The real Chinese entrepreneurs make their presence felt in Africa
- Andy Rice
- 11 Aug 2010 06:49 (South Africa)
Multibillion-dollar resource and infrastructure deals between China and African countries make the business headlines ever more regularly, but there are very few reports about the growing numbers of small Chinese entrepreneurs seeking opportunities in Africa. Or of the cultural clashes their pursuits bring.
In the peaceful and prosperous Namibian capital of Windhoek, small Chinese businesses have been ruffling feathers. The trouble began in February when the Windhoek chamber of commerce complained that an invasion of Chinese corner shops, hairdressers, restaurants and traders was forcing out local businesses.
"There has been rapid growth in the number of small-scale retailing outlets throughout the country, offering low-quality products and replacing long-existing local businesses," the chamber said, lobbying the government for protection from such energetic Chinese competition.
Hage Geingob, Namibia's trade and industry minister and former prime minister, responded by banning all foreign investment in hair salons and public transport, and introducing a permit system for new shop owners.
In defence of his new protectionist law, Geingob suggested members of the Chinese business community might have been operating illegally, without registering or declaring all their earnings. "There have been concerns sparked by the activities of Chinese business people," he said.
Whatever the excuse, the strength of the backlash shows the extent to which Chinese firms have penetrated markets across Africa, and how worried the locals are. Armies of small entrepreneurs, marching in the wake of China's huge state-owned firms, have reached the most remote parts of the continent.
"Across Africa today you'll find a Chinese restaurant and a Chinese shop or local trader," says Martyn Davies, a South African consultant and director of the China Africa Network at the Gordon Institute of Business Science at the University of Pretoria. "And African consumers are buying Chinese products. More than two-thirds of the non-food products sold at Shoprite outlets are from China," he adds.
Although multibillion-dollar natural resource deals dominate the headlines, as many as 80% of the Chinese companies now in Africa are small or medium-sized enterprises, according to Jing Gu, a research fellow at Sussex University's Institute of Development Studies.
They have come to get rich, she says. "Chinese private sector investment in Africa is not driven by government policy or political interests. They are focused on profit."
Bilateral trade between China and Africa fell 15% during the financial crisis that began in 2008. But in the first two months of 2010 it bounced back strongly, up 94% year-on-year to $17.6 billion. The total trade for the year should top $100 billion and China is the biggest trading partner for many African states.
Estimates of the number of Chinese vary. Official figures from the Namibian trade ministry show there are 500 small Chinese retailers in the country. But since the majority of small companies do not register themselves, the number could be far higher. "Senior Chinese officials estimate that there are a million Chinese on the continent, but no one truly knows because the borders are porous and there are no real records, such as bank accounts," says Davies.
Many Chinese came over with the large state-owned enterprises, but spotted openings in the market. "In terms of actual SMEs, companies with hundreds or thousands of employees, there are relatively few," says Adam Mahamat, a project advisor from Cameroon who now works at the China-Africa Business Council in Beijing. "What we have seen is Chinese people who first went over to Africa to work for state-owned businesses quitting these jobs and setting up on their own. Then they invite friends and families over to help them as they begin to grow."
In the eyes of small Chinese companies, Africa is a land of opportunity. As one African official in Beijing put it: "The Chinese view Africa as one entity of a billion potential customers, much like the West views China."
At Oxford University, Alex Gadzala's doctoral work focuses on the effect of small Chinese businesses on the Kenyan economy. Her conclusions are dramatic. Africa may have received billions of dollars in aid money and infrastructure investment, but the arrival of large numbers of Chinese migrants will have an even more significant effect on transforming the continent's fortunes.
"Rather than large-scale investment and aid projects, it is the migratory influx [of Chinese] that carries the greatest ramifications for Africa's economic development," she says, arguing that Chinese competition is forcing stagnant local economies to adapt or die.
For decades, business in Kenya has been conducted on a short-term and informal basis known in Swahili as “jua kali” or “under the hot sun”. The Chinese, with their tight networks of “guanxi”, or relationships, have a strong competitive advantage. Kenyan businesses will be forced to evolve, argues Gadzala, and jettison the short-term thinking hampering their development.
Small, pragmatic and flexible, the Chinese businesses are also prepared to venture where others dared not tread. Traders have been willing to enter the very lowest-margin sectors of the economy where supply chains are weak and most other foreign businesses do not consider worthwhile.
