China and Africa Misconceptions, realities and

unanswered questions

Zhenbo Hou

Research Officer

International Economic Development Group

Overseas Development Institute

20th January 2014

Overview

• My own experiences

• China and Africa - realities

• China and Africa – unanswered questions

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My experiences

• Previously worked as an ODI fellow in the Nigerian Presidency between 2010-2012;

• My office was responsible for one billion USD annual budget towards public service delivery;

• Nigerian (Hausa) colleagues nicknamed me ‘Shehu Usman’, which means an ‘scholar’.

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Misconceptions

• Chinese companies often thought I could award them with lucrative government contracts because I worked for the Nigerian government… which was definitely a misconception indeed… • A Chinese company that has more than 30 years of experience

operating in Africa came to me to ask whether I could help them to facilitate government payment to their projects in an northern state in Nigeria;

• A representative of a large Chinese firm, which lost a huge sum of

money due to change of government in Nigeria. The poor guy was told by his headquarters that he had to stay in Nigeria until they get their money back;

– While these interesting stories illustrate people’s misconception of my

ability as an ODI fellow, they also underscore the challenging business environment facing Chinese enterprises in Africa

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Realities

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0

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2010 2011 2012 2013

China – Nigeria bilateral trade value

(billion USD)

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Note: data for 2012 is an estimate only and the 2013 data is for January to November only. Source: Chinese embassy in Nigeria 2014

China – Africa Trade Volume

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Source: White paper on China – Africa economic and trade cooperation 2013

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Source: Ibid

Unanswered questions

• What lessons can China offer to Africa in terms of structural transformation, job creation and poverty reduction?

• If Special Economic Zones were the key to accelerate economic growth in Asia, can they also succeed in Africa? If so, under what conditions?

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Rationale for Special Economic Zones

• Success stories in East Asia;

• Jobs creation and technology transfer;

• To serve as regional hubs for firms that want to offshore to their factories into Africa;

• Easier to provide infrastructure within a limited area

• Establish an economic laboratory; (could roll back if necessary);

• Helps to limit business and political risks;

• ‘Light house’ effect – pilot scheme;

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Special Economic Zones in China

• Shanghai Pudong Special Economic Zone

• Early 1980s

• Now

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Lekki Free Zone, Lagos, Nigeria

• Features – 50 km from Lagos City, which is the most populated city in Africa;

– Plan:30 km sq with 120,000 inhabitants;

– It will also consist of a sea port and international airport;

• Business incentives

– 100% foreign ownership of investment;

– 100% repatriation of capital, profit and dividend;

– 100% tax holiday, custom duties and levies;

– 100% waiver on all Import and Export licences;

– No threshold/quota for foreign employees;

– Prohibition of strikes within 10 years of operation;

– Long lease for investors (up to 99 years since 2006);

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Source: http://www.lagosstate.gov.ng/pagelinks.php?p=19 http://fangtan.cntv.cn/ljzmq/

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Challenges for Lekki Free Zone

• Lack of experiences in shared management in these zones;

• Lack of definite goals, performance indicators and concrete timetables

based on robust market and demand analysis;

• Provision of off-site infrastructure is critical - external road network and utilities;

• Lack of shared understanding on sales to the domestic market needs to be addressed;

• Strengthening communications and local economy linkages;

• Comprehensive management of environmental and social impacts;

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Source: World Bank (2010)

Research questions

• Given SEZs have worked in China, are there any lessons for SEZs in Africa?

• How does the state-firm relation affect investment decisions in these overseas SEZs? Is the state involvement in China’s overseas SEZs a blessing or an impediment? Are there privately funded zones that prove to be better?

• How can the role of host government help to explain the success and failures of the Chinese overseas SEZs?

• How does Chinese FDI differ from other existing or previous

FDI to Africa in facilitating the transfer of managerial expertise and technical know-how?

• How do the BRICS invest in developing countries? Do they view risks and regulatory framework differently?

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The views presented here are those of the speaker,

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Overseas Development Institute

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z.hou@odi.org.uk

Chinese overseas SEZs: examples

• An internationalisation of the developmental state?

Source: Brautigam and Tang (2012)

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Africa Asia Other

Egypt Cambodia Russia

Ethiopia Indonesia (Ussuriysk,

Mauritius Pakistan St Petersburg)

Nigeria (Lekki and Ogun)

South Korea

Zambia Thailand

Vietnam (Haiphong and Tien Giang)

Annex: Ownership structure of Lekki

Free Zone

• China-Africa Lekki Investment Co. Ltd (60%) →

owned by China Railway Construction Corp. (35%), China-Africa Development Fund (20%), Nanjing Jianging Economic and Technology Development Co. (15%), Nanjing Beyond Investments Ltd (15%) and China Civil Engineering Construction Co. Ltd (15%)

• Lagos State Government (20%)

• Lekki Worldwide Investment Ltd (20%)

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