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Why China is migrating to Africa

| April 21, 2015

In the last decade, while the West has been focusing on disbanding its industrial operations to move them to China and other Asian countries, China has been quietly asserting itself in Africa.

There is no doubt China has been the primary destination for anyone looking for low cost manufacturing and the arguments for that move are all valid. A seemingly endless supply of cheap labor, great infrastructure, cheap access to capital, accommodating government, well educated workforce and lax social and safety requirements.

For many years, this formula has allowed consumer product manufacturers to pump out ever-cheaper products to fill the aisles of mega-retailers looking for price over quality. The western consumer has been educated to throw away and replace a malfunctioning product and the cost has made it simple enough to adopt this consumerism attitude.
We are all focused on filling our closets with cheap, sometimes useless products, while our domestic industry has withered away.

We have simply forgotten how to manufacture the singular things in life.

China has been watching this development very carefully and quickly realized that, as their economy evolves from an exporter of goods to a domestic consumer society, they are bound to suffer the same fate as most Western countries. Millions are still living bellow the poverty line and millions more are climbing up the socioeconomic ladder even though the median income in China is still a fraction of that in the US. The pressure on Chinese industry to turn from being an exporter to a domestic supplier is proving itself to be a real challenge.

First there is the growing need to bring in foreign currency to finance a very sick banking system and an economy that relies on government subsidies for infrastructure and over-grown real estate ventures. Billions of dollars worth of loans are considered worthless and the banks are facing enormous pressure from failing SME’s engaged in real estate speculation.The shadow banking system represents $6 Trillion or about 70% of gross domestic product and all of this operates in an unregulated environment.

Second, as China’s middle class evolves, they are no longer willing to sit in factories for 12 hours a day, making minimum wage.
Third, the Central Government is under pressure to maintain social order, eradicate corruption and bring the Commercial sector under control. They are forced to do what we did 20+ years ago and look for cheaper sources of labor, raw materials and easily influenced governments.

Where else can you find this in great supply other than Africa?

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There are now well over 1 million Chinese immigrants in Africa. They have slowly penetrated all levels of society in the countries they live in and they are weaving a web of activities that support China’s ambitions to do to Africa what the West did to China all these years ago. The difference is that most African countries do not have the vision nor the patience to establish infrastructure to support renewed activities.

Many African countries are afflicted with corruption in their governments and burdened with the greed of their leaders. The large majority of Western powers, including the US and European Union are focused on providing aid and basic necessities to these impoverished countries, knowing full well that a large portion of this aid never makes it to its intended recipients.Many attempts to provide Africa with economic tools to compete on world markets such as AGOA (African Growth Opportunity Act) are nothing more than a Band-Aid since these countries are not given the tools to capitalize on these opportunities.

While we are busy throwing Billions in aid at corrupt leaders, China has taken a more pragmatic approach. China offers aid in the form of infrastructure such as roads, ports, airports, hospitals, schools, stadiums and commercial loans and they get paid in the form of raw materials they desperately need to maintain their industry, such as oil, minerals, sugar, cocoa, etc…All these infrastructure projects are managed by Chinese firms with Chinese workers and Chinese funds.

It all stays in-house..

In short, China is replicating its model of attracting business and economic activity by making it easy for foreign firms (mostly Chinese) to extract every bit of benefits it can, while leaving very little for the local populations.
I have already mentioned that China is extremely patient and does not have to worry about political cycles as we do in the West. They can plan for the long haul and consider investments in terms of decades.
In the US, a US administration has 2 years to launch initiatives before it has to worry about re-election. This does not allow for the type of vision required to consider the fact that China is no longer the source for cheap goods and that alternatives are quickly vanishing into the arms of China, Russia and other geopolitical powers.

Fact is that we have to turn inward and consider that we must rely on our own capacity to re-build our manufacturing infrastructure. The argument that the US can no longer supply cheap goods domestically is probably true and we will continue to rely on LCC’s for a large majority of our consumables, but not everyone in the US has a college degree, not everyone is a software engineer and millions of Americans (as well as Europeans) continue to live at the threshold of poverty. Creating industry that supplies affordable products and allows laborers to make a decent living cannot be out of reach if we apply our considerable will to make it happen.

Re-Shoring is the answer. It will take time, vision and patience, but most of all, it will take political will to look past campaign cycles and create value for all.

AUTHOR - Richard S Ellert