In the past two decades, China has gone from being a relatively small investor in Africa to becoming the continent’s largest economic partner. To better understand the breadth and depth of the economic relationship between Africa and China, McKinsey & Co. recently undertook a detailed study that included on-site interviews with more than 100 senior African business and government leaders, as well as the owners or managers of more than 1,000 Chinese firms spread across 8 African countries.
Their findings are summarised in this report: Dance of the lions and dragons.
Some highlights (taken directly from the report):
- China is among the top four partners for Africa across five dimensions: trade, investment stock, investment growth, infrastructure financing and aid. No other country matches this range and depth of engagement.
- In fact, China’s financial flows to Africa might be around 15 percent larger than official figures suggest, when nontraditional flows are included.
- McKinsey estimates there are more than 10,000 Chinese firms operating in Africa. ~90% of these are privately owned, which suggests that Chinese investment in Africa is a more market-driven phenomenon than the prevailing government / SOE narrative.
- Chinese firms operate across a wide range of sectors but are particularly dominant in infrastructure, claiming ~50% of Africa’s internationally contracted construction market.
- Most of the Chinese firms in Africa that McKinsey spoke with are optimistic about the future. Reflecting this view, they have made investments that represent a long-term commitment to Africa rather than trading or contracting activities.
- Overall, McKinsey views China’s growing involvement in Africa as strongly positive for the continent’s economies, although there are areas for improvement, including:
- The sourcing rate from local African firms.
- The percentage of local African managers at Chinese-owned companies.
- Labour and environmental practices.
- As a base case, McKinsey sees the revenues of Chinese firms in Africa growing to US$250bn in 2025, up from US$180bn today. More aggressive expansion could see these firms reach revenues of US$440bn in 2025.