Last month, global management consulting firm McKinsey & Company published a report entitled “Dance of the lions and dragons,” which analyzes the current and long-term trajectory of Chinese engagement in Africa, noting that China has become Africa’s biggest economic partner over the past two decades. In fact, presently, more than 10,000 Chinese firms are conducting business operations on the continent.
The report examines the relationship between the “dragons”—Chinese firms investing in Africa—and the “lions”—African economies receiving Chinese investment. Through face-to-face interviews with 1073 Chinese firms across eight African countries—Angola, Côte d’Ivoire, Ethiopia, Kenya, Nigeria, South Africa, Tanzania, and Zambia—McKinsey explored the current and future plans of different Chinese businesses there.
According to the report, 74 percent of surveyed Chinese firms feel optimistic and confident about investing in Africa. Relatedly, most investments by Chinese firms reflect long-term commitments to Africa. Figure 1 shows that 63 percent of the investments made by the surveyed Chinese firms in Africa require long-term commitments, while 26 percent are low-commitment. Indeed, 44 percent of the surveyed firms have made capital-intensive investments—the hardest investments to reverse. These investments tend to come in the form of factory acquisitions and the purchase of manufacturing equipment. Conversely, trade and non-labor-intensive contracting investments (e.g., telecommunications) are the easiest investments to extract and comprise a smaller proportion of investments by Chinese firms in sub-Saharan Africa.
Notably, the distribution between investments varies among those surveyed. For example, Ethiopia has the highest high-commitment investments at 81 percent while in Côte d’Ivoire only 39 percent of investments are high-commitment.
Overall, the report finds three benefits to Chinese investment in Africa: job creation and skill development, transfer of new technology and knowledge, and infrastructure financing and development. However, there is work to be done. For example, the report finds that, although Chinese investment overwhelmingly employs locals in Africa, many positions are confined to non-managerial positions. Figure 2 displays that on average, only 44 percent of managers are local. The report does argue that such percentages are higher than some may expect, but there remains room for improvement. In the end, though, McKinsey emphasizes that “China’s massive investment in Africa should include training a generation of African managers and business leaders.”
Looking at sectoral variation, construction, real estate, and trade employ the lowest proportions of locals at 33 and 34 percent, respectively, whereas manufacturing and services employ a larger proportion of locals as managers at 54 and 49 percent, respectively. Notably, state-owned Chinese firms offer a smaller number of managerial positions to locals than privately owned Chinese firms.
Shobhit Kumar contributed to this post.