China’s Increasing Presences in Sub-Saharan Africa

China’s Increasing Presences in Sub-Saharan Africa

This chapter explains the research design and method that describes the relations between china and sub-Saharan African countries. This chapter will also address the methodology used to determine the driving forces behind china’s investment of billions of money in sub-Saharan Africa (SSA). The methodology used to establish an extensive understanding of trade between china and SSA and whoever the trades benefit.  It also includes the research method used to explain the role played by Chinese companies operating in Africa. This part also describes the approach used to determine the effects of the Chinese Foreign Direct Investments in Africa (FDI) and the African perception about the trade among china and SSA. This chapter also describes the characteristics, instruments used as well as the data analysis procedure.

Research Methodology and Design

The main aim of the research is to establish the reasons for china’s investments and relation with SSA countries. It also intends to describe these relations as well as its beneficiaries, after examining the variables factors between them. Quantitative research uses statistical analysis, and numerical data to obtain information about the world, giving the opportunity to examine and describe the relationship between variables (Taylor & Bogdan 2007).

The research strategy of this investigation will be non-experimental; a descriptive correlational study. The main purpose is to describe several variables described in theories and those practically observed. While exploring the relationship between variables, correlational studies examine the relationship between two or more variables and provide the opportunity to determine the pattern and the extent existing relation, allowing the researcher to hypothesize. Non experimental studies will be appropriate especially when dealing with issues involving states since variables involved cannot be manipulated experimentally. Studies that combine descriptive and correlation characteristics evaluate variables and describe relationships among the research subjects (Taylor & Bogdan 2007).

Sample

This research embodies a theoretical approach in examining literary and documented sources on the relations between china and SSA countries. This paper utilizes the libraries, journals, online sources and newspaper publications to accumulate empirical data for all the relevant economic theories (Khati 2006). This research will seek to examine as many relations between china and different SSA countries such as DRC, Kenya, South Africa, Angola and Gabon. The main areas of examination include; the driving forces behind the china’s billions expenditures in sub Saharan Africa (Currier 2011). The role of Chinese companies operating in Africa will also be examined. Finally, the paper will examine the African perspective on trade between china and SSA. It will seek to establish the local African businesses and entrepreneur’s position about the trade, the economic importance of the Chinese Foreign Direct Investments to the local businesses and investments (Kaplinsky & Morris 2009).

Data Collection Procedure

Data collection involves the search of archival facts and figure on the relations between China and sub-Saharan Africa. Documented facts from different sources such as previous research done on the topic, newspaper publication, journals and online articles on the economic relations involving china and SSA will be used for analysis (Bogdan & Taylor 2005). All these data sources from the last decade will be used to evaluate the economic relations progress within the specified period. Chinas a relation with SSA can be said to be based on three aspects of trade, foreign direct investments and aid. Each of the three aspects be thoroughly evaluated for progress, relevance to both economies and most importantly the perception of SSA residents (Abraham 2010).

China bilateral trade policy towards African countries will also be investigated. Bilateral trade between china and Africa has grown rapidly in recent areas, were china is believed to have a trade surplus. The various exports to SSA will be examined. China exports textiles, footwear, among other consumer goods to SSA (Kinfe 2008). The exports have been increasing rapidly for the last decade, calling for some investigation. The real value of this bilateral trade needs to be investigated because; although the trade remains of an absolute value to SSA, the SSA’s import dependence on the Chinese is significantly high. Considering the size of china, it does not totally rely on trade with SSA for imports but has other import sources in the rest of the world Such as Cambodia, Myanmar and Vietnam (Alden 2009). This changes when it comes to the SSA which is risky on the SSA part. Since china has are large and relatively complete industrial structure, it is capable of making most commodities by itself and of high quality. There are challenges facing the China SSA relations in the future that call for an investigation (Taylor 2012).

