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LATEST MAGAZINE - November 5, 2018

China forcing African companies out of business

The African Development Bank, AfDB, has expressed concern that many African-owned companies are being forced out of the market due to unfair competition from Chinese companies.

Senior Director of AfDB Nigeria, Mr. Ebrima Faal, said this during the weekend at the African Economic Merit Awards (EAMA) World Plaque and Award Nominees unveiling ceremony in Abuja.

According to him, Chinese companies have recently acquired market power and dominance over African companies thanks to the freedom to operate in all sectors and to access capital and better technology.

Faal, who was represented by AfDB’s Regional Procurement Coordinator, Baba Abdullahi, said: “Chinese firms operate across many sectors of the African economy. With the freedom to operate in all sectors and with access to capital and better technology, the Chinese firm have gained market power and dominance in recent times.

“As such, many African owned firms are forced to drop out of the market due to competition. This has forced several African firms to close down.”

Other areas of concern Mr. Faal raised on the China-African economic relationship include the growing size of debt, the financing of projects through Chinese State-owned companies, and the acquisition of African firms by Chinese corporates.

His words: “There are growing concerns that lending rather investments dominates China’s relations with Africa. With the downturn in commodity prices, some countries that borrowed heavily from China have turned to the IMF (Angola and Ghana, for example). Others have suspended, failed to draw down, or cancelled their credit lines from Chinese banks (Niger, Ghana, and Chad).

“At the September 2018 FOFAC Summit, China pledged US$60 billion in loans, aid and investment. This amount was the same as that pledged in 2015, which was three times the figure announced in 2012. The latest financing brought the total support to Africa countries to US$120 billion in three years. “There have also been additional concerns that most of the project financing has focused on transportation and energy, and Chinese state-owned enterprises have been key actors behind such projects.

“Among China’s large scale projects in Africa for 2015 and 2016 especially those requiring more than $1 billion, about 13- 15 of such deals were initiated by China State owned enterprises rather than private firms. Critics also argue that China’s investment in Africa is mainly resource seeking rather than transformational.

“There are concerns that announced mergers and acquisitions by China in Africa were less than $1billion, below Chinese merger and acquisition deals in Latin America known to be well over $10billion.”

However, Mr Faal said the few China merger and acquisition deals in Africa are in energy and infrastructure sectors only, which according to him “suggests that Chinese corporates are not interested in acquiring companies in Africa.”

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