A Chinese commercial center in Cameroon. PHOTO/ARISON TAMFU
By ARISON TAMFU
newsdesk@reporter.co.ke
Wang Ying is a very busy and famous businesswoman at Congo Market, a local market in Cameroon`s commercial capital, Douala. She deals in household utensils and assorted ladies and men`s dresses and shoes.
“I have been selling here for fifteen years and I really enjoy it because demand is high” said Wang who is fondly referred to by traders in the market as Miss China. Wang left China for Cameroon in 1999 and here she discovered a world of opportunities for business.
“I immediately called my father in China and informed him that I wanted to establish a small business in Cameroon. He sent me start-up capital and I started importing goods from China to Cameroon and in five years of doing business, my profit was very impressive” she said.
Since then Wang, just like thousands of Chinese across Africa found a new home in Cameroon running small and medium enterprises (SMEs) in major towns of the country.
“When it comes to the influx of Chinese investors in Africa many are likely to think that Chinese companies operating in Africa are mostly related to oil or other natural resources sectors; however, it is estimated that 80% of the Chinese companies currently in Africa are small and medium enterprises (SMEs).
Chinese businesses are entering where most other foreign businesses do not consider it worthwhile to do business, because there are low profit margins and weak supply chains” said Ambassador Juma V. Mwapachu, Former Secretary General of the East African Community (ECA).
“These enterprises are highly flexible and adapt quickly to local conditions. So far, only a very small number of large Chinese private manufacturing firms have invested in Africa such as Huawei Technologies, Holley Group, and Zhongxing ZTE Corporation among others” said Dr Jing GU of Institute of Development Studies after conducting a survey on China-Africa economic relations.
According to MatchDeck, until about 15 years ago, Chinese investment in Africa was almost all government-aid related. China’s Ministry of Commerce (MOC), estimates that China only invested $56-million in the continent by 1996. This figure jumped to $1.5-billion by 2005, and multiplied 10 times to nearly $15-billion by 2011, according to a report published by the World Bank.
In 2014, China established a $1 billion special fund for the development of SMEs, financed by China Development Bank (CDB). The additional funding increased the Special Loan for the Development of African SMEs to $2 billion, according to Xinhua news agency. SMEs were expected to receive loans of up to $1 million with a maximum duration of five years.
The objective was to boost the growth of SMEs in Africa, broaden their financing sources, boost the local economy and contribute to job creation. The targeted sectors included agriculture, export led industries, construction, health and medicine, irrigation, education, environment protection and energy savings.
Africa`s `favourable` market for Chinese SMEs
In January 2015, the World Bank published a report titled “Private Chinese Investment in Africa: Myths and Realities.” According to this report, the top five countries that are most attractive to Chinese companies are Nigeria, South Africa, Zambia, Ethiopia and Ghana, which together make up 40% of the total projects in Africa, followed by Tanzania, Congo (Kinshasa), Angola, Sudan and Kenya.
“At their heart, these Chinese SMEs are characterised by a strong entrepreneurial spirit. They are risk-taking ventures with a powerful work ethic. Chinese entrepreneurs are willing to go into areas where the profit margins are very low to begin with, and supply chains are weak” said Dr Jing GU.
The World Bank study on private Chinese investment interviewed 35 Chinese firms to get feedback. The results of this study showed that half the respondents said that “market access” was the main motivation driving them to Africa. Chinese domestic market saturation was cited as an important reason for the firms’ decision to go abroad. Cheap labour and availability of resources were also cited as critical factors contributing to their decision to invest in Africa.
“Most SMEs in Africa are here because they want to make money, they’re looking for new markets, places where they can get cheaper labour, and escape the very competitive market in China,” Dr Ana Alves, a senior researcher from the South African Institute of International Affairs told MatchDeck.
“Chinese firms see Africa as an opportunity, a market neither saturated nor a major focus of other (western) foreign investment, and therefore potentially profitable,” she added.
Chinese businesses are emerging where most other foreign businesses do not consider it worthwhile to invest. PHOTO/ARISON TAMFU
Additionally, compared to the situation in other developed countries such as the US and European countries, it is relatively easy for the Chinese to comply with immigration regulations in Africa.
“Africa has less regulated markets, making it easier to penetrate than developed countries and Chinese products (price and quality) are more attractive to the African public,” said Dr. Alves.
Dark side of Chinese SMEs in Africa
In a continent where SMEs are considered the engines of growth playing a vital role in creating jobs, spurring innovations, and creating new products, the rise of China in the African SMEs space, particularly in the past decade, has brought about intense pressure on indigenous SMEs in Africa and notably in the EAC and SADC regions where Chinese economic influence has been particularly dominant.
“Chinese firms tend to compete most fiercely with one another rather than with other foreign or local firms, which they can outmaneuver quite easily in terms of cost of their products. This fact is also connected to the ―greenfield‖ character of activities of Chinese companies that produce goods which were previously imported, or produce them at costs which a wider African market, rather than the restricted elite, can afford.
There are weak linkages between Chinese firms and local African firms. This influences the extent to which technological transfers and business know-how can be successfully undertaken” said Dr. Jing.
In Wang`s experience however, she has employed many locals and avoided stiff competition with local SMEs.
“I work closely with Cameroonian SMEs. We collaborate a lot. I inform them of opportunities in China and how they can inter-trade with Chinese SMEs. I have offered employment to hundreds of youths here and some have in turn created their own businesses. My goods are affordable because they are relatively cheap” she said.
However, ambassador Juma Mwapachu thinks that, the downside of Chinese SMEs operating in Africa is that they normally use their own Chinese workers and thus fail to contribute to local job creation.
“Chinese nationals now compete with small business nationals in what are traditional urban market places.
This local Chinese trading phenomenon is further heightened by the monopoly of Chinese consumer goods, some of them being counterfeits, that now pervades African markets and which upset the level playing field for locally produced goods from SMEs” Mr Mwapachu said.
Adapting to the Newcomers
The influx of Chinese entrepreneurs in Africa`s SMEs is here to stay. Some African governments have understood that and are adapting to the situation. In Nigeria the government has adopted strict regulatory measures to curb Chinese imports by requiring importing Chinese companies to setup production units in the country.
According to Dr Alves, in order to benefit from opportunities presented by Chinese investors, African governments need to have their own industrialization strategy and development strategy for the long term.
“Then they need to integrate the Chinese investment into that. Because most countries at the moment are just taking what China offers and sometimes it is counterproductive. Africa has to have a clear long-term strategy,” she said.
