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The Dragon in Africa: How Chinese Investment Changes The Game

| Tuesday December 8th, 2009 | 0 Comments

By David Abraham

Al-Jazeera recently posted a video highlighting an investment surge in the tiny central African nation of Equatorial Guinea.  The country is the third largest exporter of petroleum and gas–a fact that is not immediately obvious when looking at the quality of life for its 500,000 citizens.  But with important infrastructure projects funded by China underway, conditions may be changing.

Chinese attention reaches well beyond Equatorial Guinea and the China Export-Import Bank is financing energy and transportation projects throughout the continent.  An excellent 2008 World Bank report revealed that Nigeria, Angola, Sudan, and Ethiopia were the largest African recipients of funding from China.  The Communist Regime’s intense interest in the region has stirred strong feelings for two reasons.  First, China has shown that it will deal with governments with questionable (and I’m being generous) human rights records.  Second, there is concern that the Chinese will bring a “New Colonialism” by not providing local laborers with fair wages or working conditions.

It is enormously troubling that the Chinese are willing to strike an agreement with Khartoum; however, we should not automatically dismiss all of its investments as nefarious escapades into the developing world.  Everyone is better off when a new bridge is built in Bamako – and not for the usual humanitarian reasons.  China is taking enormous risks by financing projects in some of the most unstable places in the world.  Yes, they are laying the groundwork for a firm foothold in Africa that will ensure a steady flow of natural resources back home.  But they are also paving the way for local entrepreneurs and multi-nationals to open up shop in previously undesirable locales.  Should these players piggyback on China’s efforts, real economic development in very poor countries might be spurred.  With nearly $22 billion spent on infrastructure between 2001 and 2007, China has a vested interest in seeing  a stable Africa.

Chinese efforts may be driven by self interest, but their efforts will ultimately pay dividends for anyone looking to put money on the continent.   And given the current economic climate, they are the only ones with an appetite for these risky investments.

David Abraham is an MBA candidate at the Robert H. Smith School of Business at the University of Maryland.  He is a founder of the Emerging Markets Association at Smith which seeks to build a greater understanding of free-market opportunites in frontier markets.


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