10,000 Chinese firms in Africa as Ministry of Commerce underestimates number

26 July 2017 Consultancy.uk

China is increasingly active in Africa, with the country seeing significantly boosted FDI spending in the region causing the number of private enterprises operating across the region to jump as high as 10,000. The figure is far higher than reported by the China’s Chamber of Commerce, with the privately run companies tending to be highly profitable, while actively employing local staff.

China has made headlines in recent months in relation to its long-term economic strategy, the country has continued to avail itself of its Paris agreement commitments, by scrapping a large number of coal-fired power plants, as well as its large infrastructure project to boost its global standing, the so called ‘Belt & Road’ investment project. The country too has been active in Africa, its presence over the past two decades expanding to become one of the biggest globally, through increased trade relations, but also increased investment in the region.

A new report from McKinsey & Company explores business-focused activity from the Asian giant in Africa, as well as key economic effects the country’s investment is having on employment and skills training for the local populace. The report, titled ‘Dance of the lions and dragons: How are Africa and China engaging, and how will the partnership evolve?’, is one of the first to map out the full impact of the partnership between the regions.

The research involved interviews with 100 senior African business leaders of eight countries in the region, Angola, Cöte d'Ivoire, Ethiopia, Kenya, Nigeria, South Africa, Tanzania, and Zambia, as well as 1,000 Chinese firms active in the region.

Regional investment

China has significantly boosted its market relations with the African continent, with trade in goods hitting $188 billion in 2015, far outstripping the nearest rivals of India at $59 billion, France at $57 billion and the US at $53 billion.

China grows regional economic activity

The country has also begun to significantly ramp up foreign direct investment, with growth between 2010-2014 at 25%, compared to 11% from the UK and 10% from the US. Total FDI investment from China into the region is still less than half that of France, the US and the UK, however, at $32 billion from China, $79 billion from the US, $71 billion from the UK and $70 billion from France. China is the main funder of infrastructure projects in the region, investing $21 billion in 2015.

Behind the large macroeconomic indicators, the firm found considerable discrepancies between the number of Chinese firms operating in Africa registered at the China’s Ministry of Commerce (MOFCOM) and the number identified through fieldwork.

Estimated Chinese firms active in Africa

The difference varies considerably by region, in Nigeria the difference is around 2.9x the stated figure, while in Angola it stands at around 2.2x. In Cöte d'Ivoire the biggest discrepancy was noted, at 9.1x. On average across the eight countries surveyed, a disparity of 3.7x was noted – while the consulting firm estimates the total number of Chinese companies operating in the region at around 10,000.

The study further found that a large number of the companies operating in the region are privately owned, at around 90% in all eight countries bar Kenya and Angola, where public companies made up around 20% and 25% of companies in total.

One of the reasons for the influx of Chinese firms into the region is that profitability appears to be relatively robust, at around 31% of companies across the regions generating profit margins >20%, while around 23% of companies in the region generate profits of 10-20%. Private companies were relatively better at turning a profit than public companies, while the service sector was the best overall sector to turn a profit, at around 61% with a margin above 10%.

Local benefits

The research also explored in how far Chinese companies are leveraging local people to staff the businesses. Private companies are much more likely to hire local managers, with an average across sectors of 47%. The highest number of local managers are hired in manufacturing, at 54%, while construction and real estate has the lowest number, at 33%.

Willingness to invest in hiring in Africa

In terms of employees, the majority are from the local area, at 92% for private firms, the number is particularly high in manufacturing, at 95%, falling to 82% in trade. Respondents also highlighted a relatively high level of interest in training local people, with combined apprentice and professional training programmes offered at 73% of manufacturing firms. Meanwhile in trade the training figure stood at around 47% of respondents.

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