China-Africa cooperation: a new dawn for African industry?

8 January 2016
Articles and blogs
At the Forum on China Africa Cooperation (FOCAC) in Johannesburg last month, President Xi Jinping proposed a series of major initiatives designed to usher in a new era of ‘win-win cooperation’. 60 billion USD was pledged to support goals such as poverty reduction, agricultural modernisation, and public health – a 12-fold increase on 2006 commitments.

Officials highlighted increased industrialisation in Africa as essential and advantageous for both parties, and in line with this China’s central bank announced yesterday a new China-Africa industrial capacity cooperation fund. So what’s in store for African manufacturing in 2016?

Can Africa capture some of China’s manufacturing jobs?

In spite of economic advances in other areas, in recent years Africa has failed to capture a large share of the manufacturing sector. In fact, its share of global manufacturing has decreased.

The effects of the deindustrialisation process that began in the 1980s are still being felt; the value added by manufacturing to the GDP of African nations declined to less than 11% in 2014. Meanwhile Africa provides only 4% of the global value added in manufacturing, and African countries are largely excluded from global value chains.

This is where China comes in. Rising production costs coupled with increased domestic demand for goods has created a gap that requires filling. At a DFID-ESRC Growth Research Programme event in December, economist Justin Lin estimated that as China moves to more capital-intensive processes, it will shed a significant portion of its 85 million jobs in manufacturing.

These changes provide an ideal opportunity for Africa: capturing even a portion of these jobs would boost employment, while consumer demand provides a further impetus for reinvigorating the industrial sector. Crucially, with greater industrialisation, Africa would be able to move away from its current commodities-based model.

The power of trade and foreign direct investment

While the FOCAC pledge is important, it’s not the only way of boosting Africa’s manufacturing capacity. Despite the challenges, there is already some Chinese foreign direct investment in Africa, not only in extractives, but also in services and manufacturing. These investments provide potential for promoting growth and economic transformation via the creation of jobs and skills transfer at both managerial and technical levels.

Chinese investment in infrastructure – especially in transport and energy – would also act as a strong foundation for a re-emerging industrial sector.

At the same time, ongoing and new investment in these areas would create trade opportunities that reinforce industrialisation, in the form of linkages between Chinese factories and local African firms (the latter supplying the former with goods and services needed).

African manufacturers also purchase Chinese goods – for example machinery used in the production process, which is cheaper than that exported by other countries – to reduce production costs and enhance their competitiveness on the global market. With the right policies in place, this could also promote the development of value chains in Africa.

A shift from commodities to industrialisation

These possibilities suggest a significant change of direction for the China-Africa partnership. While natural resources still constitute Africa’s main export to China (and the rest of the world), their absence from the FOCAC discussions plus the increasing presence of China in other sectors indicate a will to move away from this model of interaction.

It’s not clear, however, how fast this will happen. Africa also continues to face many challenges that financial assistance alone cannot solve, such as government coordination issues.

So, while there is cause to be optimistic, only time will tell whether FOCAC’s goals for a revitalised African industrial sector – and 'win-win' era in general – will be achieved.