How the US can out-invest China in Africa
China recently surpassed the US as Africa’s largest trading partner, but African countries are also growing wary of Chinese investment. This presents an opportunity for US businesses. To take advantage, US diplomats must become more effective advocates for the US private sector.
Addis Ababa, Ethiopia
On her trip to Africa earlier this month, Secretary of State Hillary Rodham Clinton made the case for US companies as effective commercial partners that can help facilitate broad-based economic growth on the continent. “The days of having outsiders come and extract the wealth of Africa for themselves, leaving nothing or very little behind, should be over...” Ms. Clinton said in a speech in Senegal.Skip to next paragraph
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More than championing US-Africa cooperation, Clinton’s remarks can also be read as a thinly veiled swipe at China. Africa is indeed growing wary of Chinese investment, which presents an opportunity for US businesses. But in order to take advantage of this opportunity, Clinton must ensure that US diplomats become more effective advocates of the US private sector and reinforce the power of America’s brand in Africa.
Africa’s economies are booming, with several countries growing at around 8 percent per year. China has known this for some time, and David Shinn, former US ambassador to Ethiopia and Burkina Faso, says Beijing or Beijing-backed companies have signed 32 bilateral investment agreements, formed trade cooperation zones with six countries, and have made foreign direct investments of over $50 billion. As a result, China recently surpassed the United States as Africa’s largest trading partner.
[Editor's Note: The original version of this piece incorrectly identified Ambassador David Shinn's first name.]
These trends would seem to pose a significant challenge for the US on the African continent. And yet, all across Africa, a backlash against China is brewing.
Just last month, three separate developments evidence this anti-China mood.
In Ethiopia, the government is in a contractual dispute with Chinese company Petro-Trans after it announced it would revoke the company’s license for oil and gas exploration due to lack of investment. In Senegal, traditional shoemakers are refusing to sell to Chinese buyers for fear that China will knock off its products. And in Mauritius, the government is considering other uses for land it had once promised to Chinese companies to develop a special economic zone, since six years have passed and the Chinese have yet to do anything with the land.
These three flare-ups are merely the ones that became news items. Far more significant is the across-the-board plummeting reputation of the Chinese commercial brand in Africa.
Ask any African ministry official or businessperson his or her views on Chinese companies and you tend to get the same response: horrible quality and broken promises. Africa’s business and government elite aren’t the only ones taking note; the Chinese brand is often the object of ridicule even among average Africans. Photographs of a leaking ceiling in the new African Union headquarters in Addis Ababa, donated and built by Chinese contractors, made the rounds on Facebook last month, with a caption mocking the quality of Chinese construction.
The American brand in Africa, by contrast, continues to be strong. US firms are known to provide the best quality and hire the most local workers. They are considered the least corrupt and the most considerate of the environment. And they are generally believed to complete initiatives on time and abide by their commitments.
But China still enjoys two structural advantages in Africa. First, it still has significant foreign currency reserves that it uses, among other things, to finance the construction of infrastructure projects in Africa. In other words, African countries often do not pay for the shoddy roads and bridges that China builds.