa: A Big Step Forward, or a Bigger Step Backward?

Entering an untapped international market can strengthen a business tremendously—but what if the costs outweigh the benefits for the market itself? China has long been an important player on the global stage, but recent advances in manufacturing, natural resources, and energy production have catapulted the expansive country to the forefront of international trade. Currently the world’s fastest growing major economy, China is set to eclipse the United States as the world’s largest economy by 2016. Among various domestic and international plays, one of China’s most fascinating uses of its newfound economic might is a considerable interest—and investment—in the continent of Africa.

As its economy grew throughout the 2000s, China began establishing oil and mining firms across

Africa. In return for the cooperation of African governments, China built new roads, bridges, and other varieties of desperately needed infrastructure. The economic powerhouse’s inroads into the African market quickly widened, and so did the scope of its investments. For every new mining and drilling operation, China built new governmental buildings, sports stadiums and housing complexes. China’s most prominent declaration of its intent to strengthen ties with Africa, however, was the construction of the $200 million African Union building in Addis Ababa, Ethiopia. Today, China’s trade with Africa exceeds $190 billion—up from just $10 billion in 2000.

Many African leaders see China’s willingness to invest in Africa as an endorsement of the continent’s economic potential, or as African Union chairperson and President of Equatorial Guinea Teodoro Obiang Nguema puts it, “a reflection of the new Africa.” Others, however, see China’s actions as a step down an unfortunate path that Africa has walked before. As Nigerian Central Bank Governor Sanusi Lamido Sanusi suggests, “China takes our primary goods and sells us manufactured ones. This was also the essence of colonialism. Africa is now willingly opening itself up to a new form of imperialism.”

There are a number of reasons why China’s investment is a boon to Africa:

• Africa is the one of the fastest growing market and has the world’s richest mineral reserves—an emerging nation with a tremendous economy would be foolish not to invest in the continent. By planting roots in Africa early on, China is positioning itself for long-term growth. Its relationships in Africa will flower over time, presenting even more business opportunities.

• China’s investment in Africa is good for Africa itself. According to President of the Eurasia Group Ian Bremmer, “Fifty percent of Africa’s 1.1 billion people now live in cities. Their women are getting educated. As that happens, you start to see better demographics. They’re more sustainable. There’s less poverty, of course, and the government improves. And when the government improves, the investment starts looking less colonial.”

• China is a reliable partner with a real stake in Africa’s future. Two weeks after being selected as China’s head of state, President Xi Jinping selected Africa as his first official trip abroad. China has demonstrated a commitment to improve Africa’s political and economic climates as its own economy grows—which is more than can be said for many western nations. However, there are several reasons why Africa should limit China’s role in its economy:

• China’s continuous investment perpetuates the belief that Africa is helpless to improve itself and must forever depend on foreign aid. According to Chérif Moumina Sy, chairman of the

African Editor’s Forum, “China is an imperialist power . . . Africa must start thinking deeply of building the continent. We must think by ourselves or invent by ourselves other democratic forms and elections which fit the reality of our societies.”

• Western governments often necessitate that trade partners avoid unfair labor practices or at least support basic human rights, but China requires much less of its African partners. China does not hesitate to work with corrupt or authoritarian governments if it’s in the country’s economic interest. Thus, China’s investment is bad for the world’s long-term political climate.

• China’s inroads into Africa come at the expense of Africa’s citizens. Says Bremmer, “The Chinese quid pro quo typically involves lots of Chinese content, lots of Chinese labor that they’re sending over to these countries to work, which hurts local unemployment issues. And of course, the availability of commodities, including food, to be exported to China.

You Decide

1. Should Africa be wary of China’s continued investment across the continent? Who stands to benefit from this arrangement, and who stands to suffer? Explain

2. When engaging in international trade, China focuses on the business arrangement, not its political implications. Do you think the United States should act more like China, strengthening its economy by fostering mutually beneficial partnerships with foreign countries that do not promote democracy or fair labor practices? Justify your response.

3. China is set to overtake the United States as the world’s largest economy before the end of this decade. How do you think this monumental economic shift will affect your life in the short term? How will it affect your life in the long term? Should the United States try to maintain its role as the largest economy in the world? Why or why not? If so, how?

 

Sources: “China ‘to Overtake America by 2016,’” by Rachel Cooper, Telegraph website, http://www.telegraph.co.uk/finance/china-business/9947825/China-to-overtake-America-by-2016.html; “The World Factbook,” CIA website, https://www.cia.gov/library/publications/the-worldfactbook/rankorder/2003rank.html; “Is China Buying Up Africa?” by Samuel Burke, CNN website, http://amanpour.blogs.cnn.com/2013/03/29/is-china-buying-up-africa; “Mozambique-China Trade Continues to Grow,” All Africa website, http://allafrica.com/stories/201212090143.html; “African Union Opens Chinese-funded HQ in Ethiopia,” BBC website, http://www.bbc.co.uk/news/world-africa16770932; “In Africa, U.S. Watches China’s Rise,” by Peter Wonacott, Wall Street Journal website, http://online.wsj.com/article/SB10001424053111903392904576510271838147248.html; “Africa Needs to Think by Itself, Says Cherif Moumina Sy,” All Africa

 

http://www.telegraph.co.uk/finance/china-business/9947825/China-to-overtake-America-by-2016.html

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