Human resources focus in next cycle of China/Africa economic cooperation

15 August 2016

The cycle of expansion based on raw materials, which has sustained growth of economic relations between China and African countries like Angola, is playing out and the next opportunity is in human resources, says researcher David Dollar.

In the Brookings Institution study on “China’s Engagement with Africa: from natural resources to human resources”, the US researcher holds that “the foundation for the Africa-China economic relationship is shifting,” after an in initial period where it was “logical” for the Chinese economy to import African raw materials while exporting back industrial products.

“These patterns of trade and investment are now likely to gradually shift in response to changing demographics. The working-age population in China has peaked and will shrink over the coming decades.” This has led to higher wages and rising domestic consumption, the economy’s most dynamic component, he says.

The model based on investment and exports is also “running out of steam” and there is excess production capacity in real property, manufacturing and infrastructures, whereby raw material demand should remain muted.

Dollar asserts that Africa’s demographics are heading in the opposite direction, with much resemblance to China before the economic reforms 35 years ago: half of the population is less than 20 years old, so the working-age population will increase in the next two decades, forcing the continent to create 20 million jobs per year.

“Africa’s demographics present both an opportunity and a challenge. It is unrealistic to expect the China-Africa economic relationship to change overnight. Nor would it be reasonable to expect large volumes of Chinese manufacturing to move to the continent in the near future (…) But if even small amounts of manufacturing shift, this could make a significant difference for African economies,” he explains.

Preliminary conclusions of a study by the China Africa Research Initiative of Johns Hopkins University in the US, recently presented by the researchers Jyhjong Hwang, Deborah Brautigam and Janet Eom, indicate that of the US$86.9 billion of Chinese lending to Africa between 2000 and 2014 (by Chinese government, banks and companies), Angola received US$21.2 billion or 23 percent of the total.

The China Development Bank was the institution that granted the most credit to Angola (US$11.3 billion), followed by the Export-Import Bank of China (US$7.36 billion) and others (US$2.5 billion).

China should work with African governments to “encourage Chinese firms to hire and train African workers and to limit the flow of labor” to those countries, because there is a greater incentive for companies to hire locally due to the rising cost of sending in expatriate workers, Dollar says.

After analysing the Chinese Commerce Ministry database on companies investing in Africa, he concludes that while the biggest companies focus on extracting natural resources, small and medium sized ones are above all dedicated to manufacturing and services, which meets the interests of many African economies.

In late July, 39 agreements between Chinese and African companies worth an estimated US$17 billion were signed in Beijing on the sidelines of a meeting held to assess the second China-Africa Forum (FOCAC) Summit, according to Xinhua news agency.

The business seminar likewise held during that meeting was attended by more than 400 participants from government agencies, financial institutions, business associations and companies.

Among those present were Mozambique’s Deputy Minister for Foreign Affairs and Cooperation, Nyeleti Mondlane, and Guinea Bissau’s Minister of Public Works, Construction and Urbanism, Malam Banjai, among other representatives from the Portuguese language countries.

The December 2015 FOCAC Summit in Johannesburg resulted in ten cooperation plans between China and Africa in the next three years, worth an estimated US$60 billion. (Macauhub/AO/CN/GW/MZ)