Chinese firms operating in Africa now control a share of the continent’s industrial production market estimated at about $500 billion.
This is according to a new report released on June 28 by McKinsey, which also claimed that “Chinese firms already handle 12% of Africa’s industrial production—valued at $500 billion a year in total.”
In infrastructure, Chinese firms’ dominance is even more pronounced, having cornered nearly 50 percent market share of Africa’s international engineering, procurement and construction (EPC) market.
“Chinese engagement with Africa is set to accelerate—by 2025 Chinese firms could be earning revenues worth $440 billion, from $180 billion today,” said Kartik Jayaram, a senior partner and co-author of the report said.
However, to unlock the full potential of the China-Africa partnership, 10 recommendations for Chinese and African governments as well as the private sector have been identified.
To highlight two key ones, Jayaram said “African goverments should have a China stragegy and the Chinese government should open financing and provide guidance to Chinese firms.”
Nearly a quarter of the 1000 firms surveyed said they covered their initial investment within a year or less.
A third recorded profit margins of over 20 percent, showing that they are agile and quick to respond to new opportunities and are primarily focused on serving the needs of Africa’s fast-growing markets rather than on exports.
Chinese firms have also made investments that represent a long-term commitment to Africa, with 74 percent of those surveyed saying that they are optimistic about their future in Africa.
When some 50 African public-sector leaders were asked what they value most from their Chinese partners, low-cost financing and improved infrastructure topped the list, but they cited Chinese firms’ efficient cost-structures and speedy delivery as major value-adds.
“While on balance, China’s partnership with Africa is a positive for African economies, governments and workers, but there are areas that need significant improvement,” the report noted.
By value, only 47 percent of Chinese firms’ sourcing was from local African firms, which is a lost opportunity for these firms to benefit from Chinese investment.
- Also, too few locals are in managerial positions, accounting for only 44 percent as at today.
- One factor cited by Chinese firms is personal safety and corruption in some countries, which remain top concerns for them.
- For African leaders, language and cultural barriers are pain points, and there have been instances of labour and environmental violations cited by them.
- This is because few African countries have a clear strategy and engagement plan for China, making it imperative for African governments to develop such strategies, while linking them to national plans and priorities.
- African governments are also expected to cultivate capabilities in their bureaucracies to support these strategies.
