The Economic Dimensions of Chinese Investments in Africa (2000-2015)

This study has been performed on the reality of the economic dimensions of China Investments in Africa during the period between (2000-2015). The Study adopted the descriptive analytical method by standing on the volume and the type of Chinese investments in the African continent. The study focused on the returns of these investment and the related exchange relations, on the economies of the African countries. The study found that the Chinese investments in Africa are direct investments that influenced the size and nature of the exchange between the two parties, which has been in favor of China's balance of trade. The study confirmed the increase of Chinese investments in the continent during the period (2000 -2013) but these investments began to decline thereafter. The study attributed this decline to the slowdown of China economy, instability in different African countries, in addition to the economic pressures exerted by western countries. All this has led to the decline in investments & exchange with the countries of the continent in general. In addition the study has reported that Chinese investments were concentrated on the field of natural resources and energy, which led to uneven impact on the economic indicators of the continent countries (poverty rates, GDP, growth rate & balance of trade. est.). In conclusion the study recommended that Chinese investments in Africa should be taken with more studies and analysis & with some additional control, monitoring and evaluation. Also African countries should re-evaluate their regional economic alliances and entities to avoid contradiction & lack of coordination in their investments policies, especially when dealing with foreign investments.


Introduction
One of the priorities of the growing Chinese economic ties with African countries in recent years is focusing on opening African markets to Chinese products. This secures its imports of energy and raw materials from these countries. Owing to the importance of this relation and its direct returns on the economic aspects of African countries, this study has been conducted to get a breasted of the economic dimensions of this relation through exploring exchange volume and Chinese investment orientations in all economic fields.
This study has adopted the descriptive analytic methodology to highlight the volume and type of Chinese investments in the continent to eventually arrive at results which support the study's hypotheses, conclusions and recommendations.

Significance of the Study
This study tries to reveal the fears related to the increase of Chinese investments in Africa, at the expense of western countries. Some researchers label these investments as domination and exploitation of the abundant natural resources in the black continent. Besides this, the study will provide other researchers with the necessary insight to conduct further related studies.

Objectives of the Study
*To get a breasted of the nature and size of Chinese investments in the African continent.
*To high light the economic strategic nature of these investments.

Methodology of the Study
This study employed the descriptive analytical methodology in describing the nature and volume of trade exchange between china and the African countries during the study period.
Place limitation: African continent.

The Concept of Foreign Investment
Foreign investment refers to the type of investment s where the capital, human resources (both administrative and technical, raw materials finished and semi-finish products together with modern technology are transferred from one country to another. Abu Qahaf A. defined direct investment as that where savings from a rich country flow to another in search for higher profits in an environment characterized by political, economic and institutional stability) 1  Growing economies, such as that of china, represents half of the top ten beneficiaries from the global direct investment. An UNCTAD report cited that by the end of 2014 china has become No (1) beneficiary from foreign investment in the world excelling the United States.

Foreign Investment Theories
Foreign investment theories have been based upon certain principles to interpret ate foreign investment orientation: a. Protection principle: Where foreign countries adopt precautionary measures to secure non-leakage of their technology to host countries.
b. Site principle: Here foreign countries attempt to benefit from raw materials and markets to attain maximum profits versus low production cost.
c. Interest Rates Principle: This is regarded as a direct, effective indicator for the flow of foreign capital. d. Abundance Principle: this principle states that abundance of raw material attracts foreign investment.
e. Risk distribution principle: Distribution and variation of economic activities lessens the impact of possible risks and accordingly investments are distributed in many countries.
f. Loss compensation principle: Here foreign investments try to compensate for the possible losses in the host country through expanding their investment to other countries.
g. Motivation principle: Thinkers and scholars have adopted this principle to justify the flow of foreign investment to countries. h. Competitive advantage principle in production cost: Many scholars have advocated the notion of foreign investment. Karr, for example stated that, "foreign investment secures foreign capital, and employment", Stowipher confirmed that "foreign investment helps in capital formation", Dennej followed suit saying that "it helps in exploitation of resources", on the other hand some view foreign investment as exploitation of countries and drainage of their resources while others view it as increase in export and promoting technology.

