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China’s Investments in Africa

Summary:
The stories you most frequently hear about China in Africa are Resource extraction (oil, metals, etc.) Infrastructure loans from China (with Chinese labor and Chinese companies doing the work) (often to aid resource extraction) Farming exports to China While those are happening an excellent report from McKinsey (Dance of the Lions and Dragons) provides an in depth look at a much more entrepreneurial state of affairs. While There are big government backed efforts (including those with Chinese state owned company participation) there is a large amount of small companies making entrepreneurial investments lead by Chinese entrepreneurs seeing a opening to build successful companies. Chinese firms’ decisiveness is indicative of the relationship between the comparative advantages

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The stories you most frequently hear about China in Africa are

  1. Resource extraction (oil, metals, etc.)
  2. Infrastructure loans from China (with Chinese labor and Chinese companies doing the work) (often to aid resource extraction)
  3. Farming exports to China

While those are happening an excellent report from McKinsey (Dance of the Lions and Dragons) provides an in depth look at a much more entrepreneurial state of affairs. While There are big government backed efforts (including those with Chinese state owned company participation) there is a large amount of small companies making entrepreneurial investments lead by Chinese entrepreneurs seeing a opening to build successful companies.

Chinese firms’ decisiveness is indicative of the relationship between the comparative advantages of Chinese entrepreneurs and the opportunities in African markets. To some, the high returns earned by Chinese firms are symptomatic of a market failure: too little competition in African markets. But in sectors such as manufacturing, there are too few African firms with the capital, technology, and skills to invest successfully and too few Western firms with the risk appetite to do so in Africa. Thus the opportunities are reaped by Chinese entrepreneurs who have the skills, capital, and willingness to live in and put their money in unpredictable developing-country settings.

What makes the decisiveness of Chinese investors all the more impressive is that they are mostly using their own money. Two-thirds of the private firms we surveyed, and over half of all firms in our sample, reported that their investments were self-financed through retained earnings or savings, or funded through personal loans. Only 13 percent of investment funds came from financing schemes linked to the Chinese government, and less than 20 percent came from Chinese or African commercial bank loans

I believe investments in Africa will provide great investment returns in the next 20 years. There are many challenges but the opportunity is much greater than most people realize. The potential returns are quite high due to the lack of capital and interest being shown in African opportunities.

China’s Investments in Africa

Factory in Nigeria (I think) that my family toured.

Likely huge companies, such as Google, Tencent, Facebook, Toyota and Alibaba will do very well. But there are many opportunities. That Africa is made up of 54 different countries creates challenges for investors and companies seeking to grow (but also creates variation and opportunities). It will be interesting to see how big the role Chinese entrepreneurs play in the next 20 years in Africa.

The report is an excellent detailed look at Chinese investment in Africa. It is a long and worthwhile read.

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