China most important African trade partner

Tuesday July 04 2017

New McKinsey report says Chinese trade with the continent is growing rapidly and the country now leads in investment, infrastructure, financing and aid.


China is now Africa’s most important partner in trade, investment, infrastructure financing and aid.

A new report by global consulting firm McKinsey & Company shows that Beijing’s economic influence and control in Africa is much wider and stronger than perceived.

The report, Dance of the Lions and Dragons, released this week, says Africa-China trade has been growing at about 20 per cent per year since 2000, while foreign direct investment has grown even faster over the past decade with a breakneck annual growth rate of 40 per cent.

As at 2015, total trade between China and Africa amounted to $188 billion — more than triple that of India, Africa’s next-biggest trade partner. The figure is slightly higher than the $172 billon total trade value reported by China-Africa Research Initiative (Cari) at Johns Hopkins University.

World Bank data shows that Chinese trade with sub-Saharan Africa was $170 billion in 2013, suggesting that the total trade figure could have been higher in 2015.

According to the McKinsey report, China’s trade and influence in growing rapidly in East Africa. Among the eight countries surveyed, the report classifies Ethiopia, Kenya and Tanzania’s partnerships with China as among the advanced and fastest growing trade and economic relations.


Notably, East Africa’s three largest infrastructure projects — Ethiopia’s 6,000MW $4.1 billion Grand Renaissance Dam, Kenya’s recently unveiled $3.8 billion Mombasa-Nairobi standard gauge railway and Uganda’s $2.2 billion 600MW Karuma Hydropower Plant — are either partly or fully funded by China.

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China has also recently agreed to finance extension of the standard gauge railway to Kisumu in Kenya and on to Uganda and Rwanda as long as the three countries agree to handle the project jointly.

According to statistics from the government of Ethiopia, Chinese investments have led to 66,000 kilometres of new roads since 2000, and increased power supply by 15 per cent between 2010 and 2014. Chinese firms built, and now co-manage, the 750km Ethiopia-Djibouti railway, a $3.4 billion project opened in 2016.


According to the World Bank, official data on Chinese financial flows may be underestimating the extent of China’s investment in sub-Saharan Africa. For instance, alternative estimates put total Chinese FDI on the continent at $61 billion in 2013, more than double the official figure.

“China is absolutely key to Africa. It is an investor, it is the contractor of choice, and China injected much needed competition in African companies’ negotiations with other trading partners,” said Aly Khan Satchu, the chief executive officer of investment advisory firm Rich Management.

The report also forecasts more growth and dominance of China in Africa, boosted by high returns on investment and the large potential for growth and expansion.

According to the study, nearly a quarter of the 1,000 firms surveyed said they recovered their initial investment within a year or less. A third said they recorded profits of over 20 per cent.

Optimism about the future

When asked whether they felt optimistic about the future, 74 per cent said “yes.” Some 44 per cent reported that they had made capital-intensive investments, and 19 per cent said they had made capital-light investments.

In East Africa, long-term commitments are highest in Ethiopia with 67 per cent of the firms running capital-intensive investments that include construction of factories and purchasing manufacturing equipment, higher than the 44 per cent and 40 per cent in Kenya and Tanzania respectively.

Less than one-third of the companies surveyed were into contracting or trade, which require lower levels of investment and therefore lower levels of commitment to staying in Africa.

McKinsey forecasts that China’s investment could bring in annual revenues of $440 billion to Chinese firms in Africa by 2025.

“We are on the cusp of a big ticket transfer of low-cost manufacturing jobs from China to Africa and we cannot afford to miss this opportunity,” Mr Satchu said.