Nigeria big beneficiary as China rakes $60bn from manufacturing in Africa
China makes $60 billion annually in revenue from manufacturing in Africa but Nigeria is a big beneficiary of the country’s heavy investment.
Chinese manufacturers in Nigeria procure 50 percent of their supply from local companies, 47 percent from peers and three percent from others, according to McKinsey’s latest report on Africa-China economic partnership, which challenges previous beliefs on trade.
Ninety-five percent of Chinese firms in Africa’s biggest economy are privately-owned, while five percent is state-owned.
Through a study conducted across eight countries that together make up about two-thirds of Sub-Saharan Africa’s GDP, the report finds that there are already over 10,000 Chinese firms operating in Africa—four times the previous estimate.
The report shows that China is Africa’s largest economic partner as about 90 percent of Chinese firms in the continent are private firms, with a third in manufacturing. These firms are bringing capital investment, management know-how and entrepreneurial energy to the continent, and in so doing, are helping to accelerate the progress of Africa’s economies.
“In manufacturing, we estimate that 12 percent of Africa’s industrial production—valued at some $500 billion a year in total—is already handled by Chinese firms,” the report states.
Across trade, investment, infrastructure, financing and aid, China is a top five partner to Africa as no other country matches this level of engagement, says the report.
The China-Africa relationship has ramped up over the past decade with trade growing at around 20 percent per annum. FDI has grown even faster—at an annual growth rate of 40 percent. China’s financial flows to Africa are 15 percent larger than official figures suggest when non-traditional flows are included. China is also a large and fast-growing source of aid and the largest source of infrastructure financing, supporting many of Africa’s most ambitious infrastructure developments in recent years, the report elucidates.
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. These firms are agile and quick to respond to new opportunities. They are primarily focused on serving the needs of Africa’s fast-growing markets rather than on exports. Chinese firms have made investments that represent a long-term commitment to Africa. Of the Chinese firms surveyed, 74 percent said that they are optimistic about their future in Africa.
The report points to three main economic benefits to Africa from Chinese investment and business activity: Job creation and skills development; transfer of knowledge and new technology, as well as financing and development of infrastructure:
Kartik Jayaram, a senior partner and co-author of the report said, “Chinese engagement with Africa is set to accelerate—by 2025 Chinese firms could be earning revenues worth $440 billion, from $180 billion today. Additional industries could be in play for Chinese investment, including technology, housing, agriculture, financial services and transport and logistics. However, to unlock the full potential of the China-Africa partnership, we have identified 10 recommendations for Chinese and African governments as well as the private sector. To highlight two key ones—African goverments should have a China stragegy and the Chinese government should open financing and provide guidance to Chinese firms.”
The report describes Kenya, Nigeria, and Tanzania as superior partners to China unlike Ethiopia and South Africa that are robust partners, with a clear strategic posture toward China.
“They do not yet have the same level of engagementwith China as Ethiopia and South Africa, but government relations and Chinese businessand investment activity are meaningful and growing,” adds the report.
ODINAKA ANUDU