The fiscal structure of SSA countries shall be investigated. Economists believe that the fiscal structure of most SSA economies is vulnerable to trade shock and commodity price volatility. This is because the economies fiscal revenues typically rely on taxation of external trade and a limited number of unprocessed products, especially the oil producers. The SSA countries reliance on these few commodities as their large part of the economic earnings will also be examined (Rotberg 2008). The import and export tariffs between SSA and china will be investigated. This will help determine the trading terms, especially when it comes to ‘how long will the mutuality in the trade last?’  The effect of china’s cheap industrial goods will also be examined. What are the possible effects to the industrialization of SSA? Do these ‘cheap’ goods hinder the informal sector growth in SSA? The research will also examine the possibility of trade disputes in the future as SSA will be expanding its industrial capacities (Broadman 2007).

On the perception of the SSA community about the increased trade with china; this paper will conduct a review of the survey work previously done in SSA countries. The review will seek to establish the trend in small and medium entrepreneur’s growth, and how the cheap Chinese consumer goods have affected the trend (Copson & Dumbaugh, 2007). Newspaper publications related to the same from different SSA countries will also be used to analyze the situation. This will be essential as newspapers reflect the views of the local people.

Real figures representing the trade relations between SSA countries and china in the past two decades will be analyzed. The government revenues and their sources investigated. The export and import trends on both ends will be scrutinized to determine the exact relation, the beneficiaries and or the losing party in the trade. The oil exporters to china (such as Nigeria, chad, Angola and the republic of Congo) will be evaluated for fiscal dependence. The economic growth of the sample SSA countries will be closely monitored, and their growth trajectory determined. The growth trajectories will then be assessed and the possible future path determined. This will help determine the beneficiaries of the relation as well as the losers (Henriksen 2007).

Understanding the SSA economy’s characteristic will be an essential factor in explaining the relation with China. This research will study all the central factors of SSA economies and their performances. Most of the growth of SSA economies are believed to be driven by commodity prices in the past few years and are thus fragile (Wolfgang 2008). This paper will study commodity dependence into details to determine commodities importance in the trade. The composition of the export of the SSA countries to china will also be examined. In the last 5-10 years, SSA has specialized in the export of commodities at a global level. This indicates the significance of export commodities in their (SSA) economies (Pan 2011). The SSA’s share of global oil market will also be examined in terms of prices and the export destinations. This is because it has been guessed that more than 70 per cent of Africa’s oil export goes to china. Oil based export structures are prone to the Dutch disease effect (increased exploitation of natural resource with a decline in the manufacturing sector) and may negatively impact domestic agricultural and industrial sectors, meaning the possibility of deindustrialization taking place in SSA (Tegegne 2006).

Instruments

The main instruments to be used in the study are documented papers on various issues surrounding china’s relations with SSA. These include the china’s direct foreign investment policy, trade between china and SSA and china’s aid to SSA. Only papers with reliable factual details were used. Thorough comparison between the different sources was done in order to determine the facts and details (Burns 200). Details of interest here are economic deals, the beneficiaries, the motives behind them and the figures involved. The already evident results of these economic relations will be instrumental in this research. All the data found to be relevant was analyzed and translated towards the interest of this paper. Data consistency was used to determine the validity of the data (Burns 2000).

Data Analysis

Data analysis will be carried out as pertained in the research questions. This means that data analysis is descriptive and relational. The three aspects of trade, foreign direct investments and aid will be used as the foundation of data analysis. During the last two decades, china has been in the forefront in providing aid to SSA. The motives behind this aid will be investigated. On the impact of the trade to local entrepreneurs, according to a study conducted in Ethiopia in 2009 indicates that; out of 94 small and medium domestic producers, it was described that, as a consequence of the Chinese competition; 30 per cent were forced into bankruptcy, 35 per cent downsized their activity (Tull 2006). The average size of micro-enterprises fell from 8 to 5.1 employees, and that of small enterprises from 46 to 19 employees. Something of extra concern is the potential effect on future production in SSA. Particularly in the case of light consumer goods, the study established that there are potential long term implications for SSA industrialization (World Bank 2007a). The question of concern being; “what opportunities will SSA be able to move to when their economic growth levels reach a point where they seek to diversify?” the study noted the presence of indirect impacts of the trade which are difficult to analyze and may have adverse long term effects on SSA (World Bank 2007b).

