Africa is currently the world’s largest untapped market. American businesses should be rapidly expanding into Africa, but they are not succeeding. Why is this?
This US News & World Report claims it is because the Chinese are beating them to the punch. China is dominating the African business market, and every country in Africa is currently affected by Chinese business in some way. For example, the new African Union Headquarters in Addis Ababa (the capital city of Ethiopia) is a gift from China via the Chinese People’s Political Consultative Conference. The Chinese are constructing new government buildings in most African capitals. But why aren’t American businesses competing with China for these and other jobs? The answer is largely because of the easy financing structure the Chinese government has put into place for nationalized construction companies to build in Africa. In America, businesses would have to privately raise money and put together a group of companies to do separate parts of the job, both of which can be lengthy processes. The Chinese have a system where the nationalized companies can go straight to the Chinese Export-Import Bank to get their bids financed and start working soon. The close connection between the public and private sector in China’s economy makes it easy for Chinese companies to get financing for jobs.
What are the implications of increased Chinese influence in Africa? It is possible that because of all of China’s help building their infrastructure, African nations will gravitate towards China’s political sphere of influence.
China’s relationship with Africa is more unique than just helping them build infrastructure projects. It is often the case that African countries send China resources or raw materials in exchange for Chinese aid with infrastructure projects. However, instead of sending capital, Chinese companies (usually SOEs, I believe) will simply send over the necessary amount of workers and material, complete the project (often of poor quality), and then bring their workers back.
This effectively eliminates the multiplier effect of normal investment projects. No Africans get jobs, their income does not increase, and often they cannot even use the infrastructure that was built, or worse they don’t know how to maintain it.
A prime example is the Angolan high-rise building project completed by the Chinese last year. It is currently a ghost-town because no one in Angola can afford the condominiums.
One reason why the U.S. may be being “beaten out” is because of our reluctance to deal with corrupt countries or countries that have poor human rights records.
Multiple reasons, as Duncan points out. We frown upon companies that deal in “dirty” money from outright bribes (buying political influence in the US can be done legally…open and systematic corruption is different, but less than we might imagine).
But another angle: who cares? Are these large markets that will leave US multinationals weak at home? Given current tax laws in the US, do our multinationals bother repatriating profits? And if the Chinese are in fact subsidising this investment, doesn’t everyone except the Chinese benefit? (How representative is Duncan’s Angolan example? maybe it is…)