Wednesday, 16 May 2012 13:23

Newsletter 10

In this newsletter:

  • Ethiopian PM makes strong statement about Chinese infrastructure doctrine
  • Changing the image of Sub-Saharan Africa may be a reality
  • China and East Africa playing it Win-Win

Ethiopian PM makes strong statement about Chinese infrastructure doctrine

Ethiopian Prime Minister Meles Zenawi insists China is now coming to the rescue of Africa by building infrastructures and focusing on development. The prime minister argues that the Washington Consensus which aimed at liberalizing the economies of developing countries has failed and China is now taking what is left of it and driving it after U turn.

Speaking from his expansive office complex, the PM insists that the popular belief that that infrastructure would be taken care of by the private sector is an obsolete concept and China seems to have carefully analyzed this fact.

Zenawi, who was speaking from his expansive office complex near the center of Addis Ababa, said China's investment in Africa was transforming the economic fortunes of the continent.

Chinese investment in infrastructure in Ethiopia dates back to 1972 when it financed the Wereta-Weldiya road across the Rift valley. Over the next three years, a Chinese state-owned company is to build the final section of a 339 km railway line linking Addis Ababa to the Red Sea state of Djibouti.

Meles Zenawi says a lack of infrastructure is one of the Africa's most serious economic challenges and leaving it to the private sector is not a solution in the contemporary economic conditions. In light of this the PM advocates the Chinese doctrine of injects billions of dollars in to the infrastructure of economies.


Changing the image of Sub-Saharan Africa may be a reality

Sub-Saharan Africa which is largely known for repeated drought, famine and acute poverty is changing its economic gear advancing to massive economic growth. Some estimates reveal that the region will have as many middle class households as China by 2020.

The region is expected to set the pace for global growth over the next five years, with economic expansion averaging 6 per cent per year. China increased Africa investment by almost 60 per cent last year, while India pledged to expand trade volume to $90bn (£56bn) by 2015.

As multinational corporations are concentrating on resources of the region, they are taking the region as a make up for the loss of their business in the Europe due to its economic volatility and the Middle East and East Africa due to its economic uncertainty. Multinationals intend to capture average profit margins greater than 10 percent and returns on capital 60-70 percent greater than in high-growth markets like China, India and Indonesia.

Because of poor infrastructure and limited potential for distribution, leading companies focus on the big cities where their customers are concentrated. Africa houses 52 cities with more than 1m inhabitants, which are expected to grow by an average of 32 per cent through 2020.


China and East Africa playing it Win-Win

“Look, they work really hard, really fast, they are a fantastic example and inspiration to us, and at last we have what we need – a road!” proclaimed Nairobi hotel owner Emelda Nzungu, referring to the Chinese-built bypass just outside the city. And she is not alone in her enthusiasm for China’s role in the region.

Admittedly East Africa comprises cheap labor and rich supplies of resources like gold, copper and diamonds which are points of attraction to various forms of foreign direct investment. However its burdensome investment climate characterized by protracted licensing procedure and acute corruption are hindering the investment of the region. In spite of all these challenges China maintains the forefront position in confronting and dealing with the risks on large investments. To mention but a few examples; the Chinese government recently signed an agreement with Tanzania for a $1.06 billion loan to construct a natural gas pipeline connecting the south of the country to its commercial capital Dar es Salaam. Chinese companies are involved in the extensive port developments at Lamu and Tanga, and China National Offshore Oil Corporation (CNOOC) has a presence in Sudan, Kenya, Uganda, Mozambique, Somaliland, Chad, DRC, Congo and Angola.

Large-scale structural projects, often accompanied by loans are frequently proposed to mineral-rich African countries. This often results in natural resources going to China in return, or in deals that take the form of loans in exchange for future mineral or drilling rights. This trend is often characterized as exploitive by many western scholars. However Chines investors like David Quiang who has lived in East Africa for several years seems to have a reply to that. He explained: “In China, we have embraced capitalism. We are in a capitalist world, if America and Europe are constantly drawing attention to our poor human rights record, it’s because they are losing the race. We are cheaper, more efficient. We get the job done! This is a competitive process, remember.”


Last modified on Wednesday, 16 May 2012 13:30