China in Africa: the consumer revolution is on its way
— Sean Carey
Africa is on the move. Over the last decade the sub-Saharan region grew at a rate not seen since the 1960s, improving on the 1 per cent growth for much of the intervening period to more than 5 per cent a year. Not as good as China’s progress, of course. The country which started the decade as the world’s seventh largest economy (excluding Hong Kong) will shortly overtake Japan and become second only to the US because its annual average growth has been running at over 10 per cent.But there is no question that the change in both countries’ fortunes is linked. By buying up vast quantities of oil and other commodities like copper, iron ore and diamonds, China has been key to Africa’s development as well as its own.
In many respects it will be business as usual for China in Africa in the next decade — it will continue to make deals (often at the expense of Western companies) for the raw materials for its many refineries and factories. It will also maintain investment in a significant number of infrastructure projects like bridges, roads and airports as well as providing soft loans for its trading partners.
But the most important new element in China’s relationship with Africa is that it now has its eye on one of the world’s largest untapped markets of around one billion people for its consumer products and services.
Attempting to outflank Western and other companies who have ignored the business potential in Africa — “the failed continent” as it was dubbed by foreign investors in the 1980s — for far too long is a smart move. But can the strategy succeed? I think it will because although there are some concerns about the quality of some exports, a growing number of Chinese companies have now acquired the minimum level of technological expertise to supply a range of goods and services to African markets at prices far more cheaply than those available from companies operating in the advanced economies of North America, Europe and the Pacific Rim.
China also has the potential and capacity to stimulate economic demand in Africa by engaging more fully with areas under its influence – in effect, all sub-Saharan countries except for the very small number which recognise Taiwan — by hiring labour and sourcing more locally than it has done up to now.
Such a strategy would not only strengthen economic and political ties but would also have a significant multiplier effect creating large pools of young, relatively affluent consumers very keen to try out the latest gadgets and services. It is worth noting, for example, that Africa is the world’s fastest-growing market for mobile phones with subscriptions increasing from just 5 per cent of the population in 2003 to over 30 per cent today.
Many of the consumer items available in advanced countries are already made by Chinese companies although unfortunately for them they don’t own the intellectual property rights.
Furthermore, the economic and political power that comes from owning and controlling the distribution of global brands, which is underpinned by a formidable capacity in design, technology and service delivery, should not be underestimated (which explains all the fuss made about the extensive counterfeiting and piracy carried out by Chinese operators).
Manufacturing in the US and other advanced economies may well be in long-term decline but the strength of brands as diverse as Apple, Coca-Cola, eBay, Gillette, Gucci, Intel, Nike, Nintendo and Toyota continues to climb and makes the global economy go round.
The Chinese authorities have been well aware of this problem for its economy for some time now and this is why they have flown in a small army of US and European marketing experts to help their companies develop their own range of branded products and services.
But this kind of knowledge transfer has not been nearly as straightforward as the Chinese once thought because the brand and design expertise to be found in cities like Atlanta, Florence, London, Paris, Santa Clara, Seattle and Tokyo has been built up incrementally over many decades, knowledge which is geographically bounded for the most part because it is embedded in specific trading systems.
This explains why the Chinese are now very keen to buy global brands which while they might be deemed superfluous to requirements by some Western companies still feeling the effects of the credit crunch, retain sufficient value and prestige to make them appear very good long-term investments.
It is undoubtedly this logic that lies behind the acquisition last week of Swedish carmaker Volvo from Ford by Geely, the largest independent vehicle manufacturer in China, for about £1.2 billion. Significantly, the deal had the backing of the Chinese government.
Volvo which has a workforce of around 20,000, two-thirds of which is based in Sweden, has been promised by senior Geely executives that if the deal is clinched Volvo will be well-positioned to access the Chinese and other markets.
If everything is finalised by the first quarter of 2010 it is a sure thing that it won’t be too long before Volvo which has built up an enviable reputation for the safety and sturdiness of its vehicles over the years, as well as oil-electric hybrid technology more recently, will not only be visible in increasing numbers on Chinese roads but African ones as well.
However, it will be the appearance of new, cheaper cars from Geely using Volvo’s technology but without the Volvo brand that will undoubtedly come on stream a few years later that will herald the real Chinese-led consumer revolution in Africa.
Dr Sean Carey is Research Fellow at the Centre for Research on Nationalism, Ethnicity and Multiculturalism (CRONEM) at Roehampton University