The latest generation of mainland Chinese migrants have brought with them such a cheap and competitive array of products and services that they are even pushing out the first wave of ethnic Chinese migrants, the small groups of Taiwanese or Hong Kongers who arrived 10 or 20 years ago.
"Chinese entrepreneurs often invest in places that many in the West would avoid," says Gu. "They are more focused on new opportunities and profit. They are not overly concerned about the investment climate, although they do have serious day-to-day issues relating to infrastructure."
The early challenges in adapting to the African environment are also being rapidly overcome. Until now, small Chinese companies have found it difficult to raise capital to expand because they distrusted the local banking systems. Most either stashed their profits or sent money back to China. Earlier this year, however, Standard Chartered launched premium banking services in a number of African states, including Ghana and Nigeria, for Chinese SMEs who want to speak to bankers in their own language.
But despite bringing tangible benefits to African economies, small Chinese businesses are still viewed with suspicion and, in some cases, hostility. Some African countries, including Namibia, believe the arrival of the Chinese poses a threat to local jobs and industries.
In South Africa, the effect of Chinese trade has been problematic. Chinese imports have crippled the local textile trade, forcing as many as 70,000 people out of work. In Nigeria, textile imports are banned and there are tariffs of up to 45% on clothing imports.
And not all Chinese businesses arriving are wholesome. Neon-lit karaoke parlours, where entertainment stretches beyond singing, and the occasional brothel lit by red lanterns have also sprung up, fuelling anti-Chinese criticism.
Last year, a court in Ghana sentenced "King" James Xu Jin, his wife Chou Xiuying and his brother to a combined 41 years in prison for sex-trafficking. The trio had run the Peach Blossom Palace and had "enslaved" eight Chinese women, tricking them into believing that they were travelling to Africa to work in a restaurant before seizing their passports and forcing them into prostitution.
In Cameroon, David Xie, a 28-year-old business manager from Sichuan, has been in Africa for five years. He works as a liaison between a construction company building new water projects and the local government. But he readily admits he has spent little time outside the company walls. "Our company offered me a bed in a dormitory so most of the time I hang around there with my colleagues," he says. "I do not eat African food, except for fruit and beer."
In Portuguese-speaking Angola, which pumps two million barrels of oil a day, the communities are even further apart. Meng Mei, born in France to Chinese parents, has been working in Luanda since 2008. "In my experience there is almost no contact between the locals and Chinese workers. There is no integration. On the construction sites, the Chinese usually live on site. They live, work and sleep there. They don't go out. It's quite similar to the way migrant workers behave in China. They save money and send it home.
"For me, however, it is quite odd. I am Chinese, but born and raised abroad. The Chinese workers do not go to movies or restaurants very much and they certainly don't do this with the locals. Some higher-ups may interact more, but only for business purposes," she says.
The lack of strong ties between the communities has created distrust and resentment. There are long-simmering tensions over the number of Chinese workers brought over by firms doing unskilled jobs that could have been given to locals. The Angolan government has tightened its immigration policies and the cost of winning a long-term visa for a Chinese worker, together with travel costs and welfare payments, has risen to as much as $20,000.
In response, Chinese companies have tried to take on more local staff, according to William Wang, an IT engineer who works with Meng Mei in Angola. “Back in 2008, maybe you would only see Chinese workers in Chinese companies, but that has changed a lot in the last two years. I know a Chinese construction boss in Luanda who hires 70 Chinese workers and 500 or 600 locals. It's not uncommon. I don't think the Angolans feel we are taking jobs. We have created employment also."
He adds: “In the past, I think there were problems because even the brightest Angolans had no real expertise. The war meant they didn't have much chance to develop. An IT engineer was qualified if he could switch on a computer and type. That's not the case anymore. Universities are training Angolans and they are increasingly skilled. Perhaps Chinese companies doing business here incentivised that?”
Wang doesn't speak Portuguese, but occasionally socialises with African colleagues in Luanda, most of whom speak English. "I've been out with my African clients in Luanda. We eat dinner in a Chinese restaurant and once I invited them out for karaoke. I think they quite liked it. The bar had songs in Portuguese, Chinese and English so we could all sing," he says.
