Keynote Speech delivered by Development Reimagined CEO Hannah Ryder during the 2024 Chinese Investment in Africa report launch with China-Africa Business Council
August 23, 2024
FULL SPEECH BELOW
Excellencies, distinguished guests, ladies and gentlemen,
Congratulations on the launch of the 2024 report. It is an honor for us at Development Reimagined to have contributed a chapter to this important document, and we appreciate the opportunity to share our perspectives today.
As we gather here, it is crucial to acknowledge a significant global economic shift that directly impacts Africa’s future: the ongoing transition in the Chinese economy from a labor-intensive, production-oriented economy to a high-value manufacturing, greener and consumption-oriented economy, in line with its demographic trends.
Now, there are many people out there who are pessimistic about this transition. They talk about overcapacity and a sluggish economy. Some even consider creating trade barriers, in a contradictory way suggesting almost too much success by China.
But as Africans in particular, such pessimism makes little to no sense. The fact is, China’s economic shifts – as they have done for the last 70 years – present historic windows of opportunity for African countries, if we are really watching clearly and closely through transparent glass.
Over the last 20 years, China’s economic shifts have had two major implications for Africa. They enabled Africans to get access to lower-cost consumption goods, as well as enabled Africans to build infrastructure for cheaper than they had ever done before. Yes, there were problems – some of those products were sub-standard, as were some of the infrastructure projects. But on the whole these problems were small in comparison to the issues we were facing on the continent, and the benefits we were deriving from our scaling engagement with China.
Yet all the while this was going on, pessimism about China’s global role grew, not taking into account African perspectives.
We remain in the same situation today. There is pessimism about China elsewhere, yet we as Africa today have THE greatest opportunity we’ve ever had through partnership with China to industrialize — a process that we’ve already seen Asian countries benefit from – from Indonesia to Malaysia, Vietnam, and Thailand. These countries are not our competitors, as some would also like to suggest. No, they are our lightbulb as we look through the window – they show the potential is REAL. It is THERE.
But here is the biggest challenge to the potential for Africa to follow in Asia’s footsteps and industrialise. As much as many international economists, investors and policymakers are negative about China, they are even more negative about Africa…
If the dominant perception about China is that the country is a malign player, the dominant perception of Africa today remains that we are a risky continent with too many people.
Look – the same year that FOCAC began, 2000, the Economist called our continent the “hopeless continent”. These perceptions have hardly changed – they are why Europe, for instance, has such strong barriers against migration from Africa.
So, what is the real story? Why should Africa – especially from China – be seen as the next global manufacturing hub of the world, as envisioned in the African Union’s Agenda 2063? And how can Chinese investment really play a positive role in this transformation?
In the report you have today, in the chapter we wrote, we set out the facts which exist but are never talked about. The positive reasons to invest in our continent.
The fact is, Africa’s potential as a key player in global manufacturing is underpinned by several compelling factors.
Energy costs on the continent are becoming increasingly competitive. The average price of electricity in Africa is nought point fourteen dollars per kilowatt hour ($0.141 per kWh) – fifteen percent (15%) lower than the global average, with thirteen (13) African countries offering cheaper electricity than China, where the average is nought point eight dollars per kilowatt hour ($0.084 per kWh). Further investments in energy infrastructure are likely to reduce costs even more, making Africa even more of an attractive destination for production.
Labor costs provide another strong incentive. With an average minimum wage of one hundred and nineteen US dollars ($119) in Africa, compared to two hundred and eighty seven US dollars ($287) in China, Africa offers a significant cost advantage. Furthermore, African workers are productive, with an average output of twenty two point seven dollars ($22.7) per hour worked, compared to fifteen point four dollars per hour worked ($15.39) in China.
Beyond wage costs, the capacity utilization rate in Africa, at seventy one percent (71%), is close to China’s seventy six percent (76%), further highlighting the continent’s efficiency. And in terms of Total Factor Productivity (TFP), Africa’s average of nought point ninety eight (0.98) surpasses China’s nought point ninety six (0.96), demonstrating that African industries can indeed operate at high levels of efficiency given the right investment and support. Africa can provide both cost-effectiveness and efficiency in manufacturing.