Types of Direct Foreign Investment
a-In terms of Form: This is a type of investment seeking a foreign identity already established through possession, transfer of property, merge or buying across border.
b-In Terms of Strategy: 1-Horizontal investment: It refers to investing in all branches which produce goods similar to those of the mother country to facilitate access of investors to foreign markets or to overcome external factors such as customs' duty barriers or transport cost which might have a negative impact on the competitive status of exports.
2-Vertical investment: It refers to the investment in the different stages of designing, production and marketing of products in different countries through affiliated companies to benefit from production cost differences in different countries. Vertical investment always embraces activities with value added.
The foreign direct investment is characterized by a dual nature represented by an economic activity conducted by a foreign investor in the host country where he enjoys total or partial ownership of the activity. Projects sprouted from such investments leave an agreed-upon legal dimension defining the relationship between the investor and host country.
In reality, foreign investors favor direct investments as this allows them to invest in the activities which they prefer. Such activities give them more power and control, though the host countries may have laws and regulations that govern the directions and of investment in fields which respond to their macro-economic policy.

Objectives of Foreign Investment in Developing Countries
1-Access to raw materials in host countries to meet development needs.
2-Benifiting from exemptions and merits that granted by investment laws in host countries to attract foreign investment.
3-Opening new markets to foreign companies products in host countries. 4-Benefiting from preference merits in host countries as work cost and other production costs are generally low compared with other countries. 5-Foreign companies through their investment try to gain optimum profits compared to what they could have attained in their original homeland.
6-To benefit from advanced technology processed by foreign companies in producing commodities which could easily compete those of the host countries.
7-Attempting to extend their activities to other countries lessens risks involved through distributing these investments in a number of countries. This could explain china's investment in Africa as a whole.

The Importance of Foreign Investment to the Host Countries
1-To benefit from advanced technology possessed by developed countries.
2-Atraction of foreign capital to invest in projects which, will eventually result, in the increase of production and employment opportunities, for the local labor force.
3-Through foreign investment, host countries try to raise export size in an attempt to evade deficit in balance of trade especially through exporting products. This tendency depends on investment laws in the host countries (Tunisia doesn't allow foreign investors to sell most of their products locally) 2 .
4-Securing training opportunities for the local labor force to be able to operate highly sophisticated production machinery.
5-Through foreign investment host countries expand their relations with the outside world and consequently develop and increase trade exchange.

Foreign Investment Indicators in Host Countries
These are the factors which interact to attract or rebel foreign investment, we could review some of the factors as follows: a. The degree of the stability of the macroeconomic variables, in host countries.
b. Access to supporting of financing and banking services. c. the size of markets in the host countries, which could be attained through estimating the absorptive capacity.
d. Access to the local and regional markets. e. Efficiency of the basic-infra structure. f. Relative availability of production elements. g. Availability of export opportunities. h. Degree of abundance of natural resources in host countries.
i. Competitive ability of products. j. Degree of keenness of host countries to apply environmental standards.
The Arab Institution for Investment guarantee has organized these indicators in 5 different groups as follows:-Group (1): It includes the institutional and economical indicators in the host country (legal, economical conditions).
Group (2): includes the factors related to investment environment (availability of foreign currency, flexibility of communication with investment organs, movement without hindrance in the host country).
Group (4): includes the size of material and moral support on the part of the host country, (size of local market, investment opportunities, and banking facilities).
Group (5): Availability of a data base, cooperation between investment organs (bodies) and stability of investment policies.
From the above review, it is evident that most of the principles upon which investment theories are based coincide with the reality of Chinese investment in Africa.

