Africa and China: Dance of the Lions and Dragons

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Chinese firms in Africa could reach revenues of $440 billion in 2025 by aggressively expanding in both existing and new sectors on the continent.

This forms part of the findings of McKinsey & Company’s latest report, “Dance of the Lions and Dragons,” in which the global consulting firm takes a closer look at the Africa-China relationship, asking “How are Africa and China engaging, and how will the partnership evolve?”

Compiled by Kartik Jayaram and Omid Kassiri from the Nairobi office, along with Irene Yuan Sun from the Washington, DC, office, the report focuses on eight large African economies – Angola, Côte d’Ivoire, Ethiopia, Kenya, Nigeria, South Africa, Tanzania, and Zambia – and identifies the four distinct archetypes of Africa’s relationship with its largest economic partner:

Robust partners. Ethiopia and South Africa have a clear strategic posture toward China, along with a high degree of economic engagement in the form of investment, trade, loans, and aid.

Solid partners. Kenya, Nigeria, and Tanzania do not yet have the same level of engagement with China as Ethiopia and South Africa, but government relations and Chinese business and investment activity are meaningful and growing.

Unbalanced partners. In the case of Angola and Zambia, the engagement with China has been quite narrowly focused.

Nascent partners. Côte d’Ivoire is at the very beginning of developing a partnership with China, and so the partnership model has yet to become clear.

From the more than 1,000 Chinese-owned companies McKinsey & Company spoke to for this report, 89 percent of employees were African, Mckinsey & Company report on Africa-Chinaadding up to more than 300,000 jobs for African workers, with nearly two-thirds of Chinese employers provide some kind of skills training.

Chinese firms are said to operate across various sectors of the African economy, with nearly a third involved in manufacturing, a quarter in services, and around a fifth each in trade and in construction and real estate. The report found that of companies engaged in construction and manufacturing where skilled labour is a necessity, half offer apprenticeship training. Other key report findings:

  • Half of Chinese firms have introduced a new product or service to the local market, and one-third have introduced a new technology. In some cases, Chinese firms have lowered prices for existing products and services by as much as 40 percent through improved technology and efficiencies of scale.
  • Chinese construction contractors command around 50 percent of Africa’s international engineering, procurement, and construction (EPC) market. African government officials overseeing infrastructure development for their countries cited Chinese firms’ efficient cost structures and speedy delivery as major value-adds.

The report also goes on to highlight areas that need significant improvement, including the lost opportunity for local companies to benefit from Chinese investment considering that only 47 percent of the Chinese firms’ sourcing was from local African firms.

It also found that:

  • Only 44 percent of local managers at the Chinese-owned companies we surveyed were African, though some Chinese firms have driven their local managerial employment above 80 percent.
  • There have been instances of major labor and environmental violations by Chinese-owned businesses. These range from in inhumane working conditions to illegal extraction of natural resources including timber and fish.

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