The 3 Reasons Why Chinese Invest in Africa

The level of China's investment in the continent of Africa is increasing at a rate fast enough to raise concerned eyebrows in the west. Primary motivations that lie behind China's push toward increased investments in African nations include the desire to secure a solid base of raw materials to fuel China's own rapidly growing economy, the desire to increase China's global political influence and the major growth opportunity presented by emerging market economies in Africa.

China's total investment in African nations is still at a lower overall level than that of some western, developed countries, but the pace at which China's African investment is growing completely dwarfs that of any other country. Mining and oil remain a primary focus of China's investments; however, the country's investments extend throughout virtually every market sector, including everything from infrastructure to food processing. China's investments in the largely undeveloped infrastructure of African nations are particularly strong, encompassing key areas such as utilities, telecommunications, port construction and transportation.
China's investments have the country well-positioned to profit from continuing economic development in Africa. Many Chinese firms investing in Africa are state-owned. This gives them a notable competitive edge when, for example, bidding procurement contracts in African countries, since the companies can obtain substantial subsidiesfrom the Chinese government.
China's push into African economies puts it in direct competition for influence with the United States, and as of 2015, China has the upper hand. Chinese-African trade, projected to double by 2020, already totals over $200 billion, more than twice the level of U.S.-African trade. In 2014, the U.S. committed to investing $14 billion in African aid over the next decade, but that is only a fraction of China's commitment to invest an additional $175 billion over the same time period. Nearly half of China's total foreign aid goes to African nations.
The stakes in Africa are high due to the continent's rich abundance in raw materials. Africa is estimated to contain 90% of the entire world supply of platinum and cobalt, half of the world's gold supply, two-thirds of world manganese and 35% of the world's uranium. It also accounts for nearly 75% of the world's coltan, an important mineral used in electronic devices, including cellphones.
Fuel for a Growing Economy
China is the premier emerging market nation, and the well-being of its economy significantly impacts world markets. As the world's largest nation continues its economic expansion, Chinese leaders recognize the increasing need for natural resources, food and product markets necessary for continued economic growth. The focus on resource-rich Africa is a logical one for China. Mining investments account for nearly one-third of China's total foreign direct investment, or FDI, in African nations. By working to secure a solid base of critical raw materials, China strengthens its economy for decades to come.
Political Motivations
The African continent is a logical place for China to look to extend its geopolitical influence. China is already the preeminent power in Asia. India, a historically traditional rival of China, is not a realistic choice for China to look for an increase in political influence, but the largely undeveloped countries of Africa represent a prime opportunity for China to significantly expand its global presence and influence in the world. The nature of China's political motivations are partially revealed by its extensive investments in African infrastructure. If China can rise to a position where it exerts major control over essential economic elements such as the utilities sector and telecommunications in African countries, then it also holds considerable political influence in those nations.
Good Business Sense
China is known for its pragmatism, economic and otherwise. While it represents a major emerging market opportunity for developed countries, China itself has to consider where its primary emerging market opportunities exist. It is already heavily invested in other Asian emerging markets, as well as in Latin markets and South America. African economies provide another sensible choice to take advantage of excellent growth opportunities. According to recent studies, the foreign investment rate of return in Africa is higher than that of any other major developing area in the world.