October 2010 Archives

I would firstly like to put in an apology for the lack of posts over the last month or so. The downtime on the China Sourcing Blog was due to business trips and a simple lack of time. Yet with that, normal service has resumed. 

With that out of the way, I've collected a few numbers below illustrating how important China has become to Africa, and how active Chinese construction firms have become on the ground in Africa. 

The International Monetary Fund (IMF) has just released its Regional Economic Outlook for Africa, which has a positive outlook for the continent: economic growth in sub-Saharan Africa is projected to reach 5% in 2010 and 5.5% in 2011. Much of the positive outlook for 2010-11, however, is ascribed to the increasing reorientation of the region's trade toward fast-growing Asia, particularly China. In what the report described as a dramatic shift in trade patterns towards China and Developing Asia during the last few years, by 2009 China's share in the sub-Saharan Africa's total exports and imports exceeded that of most other regions in the world.

These expanded trade links between China and Africa have occurred as a result of the natural synergy between Africa's ample natural resources and China's huge demand for them, and has been facilitated by broad political rapport between the two regions. Yet China has had a perceptible impact on the ground in Africa, and something very substantial has actually been happening on the ground in Africa. The construction industry in Africa as a whole in the noughties decade (2000-2009) was vastly different from previous decades, see chart below:

Construction Africa.png
This clear expansion of construction activity in Africa has been driven by strong growth in a few key countries. In 2008, in West Africa, the biggest construction sector growth occurred in Nigeria (around USD 2.5 million) and Ghana (around USD 1.5 million), where oil and mineral revenues are driving infrastructure and mining construction as well as housing development. In southern Africa, South Africa's construction sector contributed enormously to the construction value added amid its hosting of the football world cup: around USD 8 million of the total of more than USD 40 million. Yet infrastructure expansion, mining development, housing and grid expansion in Angola and Zambia saw both these countries contribute their share of USD 1-2 million each in 2008. Similar levels of construction value added occurred in Uganda, Tanzania and Kenya in eastern Africa.

Africa is still not growing nearly fast enough, however, and the current positive outlook has to be seen on a backdrop of how far Africa still needs to go. At current rates, the construction industry is expected to grow at around 12%, but it probably needs to grow around three times faster than that to support economic growth. Airports in Africa, for example, are woefully inadequate. With the world average of country aircraft departures at 115, 358 in 2008, South Africa comes up well above the average (156, 567). Yet the rest of Africa is way further down the list: Kenya (around 30,000), Nigeria (around 18,000), and Madagascar (around 12,000). Sea ports across the continent are few and far between and usually highly congested, and the proportion of paved roads, railways and electricity generation per capita across the continent north of South Africa is far from sufficient given current demographic trends.

So in this environment of great opportunity AND great need, there are an estimated 70 Chinese construction contractors active in Africa who are taking opportunities presented by economic growth and enormous infrastructure needs on the continent. The involvement of these companies looks something more or less like this:  

China Infrastructure Projects.png
These 70 or so Chinese firms account for China's most visible activities on the African continent and have caused China to become the leading global contributor to Africa's infrastructure development. Of the total USD 50.9 billion contracted projects in Africa in 2008, China captured 42%, by far the largest share of any country. Chinese firms have clearly been able to take the best African opportunities for construction contracts, and if Africa still has a long way to go, China is walking a long part of the way with it.