In two decades, China has become Africa’s most important economic partner. Across trade, investment, infrastructure financing, and aid, no other country has such depth and breadth of engagement in Africa. Chinese “dragons”—firms of all sizes and sectors—are bringing capital investment, management know-how, and entrepreneurial energy to every corner of the continent. In doing so they are helping to accelerate the progress of Africa’s economies.
Yet to date it has been challenging to understand the true extent of the Africa–China economic relationship due to a paucity of data. A report by Mckinsey and Company” Dance of the lions and dragons: How are Africa and China engaging, and how will the partnership evolve?”, provides a comprehensive, fact-based picture of the Africa–China economic relationship based on a new large-scale data set. This includes on-site interviews with more than 100 senior African business and government leaders, as well as the owners or managers of more than 1,000 Chinese firms spread across eight African countries1 that together make up approximately two-thirds of sub-Saharan Africa’s GDP.
More than 100 senior African business and government leaders were interviewed, and nearly all of them said the Africa–China opportunity is larger than that presented by any other foreign partner—including Brazil, the European Union, India, the United Kingdom, and the United States.
But exactly how quickly will the Africa–China relationship grow in the decade ahead? We see two potential scenarios. In the first, the revenues of Chinese firms in Africa grow at a healthy clip to reach around $250 billion in 2025, from $180 billion today. This scenario would simply entail business as usual, with Chinese firms growing in line with the market, holding their current market shares steady as the African economy expands. Under this scenario, the same three industries that dominate Chinese business in Africa today—manufacturing, resources, and infrastructure—would dominate in 2025 as well.
We believe much more is possible: in a second scenario, Chinese firms in Africa could dramatically accelerate their growth. By expanding aggressively in both existing and new sectors, these firms could reach revenues of $440 billion in 2025. In this accelerated-growth scenario, not only do the three established industries of Chinese investment grow faster than the economy, but Chinese firms also make significant forays into five new sectors: agriculture, banking and insurance, housing, information communications technology and telecommunications, and transport and logistics. This expansion could start with Chinese firms moving into sectors related to the ones they currently dominate—for example, from construction into real estate and housing. Another part of this accelerated growth could come from Chinese firms more fully applying their formulas that have proved successful in China to markets in Africa, including business models in consumer technology, agriculture, and digital finance.
There is considerable upside for Africa if Chinese investment and business activity accelerate. 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.
With continued and likely growing Chinese investment, it will become ever more urgent to address the gaps in the Africa–China partnership, including by strengthening the role of African managers and partners in the growth of Chinese-owned businesses. Moreover, both Chinese and African actors will need to address three major pain points: corruption in some countries, concerns about personal safety, and language and cultural barriers. In five of the eight countries in which we conducted fieldwork, 60 to 87 percent of Chinese firms said they paid a “tip” or bribe to obtain a license. After corruption, the second-largest concern among Chinese firms is personal safety. For their part, our African interviewees described language and cultural barriers that lead to misunderstanding and ignorance of local regulations. If these problems are left unaddressed, the misunderstandings and potentially serious long-term social issues could weaken the overall sustainability of the Africa–China relationship.