China's Economic Motives in Africa
(a) Crude oil: і. China has become an oil importer country as from 1990 (nearly 600,000 barrels per-day) and is expected to rise to more than (7000, 000) in 2016 3 .
іі. China's oil reserve is limited (suffices for only 21 years as estimated in 1997.) 4 This means china will remain with no oil reserve by the end of 2018).
ііі. Disputes and tensions in the Middle East made china varied its oil reserve supplies.
іііі. The spectacular growth which china has witnessed as from the 90s and which was estimated at 10% and its total dependence upon oil led to china's interest in Africa's oil.
As stated before, the reality supports china's keenness to ensure the continuous flow of the African oil through a strategy based on a number of parameters:-A-Establishing a number of specific administrative bodies to develop political, economic and cultural relations with African countries and widening the responsibility of already found organs and administrations to include all aspects of joint cooperation.
B-Facilitating the establishment of a number of research centers, and Chinese civil society organizations, e.g. Chinese African cooperation forum initiated by Beijing in 2000, with 46 African member countries. One of its marvelous achievements is the dropping of 1.2 billion dollars of African debts.
There is also Chinese African business council which was founded in November 2004 to promote Chinese private sector invest in the Cameron, Ghana, Mozambique, Nigeria, South Africa and Tanzania. The current trade exchange between china and Africa is 30 billion dollars.
C-The shuttle diplomacy, and the visits that paid by Chinese responsible officials to Africa.
D-The attempts to protect oil wells and natural gas in some African oil countries such as Sudan. There is also Chinese attempt to reach to Guinea Gulf (rich in oil) to compete the USA in oil investments. Practically it has succeeded in laying a footing in Angola, Gabon, Equatorial Guinea, now china imports more than 25% of oil from Africa and is seeking more oil imports because its oil needs will double in 2030. In addition to Sudan china imports oil from Chad, Algeria, Angola and Gabon (e) there are also attempts for oil contracts in North Africa with countries such as Algeria and Libya.
(b) Mineral Wealth Motivation: 1-Metallic Minerals: There are the minerals that controls and directs a Country's economy and its industrial course. The excel agricultural products in that they could be stored and repeatedly used (Characterized by flexibility and long use) (1) Minerals are components of most industrial products, Magnesium for example is essential in alloys antimony is used in plumbing while nickel, for its flexibility, is important in industry. Cobalt is also used in jet locomotives. Iron is indispensable in most industries. Other support energy field (coal and natural gas) (2) Metals such as diamonds have high monetary value. To confirm the economic orientation of Chinese investment in Africa, more than 200 companies operate in Sudan in economic, industrial and mining field.

The Basics for China's Economic Strategy in Africa
1-China's policy, contrary to western countries is based on the principle of (non-intervention in the political affairs of African countries and not to impose economical or political conditions upon them such as (freedom and liberation of economy as a prerequisite for development), the relationship is based on interaction and non-domination.
2-China policy in its relation with African countries is more acceptable to Africans, than the western one, the history of western domination during the colonial era made African countries suspicious in their relations with those countries, Also western countries advocate decentralized forms of governments, such tendency contradicts those countries which claim that centralized governments are more suitable for their countries.
3-China's aid to African countries is a mixture of grants and non-profit aids or aids with very low interest.
4-China is interested in Africa as a whole, but tightens its relations with pivotal countries such as Ethiopia in the eastern region, Kenya in the central, South Africa in the south, Egypt in north Africa and Nigeria in west Africa, China's focus in Nigeria the second biggest economy in Africa, where it built railway lines, schools and hospitals together with water resources and communication technology.
Also, in, Kenya, their partnership is consolidated between the two countries leading to China's interest in infrastructure, renewed energy, agriculture and environment protection of games (non-domesticated animals) and tourism.
China cooperates with Africa as a whole through Chinese-African cooperation forum, as an institutionalized reference, in addition to bilateral cooperation such as the diplomatic relations forum between china and South Africa and the ambassador level. China has also fulfilled its commitment to consolidate relations with the African union, regional organizations and African institutions, and backed the leading role of the African union in solving African problems, besides china positively participates in the UN peace keeping force in Africa. In addition Chinese investment is not confined to a certain sector but extends to include services, industry agriculture and transport sectors beside oil.
China's keenness to invest is motivated by the fact that its investments haven't been influenced by security and political situations in Africa, China has heavily invested in countries which witnessed instability such as The Democratic Republic of Congo, Eritrea, Guinea, Burundi, Angola and Central Africa (china has a great ability of adaptation without offending this country or that regime) 5 .

