(Sundiata Post) – There are three times more Chinese firms operating in Nigeria than official data accounts for.
A new research report titled “Lions on the move II: Realising the potential of Africa’s economies” carried out by global consulting firm, Mckinsey, shows that there are 930 Chinese firms plying their trade in Nigeria, as against the 317 firms documented by the Chinese ministry of commerce, which until now, was the largest database of Chinese firms in Africa.
Mckinsey’s findings suggest that 65 per cent of Chinese firms in Africa’s largest economy go uncounted.
On the continent, Mckinsey puts operational Chinese firms at over 10,000, spread across the manufacturing, construction, trade, services and real estate sectors.
These firms employ some 300,000 local workers and are arguably making a killing on African turf, with a third of them reporting about 20 per cent profit in 2015, according to Mckinsey’s findings.
Their total revenues come to $180 billion, an amount McKinsey predicts could either rise 38 per cent to $250 billion by 2025 or more than double to $440 billion, using two different scenarios.
However, despite the foray of Chinese corporates into Africa, only two countries have a clear cut strategy for the world’s second largest economy and Nigeria doesn’t make the cut. The two countries are South Africa and Ethiopia.
“Nigeria do not yet have the same level of engagement with China as Ethiopia and South Africa,” McKinsey said, also referring to Kenya and Tanzania.
“These three governments (Nigeria, Kenya and Tanzania) recognise China’s importance, but they have yet to translate this recognition into an explicit China strategy.
“Each has several hundred Chinese firms across a diverse set of sectors, but this presence has largely been the result of a passive posture relying on large markets or historical ties; much more is possible with true strategic engagement,” McKinsey observed.
An email seeking comment from the Nigeria Investment Promotion Commission was not immediately replied.
“We don’t seem to have a China strategy as our relationship with the latter has been largely immediate and transactional, rather than long term and transformative,” said Kyari Bukar, chairman of the Nigerian Economic Summit Group, a private sector think thank that draws membership from a wide range of sectors in the economy.
“There should be a strategy that defines our relationship with China, promotes our national interest and hinged on our existing national economic plans, like the Economic Recovery and Growth Plan, wherein we should also include strategies for Britain, the United States and probably India,” Bukar said by phone.
Nigeria’s well-fed informal sector has been able to mask the lack of an all-encompassing China strategy, according to Muda Yusuf, director-general at private investment advocacy group, the Lagos Chamber of Commerce and Industry (LCCI).
“The public sector does have structured bilateral relationship with China but the private sector doesn’t, as most Chinese firms play in the informal sector where they cannot be well tracked,” Yusuf told BusinessDay.
“To deepen our engagement with Chinese corporates, we must strengthen our formal institutions,” Yusuf said.
South Africa and Ethiopia have a clear strategic posture toward China and have translated their national economic-development strategies into specific initiatives related to the former.
Nigeria’s public sector already has some engagement with China, especially in the areas of infrastructure financing, as pointed out by Yusuf of the LCCI.
Prior to the improved dollar liquidity in Nigeria, a deal was in the works between the Nigerian and Chinese government for a currency swap to ease the import constraints of businesses, brought on by declining petrodollars.
There is considerable upside for Africa if Chinese investment and business activity accelerate, according to McKinsey.
At the macroeconomic level, African economies could gain greater capital investment to boost productivity, competitiveness, and technological readiness and tens of millions more African workers could gain stable employment.
At the microeconomic level, however, there will be winners and losers.
Particularly in sectors such as manufacturing, where African firms are significantly lagging behind global productivity levels, African incumbents will need to dramatically improve their productivity and efficiency to compete—or partner effectively—with new Chinese companies on their turf.
“On balance, we believe that China’s growing involvement is strongly positive for Africa’s economies, governments, and workers,” McKinsey said. But the latter admits there are still areas for significant improvement.
By value, only 47 per cent of the Chinese firms’ sourcing was from local African firms, representing a lost opportunity for local firms to benefit from Chinese investment.
Furthermore, only 44 per cent of local managers at the Chinese-owned companies McKinsey surveyed were African, though some Chinese firms have driven their local managerial employment above 80 per cent.
There have also been instances of labour and environmental violations by Chinese-owned businesses.
These range from inhumane working conditions to illegal extraction of natural resources, including timber and fish.
In the past two decades, China has catapulted from being a relatively small investor in the continent to becoming Africa’s largest economic partner.
Since the turn of the millennium, Africa–China trade has been growing at approximately 20 per cent per year.
Foreign direct investment has grown even faster over the past decade, with a breakneck annual growth rate of 40 per cent.
Yet even this number understates the true picture, as deduced from Mckinsey’s report, which puts China’s financial flows to Africa at around 15 per cent larger than official figures when non-traditional flows are included. (BusinessDay)
McKinsey Says 65% Of Chinese Firms In Nigeria Not Captured In Official Data
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