Mainland China’s growing investment in Africa has been attracting attention in recent years.

At a Chamber roundtable luncheon on 18 September, Alicia Garcia-Herrero, Chief Economist for Asia Pacific at Natixis, shared the results of her recent research into the nature and scope of this investment, and addressed some of the misconceptions that have arisen. 

Firstly, overall global investment into the continent remains low: “Africa is the continent with the most opportunities in terms of population and size – but it receives the least amount of FDI per capita,” she said. The amount of FDI going into Africa is less than one-third of that of Latin America, for example.

And while Chinese investment in Africa is growing fast, China is still a very long way from being the continent’s dominant investor, as it lags behind France, the United States and United Kingdom.

Another point worth noting is that while attention has focused on Chinese M&A in Africa, the data shows that, in reality, greenfield investment is much bigger, and that China is mainly lending rather than FDI.

“China is buying in the developed world; lending in the emerging world,” she said. “The question is – can this lending generate enough growth so the debt can be repaid?”

Garcia-Herrero’s research also revealed the sectoral focus of Chinese activity. China’s M&A activity has been mainly in energy at 59% and infrastructure at 30%. In greenfield, real estate is by far the biggest sector, making up 46%. 

Sectors that would seem to be obvious targets for Chinese investment such as textiles and auto manufacturing are only a small proportion, at 7% and 3% respectively. And in project finance, tourism represents only 1% of total investment.

Chinese investment in Africa creates fewer jobs per unit of investment than its investments in other parts of the world. However, Garcia-Herrero’s research reveals that this is due to the sectors involved, rather than any issue with Africa, as real estate investment creates fewer jobs than other industries, such as manufacturing or tourism. 

“Low job creation is linked to the nature of investment,” she said. 

Investors should therefore consider looking at sectors that would create more jobs. The low levels of investment in textiles and auto, for example, suggests that there are still opportunities in these areas. The population of Africa is growing, so Chinese involvement in more productive sectors would likely be welcomed by the continent. 

This sentiment was echoed by a participant during the Q&A session, who said that Nigeria had a high employment rate and would particularly welcome investment in the agriculture and textile sectors.