Assessment of Chinese Investment in Africa
It is noteworthy that china's investment in the African continent has been mainly directed towards countries rich in natural resources such as Ethiopia, Kenya and Uganda.   (1) These various resources and huge economic potential Africa possesses requires investment to be used for the benefit of its inhabitants. I may assume that China hasn't randomly chosen Africa for its investment but based on a history of good relations that dates back to the middle of the twentieth century.
(2) Chinese investment in Africa has targeted sectors requiring huge capital in countries suffering from shortage in such capital, such as Ethiopia and countries of central and western Africa. This justifies the financing orientation in Africa and to benefit from the competitive advantage of skilled labor force in other countries such as South Africa and some countries in North Africa.
(3) China's investment has taken the direct form; such investment is characterized to be lengthy in time and participation in the capital and administration. Arab institution for the Guarantee of Investments defines it as "long term investment where investors are active participants in administration and decision making through participation in the capital of the investment project." Also, studies indicate that Chinese investment in the African continent take the form of deals, essentially targeting natural resources. Chinese direct investments in Africa mount to 26 billion dollars by the end of 2013. This figure represents 3% of foreign investment that same year. UNCTAD's report indicates that (china's investments in the black continent represent 4.5% of the total direct investment in 2015).
In trade exchange we find African -Chinese investment has steadily increased in recent years. Its investment in infra-structure, construction, oil, agriculture or trade exchange has tremendously spread in Africa as a whole. Also, Chinese cooperation and grants offered to African countries don't represent any political burden or external worry. China has repeatedly declared that its cooperation with Africa is for the benefit of its peoples and doesn't represent any struggle against any international force in search of influence. This tendency is confirmed by the figures and variety of and size of the African Chinese cooperation. African truly prefers cooperation with china not out of fear or poverty: the situation created by the western colonial rule made these countries in bad need for material scientific and technical aid.  It is evident that China's imports from Africa are confined to oil, minerals and natural resources (abundant in Africa). It represents 855 from the overall import during the study period.  Table 4 and 5 indicate that china's imports is concentrated in raw materials (oil, minerals, natural) representing 85% of its import from Africa, while African imports from China is concentrated in infra-structure commodities such as (preparation materials,, medium commodities) representing 71% of china's exports to Africa, besides China's great interest in Africa is evident in the great increase in Chinese companies operating in Africa (table below).  There is 186% increase in the number of Chinese companies operating in Africa distributed in some African countries and active in agriculture, mining, building and construction and industry in addition to logistic support.
All of the above points support the first hypotheses of the study which states that China's investment in Africa is concentrated in natural resources, also table 6 supports the hypotheses as it indicates the increase of Chinese companies operating in Africa and their presence in most African counties and their interests in sectors rich in natural resources.
The Economic Performance of African Countries: 1-According world bank reports, the first decade of the 20 th century had witnessed tremendous increase in energy and minerals' prices mounting to 160%, as for precious metals the increase exceeded 300% where as the increase in agricultural products exceeded 100%, in my opinion the, the increasing China's interest in natural resources was a decisive factor in their price increase.
2-In my opinion, the recession in China's economy, especially in 2015, had a negative impact on a number of African countries, figures indicates that economic growth had declined from 8% to about 6%. Many attributed the recession to the demand decrease of Chinese products.
Also, the economic policy adopted was directed toward increasing wages, but this policy isn't met by increase in consumption rate, especially in the real-estates field which represents 5% of the output. This led to an increase in production cost and a sharp decline in its competitive capacity. This situation coincided with the governmental internal and external debts (about 28.2%) of China's local output.