But clearly it will take more than a kizomba song from Ralph Anselmo, one of Angola's hottest singers, to bridge the chasm between Chinese and African cultures, language and business practices. Just as foreigners operating in China find themselves baffled by Chinese culture, the Chinese in Africa often become exasperated with their inability to comprehend the attitudes of the locals.
“Chinese bosses complain to me that African workers, compared to Chinese workers, are very slow. In Angola, the Africans used to say to me, you have to get used to Angola time. They told me that my timetables for projects were totally impossible. I told them they were not. There's a Chinese company which constructed a giant tower block in less than two years in the centre of Luanda. It is next door to a building for the Angolan government under construction for 10 years and which still isn't finished. In China that tall building would have been finished even quicker," says Wang.
Meng Mei, meanwhile, has felt the frustration first-hand. "It can be very hard to understand how Chinese run projects," she says. "In many cases I find it hard to understand why Chinese investors in Africa can ignore risks in the field of business in which they operate.
"For example, for two-and-a-half years I worked on a project for one major Chinese company in Africa. It was for a company's intranet. I regularly filed reports explaining what the project would need to succeed. I repeatedly stressed the importance of a constant electricity supply. It's a basic thing.
"Finally, when the project was about to finish, I said: 'So we are ready to go?' and only then did they say that they could not guarantee 24-hour electricity supply. I was told it was a local infrastructure problem and the boss of the company told me to just 'fix it'.
"I was very frustrated. I explained that I am an IT professional, not an engineer, and that it would take major government co-operation to fix that kind of problem. They just hadn't factored it in at all,” she says.
Meanwhile, many small Chinese businesses, who are used to a focused, authoritarian and unchanging government at home, find the behaviour of some African officials perplexing. "They always think that government officials can and will solve everything. It may be the case in China, but in Africa just because one official says yes, it does not stop another official from saying no. In this way projects and business deals get blocked and stalled. Our political systems are very, very different," says Mahamat.
“I think the biggest challenge for Chinese firms is their lack of experience and understanding of African business. Because of this very few Chinese companies work with African partners. Their approach to business is so different," he adds.
"In Africa, a businessman will say: 'I have some land, come and look at it and we can talk about what you want’. The Chinese want to know who owns what, the value, the cash flows and so on. It's not the same approach for Africans,” Mahamat explains.
Gu, who interviewed more than a hundred companies and officials across Ghana, Nigeria and Madagascar to write a report on private Chinese businesses, identifies another stumbling block that is feeding tensions. "There are weak links between Chinese firms and local African firms," she says, arguing that this has had an impact on the extent of the technology and skills transfer between the two sides.
The question of whether Chinese firms are in Africa merely for their own profit, like their colonial predecessors, or whether they are also willing to be involved in the continent's development will determine whether other countries follow Namibia's lead and close their doors too.
Reflecting the anxiety felt by the Chinese side over its reputation, Beijing has ordered Chinese embassies and companies to forge greater links with local communities. At last year's Forum on Africa-China Cooperation, China committed billions of dollars of low-cost loans and support for African SMEs, as well as pledging funding for 30 hospitals, 30 malaria treatment centres and 50 China-Africa friendship schools.
These gestures should ensure that the Chinese can continue to snap up vast reserves of Africa's natural resources, and they should encourage African communities to look more fondly on the Chinese small businesses in their midst.
But whether the small businesses are doing enough to forge stronger links with African businesses and communities remains to be seen. There is little coordination or wider strategy among them to highlight the positive benefits they bring. And there has been little recognition from African governments that the arrival of Chinese entrepreneurs could, with the right policies, and by encouraging investment in the right industries, revitalise their economies. "African governments, along with the African Union and civil society, need to establish a constructive policy framework to ensure foreign investment makes a positive contribution to society," says Gu.
While Chinese firms may be profiting handsomely in Africa, it is difficult to see much movement along such a two-way street until they have laid deeper roots.
By Tessa Thorniley
Thorniley is a freelance business and travel writer based in Shanghai.
This article appears courtesy of http://www.danwei.org.
Photo: Riping Ouyang (R), a Chinese investor, watches as a local worker stacks bags of seeds in a sesame factory in Senegal's capital Dakar February 11, 2009. Chinese companies are lining up to invest in African agriculture, but governments like Senegal must do more to limit the risks for investors, Ouyang, a veteran Chinese investor with over 20 years experience in African agriculture, said. REUTERS/Normand Blouin
- Andy Rice