China foreign direct investments (FDI) to SSA have increased dramatically in the last decade. This research will seek to establish the extent of china’s FDI in SSA; in various countries and the total cumulative figures. The problems surrounding the issue of china’s FDI will also be examined. This is meant to help understand and explain the pros and cons of these FDI’s. The benefits of these investments to the local people will be examined in terms of employment, impact on the environment, economic status and the living standards. The benefits to china will also be examined and compared to the effect on the host SSA country (Zafar 2009). This research also seeks to establish the difference between china FDI and the rest of the world’s (European and North American). The qualitative and quantitative difference will be examined. Thorough comparison will be carried out in terms of; the strategic objectives and the means to achieve them. The long and short time goals, profit generation strategy and the ownership issues will also be closely scrutinized. The general and ‘special’ tax incentives, credit and loans as well as the foreign exchange allowances for the Chinese FDI will be examined. The have been supported by governments (Chinese and SSA) with the use of strategies such as investing encouraging activities (Jenkins & Edwards 2005). Finally, the form taken by these FDI’s takes in the host countries will be investigated. They may take the form of national Parastatals or in the system of shared project with indigenous entrepreneurs.  The effect of the FDI’s on the local economy will also be examined.

In an overview, the research determined that regarding trade between china and SSA. China receives materials to power its ever increasing industrial demand; for oil and other raw materials from SSA. This seems to be beneficial to SSA as it has contributed to significant economic growth (Kamau 2007). SSA gains by importing cheap and appropriate capital and consumer goods from china. Most of these imports to SSA have substituted imports from other areas of the globe. It has also been suggested that they have contribute to displacement of domestic production; with a few negative impacts on local production and employment (Morris 2007). These may suggest a synergistic link between china and SSA, reflecting the optimism prevailing in the situation on the potential opportunities opened for SSA by china’s rapid trade expansion (Kaplinsky & Morris 2010).

From the findings of this research, starting with trade; china has developed to an important exporter of industrial goods to Africa and a significant importer of raw materials such as coal and ore. Chinas rapid growth has been attributed to its deepened trade orientation, with its trade GDP ratio exceeding 70 per cent by the year 2010 (Kaplinsky & Morris 2007). This trade has achieved rapid growth; trade values increase from $10 billion in 2002 to more than $40 billion in 2005. These trade values then increased by 46 per cent to $109 billion in 2008. Both imports and exports from china and SSA have been increasing since 1990. SSA imports from China rose from 2.60% in 1990, 17.86% in 2005 to 29.78% in 2010. On the other hand, SSA exports to china also increased from 0.56% in 1990, 6.46% in 2001 to 22.48% in 2010. Imports from china have been increasing more slowly than exports, causing SSA’s trade equilibrium with China to change from negative to positive (Kaplinsky & Santos-Paulino, 2011).

The increase in SSA’s exports to china is fueled by the growth in china’s demand for commodities. Main SSA’s exports to china include iron ore, oil, cotton, diamonds and logs. The overwhelming and most rapidly growing export was oil. SSA exports to china were mainly from South Africa and composed mainly of basic metals (McCormick 2008). It was noted that even though SSA is in trade surplus with china in average, its non-oil trade is in strident shortage (King 2006). To some of the SSA economies, the importance of china as a direct destination for exports grew rapidly. Exports of oil from Nigeria, Sudan, Angola and DRC to china account for between 86 and 100 per cent. DRC exports 99.6 per cent of its oil exports to china. On the imports, about 10 SSA countries have a significant share of their imports from china. Almost all of these imports are manufactured products (Lancaster 2008).

Summary

This section presented the descriptive correlational design to be used in exploring the relationship between china and SSA. Sample characteristics and data collection procedures were also described in this chapter. The intriguing part was the research finding briefly discussed at the end of this chapter.  Previous research that had been documented business oriented journals and newspaper publications will be the central sources of information in this research.  This chapter contained the method and tools used to test the china-SSA economic relations that are being debated about all over the world.