Also, the exchange rate of Chinese currency (the Yuan) as a result of American pressures, this had a negative influence of the competition states of china's exports compared with these of china's neighboring countries. And as china is the No (1) oil consumer in the world (approximately 7.4 million barrels a day, the Chinese economic recession has to sharp decline in oil prices globally. All this unfavorable situation china had experienced, had negatively influenced Africa's economic indication as we will see in the review below The economic growth rate: Some of the African countries south of the Sahara were hard hit by the Chinese economic recession; their economies had recorded a 3.8 decline which was considered the biggest rate since the beginning of the millennium measure by the World Bank indicators. Makinzi institute experts claimed that 25% of the overall African economy's growth resulted from the Chinese demand increase of the African oil and Minerals. From the previous review we can assess the impact of Chinese investment upon the African economic performance as displayed in the tables below:  Table 7 displays the fluctuating rate in the overall economic output despite the remarkable rise in 2010 and 2012, but the rate again exhibited its lowest decline by the end of 2015. This may be due to the state of instability which prevailed in the period.  One could notice that the trade exchange rate between china and Africa has risen to 177% in the period 2000-2012 with a yearly average rate 14.8% while the increase for the period between (2012-2015) only 0.008% only with percentage average 0003% per-year approximately. This shows that the exchange after reaching the climax has come to a halt. I hope that the unfavorable status of Chinese economy as a result of western pressures, and the situation prevailing in the African continent shouldn't represent the lost recede in trade exchange between the two parties.
Trade Balance between China and Africa:  In trade, figures in the above tables 8 and 9 indicate that China is more important to Africa than China is to Africa. The above table indicates that poverty rate in African countries (south of the Sahara) increased tremendously in 2015. Poverty rate in early 90s in E. Asia equals that of 2015 in African countries. World Bank reported that in all regions has witnessed a recede in recent years but gravely extended in countries which depend heavily on exporting raw material or those which has experienced prolonged disputes.
The economic performance indicators in African countries which had access to, need further investigation and research because they were the outcome of various and entangled factors. But what is evident is that countries rich in natural resources haven't attained maximum benefits from them to promote development programs. In a paper presented by Rick Vandier and Tony Pineapples with the title (How Developing countries Rich in Natural Resources Should Harness the Revenues for Growth) published in the Economic Journal (The Royal Economic Association) United Kingdom in March 2011. Cited (developing countries rich in natural resources should employ the revenues in improving wages and increasing investment in both public and private sectors to promote economic growth. The two researchers don't advocate use of these revenues to build reserves of foreign assets for the benefit of future generations. The researchers noticed that countries rich in natural resources such as petrol have generally exhibited low economic performance in comparison to the countries poor in natural resources. The researchers attribute this to a number of factors, in appropriate exploitation of these revenues, increase of savings at the expense of investments, instability of prices or disputes instigated by these revenues.  It is noticed that Sudan exports between 2000-2015 was mainly concentrated on raw materials (oil, minerals, agric, animal products) with an approximate average rate of 85% of all Sudan's exports. It is also noticed that agricultural and mineral exports have tremendously increased as from 2011 to compensate for the great decline in oil exports. This explains the reciprocal tendency in trade relations between the host countries and the investing ones which the following figures below confirm.
From the above table china still dominate the export of the country.
However, there are numerous positive aspects for the benefit of a number of African countries. For example, in the context of the western boycott to Sudan, the greater petroleum company was founded. It consists of (the Sudanese national oil corporation), (The Chinese National Oil Company), (PETRONAS, Malaysia), (The Indian oil and Natural gas corporation 25%). The Nile oil company was able to produce and export oil for the first time in 1999 which led to an increase in Sudan's hard currency resources and reflected positively in Sudan's trade balance. Besides more than 200 companies are operating in various fields, such as infra-structure projects, agriculture, industry and services).
As for loans, subsidies, grants and projects China's contribution is remarkable.
For example Sudan came across the following facts and figures.    China found the Chinese African development fund with a budget estimated at 5 billion dollars supported by a package of programs till 2015.

Results
From the above review I can conclude that: 1. Most of the principles upon which foreign investment theories are based coincide with the realities of Chinese investment in Africa and that Chinese investments are direct ones targeting mainly natural resources sectors.
2. Chinese investments in the African continent though steadily increasing, have differing impacts upon the economic performance of African countries. This could be attributed to western pressures exerted upon china together with poor performance exhibited by Chinese economy in recent years and the state of instability which bit most of the African continent recently.

Recommendations
The study recommends the following: 1-The necessity of conducting further researches on foreign investment with appropriate analysis, monitoring and evaluation.
2-African countries should re-evaluate their regional economic alliances and entities to avoid contradictions, lack of coordination, as regards to foreign investment.
3-African countries should coordinate their investment policies, taking into consideration the priorities of each country to obtain maximum benefits.