A major alliance between two ascending regions of the world has been bubbling under the surface of public awareness for years. This alliance is of the economic variety, and has the potential to reshape the socioeconomic and political future of our world. The size of China’s investment in Africa is truly massive; or is it? As many may not know, China has been in the news for its lending and investing activities in Africa over the recent years. According to new research and investigation, however, the scope and hype of the Chinese activity in Africa may be over-exaggerated.
It is no secret that China has engaged in investment throughout the globe as a means of establishing its influence throughout the world. Although China promises loans for development in the billions, it actually only follows through about 56% of the time. This is not an indictment on the Chinese international lending and investing policies, but rather an interesting revelation about one of the largest scale investment and lending strategies in the modern world. In fact, for all of the news surrounding Chinese foreign direct investment in Africa, it turns out that only 4.4% of FDI (foreign direct investment) on the continent during 2013-14 came from China. The European Union, United States, and even South Africa all engage in similar or higher levels of FDI in Africa.
One other major misconception with Chinese investment and lending has been the concept of the “Angola Model”, which is essentially a way for the Chinese government to make low interest loans using commodity goods as collateral. While this is certainly true in Angola, and is the case in several other countries, there are numerous examples of Chinese I&L (Investment and Lending) in countries where natural resources are in actuality very scarce, such as Ethiopia. Also China tends to look to skill intensive countries when looking to invest to take advantage of “local comparative advantage.” Chinese investment even extends to countries with unstable political situations that the western world has effectively ruled out. Countries like the Central African Republic, the Democratic Republic of the Congo, and Zimbabwe have all seen massive investment and loans from China, mainly due to their economic potential.
All in all, China’s investment in Africa is monumental and significant. It turns out, however, that the scope and requirements of investment and lending aren’t quite what was commonly thought.