Transport costs are also a crucial consideration. While inbound shipping to Africa costs nought point eighteen dollars per kilogram ($0.18 per kg), exporting from Africa to global markets costs only nought point nought five dollars per kilogram ($0.05 per kg) —a fraction of the nought point four per kilogram ($0.4 per kg) for exports from China. Africa’s strategic geographic location, with proximity to European, North American, Gulf markets, China itself and other Asian markets, massively enhances its potential as a manufacturing and export base.
These factors, combined with Africa’s higher average return on investment compared to developed countries, present an extremely strong business case for industrial investment on the continent. But like the benefits of engagement with China, you won’t hear this business case made by others, especially non-Africans.
Nevertheless, despite the barriers created by the perception that we are a risky and hopeless continent, we are improving. We don’t just have natural resource endowments, we have pioneering policies and firms.
Our governments in 2021, the same year as the last FOCAC, finally opened the African Continental Free Trade Area (AfCFTA) which has already been beneficial to Chinese firms operating in Africa, as an article my colleague recently explained. And of course. Our 1.3 billion people now are not a threat. We are an opportunity – for trade and commerce.
Moreover, despite the barriers created by the perception that we are a risky and hopeless continent, we also have what are known in Chinese as: zhao yang chan ye – which translates to “sunrise” sectors. The sectors with the most potential that will allow the sun to shine on the rest of the economy…
Let me point out just two, although in the report we give the statistics for eight such “sunrise” sectors.
Green manufacturing, for instance, offers immense opportunities. Africa’s solar capacity alone is estimated at 10 terawatts, with vast potential for wind and hydroelectric power. Jinko Solar, in Cape Town, is a prime example of how Chinese investment can complement Africa’s renewable energy potential. Just a seven point five million ($7.5) investment created a facility with an production capacity of one hundred and twenty megawatts (120MW) worth of solar PV per year MW, employing 250 local workers. Now imagine that pilot investment scaled up ten or one hundred times, combine it with economies of scale and Africa’s growing consumption markets, and you can see what kind of transformation it could drive, as well as profits.
Similarly, the automotive industry is a zhao yang chan ye “sunrise” sector, ripe for growth. Africa’s market value is projected to grow to over forty two ($42) billion dollars by 2027, with South Africa and Morocco in the lead for now. Beijing Automotive Industry Corporation (BAIC), the sixth largest automobile manufacturer in China, established a manufacturing facility in South Africa in 2018 and aims to be a global production and export hub for Africa, Europe, the Middle East, and Latin America. In doing so it has already involved over one hundred and fifty (150) local small and medium enterprises and created over three thousand (3000) jobs along the supply chain.
Excellencies, Distinguished guests, ladies and gentlemen,
The time has come to write and own our own narratives, our own business cases, both about China and the African continent. The data clearly shows that Africa has the potential to become a global leader in industrial production. The ongoing economic transition in China, combined with Africa’s competitive advantages in energy, labor, and transport, creates a unique window of opportunity.
But how can we fully realize this potential, beyond just giving speeches, reading reports or analysing the data?
First, Chinese stakeholders should follow the example of Jinko and Beijing Automotive Industry Corporation, and many others, and continue to relocate factories to Africa and build localized supply chains in Africa. Be the first movers, invest now for the long-term benefit, especially in those zhao yang chan ye sectors.
Second, as Africans we need to promote our markets and opportunities better. Let’s not just talk about low tax incentives for foreign direct investment, but be practical and focus on making certain special economic zones in regional hubs into THE best locations for Chinese and other firms to find their feet, like China did with its first four special economic zones. Make sure they have THE best infrastructure and linkages to both upstream and downstream segments of value chains, connecting to infrastructure that links countries in sub-regions.
Distinguished guests, ladies and gentlemen,
As we get ready for the ninth (9th) Forum on China Africa cooperation (FOCAC), we cannot just wait for narratives and perceptions about China or Africa to change. We’ve got to seek out and act on the real data, the real story. Africa CAN and WILL be the next manufacturing powerhouse of the world, and China CAN and WILL be our partner in that.
I thank you for your attention.
