McKinsey released a highly anticipated report in June with new research on Chinese economic engagement. The report debunks a number of common misconceptions in America about China in Africa, namely that Chinese actors operate with a unified agenda, that Chinese firms only hire Chinese workers, and that China is solely interested in Africa’s natural resources. In the 8 countries studied, 90% of Chinese firms in Africa were privately owned, 89% percent of the employees in Chinese companies were African, and trade and infrastructure generate the most significant financial flows between China and the continent.
The McKinsey report provides a more realistic view of China-Africa; however, what is its concrete value for American businesses and institutions interested in Africa? Despite U.S. media sources and think tanks providing a constant stream of analysis on China-Africa economic engagement over the past several years, almost none analyze the future for the United States in Africa given China’s “landing.” As Africa’s economic landscape continues to grow and diversify and China has become its biggest trading partner, U.S. economic activity on the continent remains in the same pattern as it has for over 50 years – focused on energy, finance, and aid. The U.S. can play a tremendous role in Africa’s growth over the next 10 years alongside and in collaboration with Chinese actors, but to do so it will have to adapt to today’s Africa. The United States must explore and scale business and diplomacy in new sectors in Africa.
90% of U.S.-Africa trade today is in crude petroleum exports. In contrast, the approximate $180 billion in revenues of Chinese firms in Africa come from firms spread across manufacturing, services, trade, and construction and real estate in near-equal shares. Opportunities abound for American companies to do business in these sectors as well. African countries have more mature markets, infrastructure, policy incentives, and institutional capacity than most American companies realize. Chinese bilateral engagements and infrastructure projects have helped to make this happen. Further, African governments are eager to engage American companies and to adopt business models that work, if anything to diversify offers from Chinese firms. American diplomatic institutions can bridge the gap by refreshing bilateral relations in African countries outside of the aid paradigm and by promoting new trade policies in manufacturing, trade, and infrastructure. American companies can tap into this potential by ramping up new business in these sectors, jump starting new engagements with African governments and working alongside Chinese businesses and projects.
Manufacturing in particular holds tremendous potential for American companies in Africa, just as it did for American companies at the early stages of China’s economic growth, and more recently in countries like Vietnam and Bangladesh. While over 30% of Chinese firms in Africa are in manufacturing, manufacturing represents only a small fraction of American businesses in Africa. Ethiopia, Rwanda, Uganda, and Senegal are building new Special Economic Zones (SEZ’s), a model very familiar to American firms outside of the continent, but a development they are largely ignoring in Africa. American firms have begun sourcing textiles in Ethiopia, and promising examples of triangular cooperation have begun with Chinese firms in the country’s Hawassa Industrial Park, but not at scale. American companies can capitalize on these opportunities and play an influential role in African business by increasing their sourcing and engagement in Africa’s SEZ’s.
Africa’s manufacturing sector also holds transformational development potential that American institutions cannot afford to overlook. Despite high GDP growth over the past decade, much of Africa’s growth has been without job creation, and 55% of Africa’s population will be urban by 2050. African countries are already grappling with alarming underemployment in their cities and this will only intensify without action – especially given the continent’s rising youth populations. Africa needs job creation not just to eradicate poverty but to prevent the exacerbation of poverty.
From 1970-2014, manufacturing employment created 260 million jobs in developing countries helping to fuel emerging market growth into the present period as well as the largest and most rapid reduction of poverty in world history. Manufacturing also employs a disproportionately high number of youth and women and enables significantly more skill transfer than other sectors, especially relative to the primary sector. As labor intensive production in middle income countries is on the decline and an estimated 85-100 million low-skilled manufacturing jobs are expected to relocate to new markets over the next decade, numerous African governments and multilateral institutions such as the African Union and African Development Bank are placing industrialization at the center of their economic agendas. It is time for American development bodies to actively support the industrialization agenda as well.
China has landed in Africa, and its economic relationship with Africa’s countries will profoundly shape the future of the continent. But the newsworthy story for the United States is growing opportunity and dynamism in Africa for American businesses and organizations. African leaders are looking for partners regardless of what country they come from to build infrastructure, invest in industry, and exchange services. Although it has been slow to adapt, the United States can play a catalyzing role in African growth by boosting its business, bilateral, and multilateral engagements in new sectors in Africa, in particular manufacturing. Opportunities abound for the United States in Africa with China – not despite it – but the time for U.S. engagement in Africa is now.
Helen Hai is CEO of the Made in Africa Initiative. Aaron Cohen is a Development Expert at the United Nations Industrial Development Organization (UNIDO).
