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What Chinese Firms Feel About African Markets

“This is my 13th year in Africa, and I will continue to pursue my career here,” says 40-year-old Jacky Huang, managing director of Good Time Steel Zambia Limited.

Mr Huang, a Chinese national, has given himself the screen name ‘Seek dreams in Africa’ on his WeChat account, the popular text and voice messaging service developed by China’s Tencent.

While his two sons and wife live in Canada, Mr Huang spends most of his time in Zambia. He has also worked in Algeria and Nigeria.

“As a professional manager, the most rewarding part of working in Africa is that I got the extraordinary opportunity to realise my individual value, while the most challenging part is being separated from family,” says Mr Huang.

Despite the distance from loved ones, he chooses to stay.

Many Chinese who have established themselves in Africa share this feeling. During the boom years of the commodities super-cycle and China’s rapid economic expansion, Chinese migrants travelled thousands miles to seek opportunities in Africa’s fast growing frontier economies.

Many arrived without friends or relatives, only the belief that this new place offered business opportunities. Now, despite slowing growth across emerging markets and China’s new directive to re-balance the economy towards internal demand, many intend to stay on.

Although there are no official figures available, estimates suggests that there are at least one million Chinese immigrants currently working and living in Africa.

China became Africa’s largest trading partner in 2009. Today, the continent is also the Asian giant’s second largest market for overseas project contracting and fourth largest for outward investment.

For the past decade, many profit-seeking Chinese investors and companies have come to believe there is nowhere in the world to do business like Africa. This is particularly true for engineering and construction firms, which have brought over Chinese workers in droves.

Chinese firms feel their advantage in African markets is strong when compared with others, where the domestic construction industry might have strong local contractors to compete against or fewer large-scale construction projects on offer.

At Addis Ababa Bole International Airport in early February, for instance, shops were festooned with decorations and gifts for Chinese Lunar New Year. Hundreds of Chinese construction and factory workers boarded direct flights to Guangzhou and Beijing to visit family for the holiday.

All the workers This is Africa spoke to planned to return to Africa after a week or two’s break.

Tied fortunes

As a result of these linkages, China and Africa are now closely tied economically. Shifts in one affects the other.

According to the Interational Monetary Fund, a 1 percent decrease in China’s investment growth is associated with an average 0.6 percent decrease in Africa’s export growth rate.

Due to the fluctuating yuan, lower global commodity prices, falling Chinese demand and a saturated job market compounded by overpopulation, China’s GDP expanded 6.9 percent in 2015, down from 7.3 percent in 2014. This is the slowest growth rate in 25 years.

The economic slowdown in China has also led to an 18.3 percent decline in bilateral trade with Africa, from $220bn to $170bn in 2015, according to official figures from the China State Council. Greenfield foreign direct investment into Africa fell 84 percent in the first two quarters of 2015.

The effects of a downturn in China are already impacting African countries, especially those highly dependent on natural resources. In Zambia, where the economy is highly dependent on the copper mining industry, output has fallen drastically due to a collapse in global copper prices, driven in part by lower Chinese demand for raw materials.

The copper industry has further suffered from severe national power shortages and an unpredictable mining tax regime.

Several foreign mines, including the Chinese state-owned CNMC Baluba mine, have suspended production. More than 10,000 workers have been laid off across the sector. According to Chinese Economic and Commercial Counsellor’s office in Zambia, trade between China and Zambia in 2015 decreased 38.09 percent year on year.

“The withdrawal of many Chinese investments in Africa is inevitable due to the still-weak global economy, and it is just a matter of time,” says Jinghao Lu, the project director of the Kenya-based Sino-Africa Center of Excellence Foundation (SACE).

Political and economic uncertainty are also ongoing concerns for Chinese investors. In Zambia, for example, many foreign companies are taking a wait-and-see attitude ahead of a general election scheduled for  August 11, 2016.

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“Two-thirds of our Chinese employees went back to China for a holiday. Our project in Zambia has shut down for half a year due to a gloomy economy in Zambia, and the government is not able to pay most fees,” a source from China State Construction Engineering, a state-owned construction conglomerate, tells This is Africa.

The company has signed several road construction deals with the government of Zambia worth in excess of $300m between 2014 and 2016.

Commitment remains

Pessimism is only partly warranted. Despite its economic slowdown, China has reaffirmed its commitment to Africa, pledging to invest $60bn across the region over the next three years during the Forum on China Africa Corporation Summit 2015.

Where China’s government leads, investors and entrepreneurs will continue to follow. In order to adapt to the changing economic context, many Chinese businesses are looking for ways to localise their businesses by investing in training locals and creating niche businesses outside the extractive sectors.

Jihai Agriculture, for instance, is focused on its ‘go local’ campaign with the aim of creating a mushroom industry in Zambia. The enterprise is co-operating with the Zambian ministry of agriculture and livestock to promote the mushroom industry, and to extend it to various provinces in Zambia through training and financial support.

Managing director of Jihai Agriculture Yunwu Yao remains optimistic about his business prospects in Zambia. Mushroom cultivation is already a flourishing industry in China. Mr Yao believes that Zambia can become the hub of mushroom production and marketing in Africa. “I believe Zambia is a peaceful and friendly country, its economy will continue to progress. I also believe agriculture is a sunrise industry and it has a promising future,” says Mr Yao.

Already, Jihai Agriculture is producing 5 tons of oyster mushrooms and king oyster mushrooms daily. Most of their output is destined for local markets, but with an eye to expanding exports to the Far East in the future.

Staying on

Mr Yao and his entrepreneurial cohort represent a new phase in Chinese migration to Africa.

According to China House, the continent’s first social enterprise focused on helping Chinese companies and individuals forge positive connections with African communities, Chinese immigrants’ interests in Africa have diversified following the main waves of the early 2000s.

Based in Nairboi, Kenya, most of China House’s members have international backgrounds and advanced degrees from top universities around the world. This is a shift from the labourers and tradesmen, often from China’s working class provinces, that characterised earlier migrant waves.

SACE, for instance, continues to bring young Chinese graduates interested in getting work experience in Africa to work with and learn from African companies. Most of its trainees speak English and try to integrate with Kenyan culture.

According to SACE’s Mr Lu, besides work experience, many graduates who come to Kenya are interested in touring the region. Hongxiang Huang, founder of China House, believes “the new Chinese blood” will have a positive impact on future relations with African countries.

Historically, there have been some tensions between Chinese immigrants’ cultural and business practises and locals.

In Zambia, Chinese mine owners have been accused of labour rights violations in order to increase profits, causing discontent among workers. Ghana has on several occasions deported swaths of illegal Chinese miners.

In Kenya, allegations of Chinese restaurants intentionally discriminating African patrons raised questions about the growing Chinese community’s integration in Kenya.

Some of this is due to perceptions of risk. Mr Huang of China House says that Chinese employers, who play a significant role in Chinese employees’ daily lives, remain apprehensive about security threats.

“Many of them do not allow their Chinese employees to go out during evening. They do not like their employees having too many local friends as they are afraid of company information leakage, which might cause troubles,” he explains.

Though some Chinese migrants are willing to engage, learn local languages, explore rural areas other non-Africans rarely go and to engage in all forms of labour, the public perception is that on average Chinese migrants’ integration remains low.

But as Chinese immigrants become a more permanent fixture in African societies, more needs to be done to bring locals and newer arrivals together.

source: This Is Africa

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Written by PH

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