By Francois L. Baird
Africa is becoming more important to the world. Africa’s natural resources, market potential and economic growth are becoming more attractive, not only to China, but also to other countries in the developing world. The powerful appeal of South – South cooperation is leading to growing Asian ties and activity in Africa. This transformation of Africa’s relationship with the world raises the question whether Asia may supplant Europe, the traditional powerhouse in Africa, to become the major African trading and development partner in future.
These three players have a long history of interest in each other. Europe has been interested in China since the travels of Marco Polo and in Africa from about the same time, through the voyages of the Portuguese explorers. China’s history of interest in Africa dates back 600 years to the travels of Admiral Zheng He along the Indian Ocean coast, while Africa has been interested in China since the travels of Ibn Battuta in the 14th century. So the triangle of China, Europe and Africa is nothing new.
China may not, however, be Europe’s fiercest competitor in Africa. Both China and India have a long history of involvement in Africa, but their strategies for African engagement differ. China leads the way in government-to – government action – oil, gas and mineral resources for infrastructure — and is lately active in business-to-business investment, with the example of the investment in Standard Bank of South Africa by Industrial and Commercial Bank (ICBC), which is a Chinese state bank. However, India arguably leads China in business-to-consumer action through branded consumer products. Although India still lags behind Europe in businesses-to – consumer relationships, which have been the traditional European domain in Africa since the end of colonisation, Indian companies like Tata are nonetheless making inroads by linking good products to sensible corporate social investment. Both China and India have the additional benefit of never having been colonisers in Africa.
The future winner between Europe and Asia in Africa will be determined, amongst other factors, by the standing of Brand China versus branded Indian consumer goods, in competition with European consumer goods. To win in this scenario, China should actively shape Brand China, encourage Chinese companies to build Chinese brands in Africa, partner with African brands and focus on corporate social investment to reach the people of Africa directly, not only through government.
China, Europe and India in Africa: The battle of the brands?
Africa is becoming more important to the world, not only to China.
Abundant resources to fulfil the demand for oil, gas and mineral commodities, as well as agricultural products, are making Africa a player, even if it is not yet a continental power. Energy security is an issue for Asia as a whole — Japan, China and India are in the lead in importing oil, gas and mineral resources from Africa. There is now also talk of Chinese interest in MTN, the African and Middle East telecommunications giant. This is no coincidence. Asian political, trade and development partnership with Africa is growing, particularly for South-South initiatives. Think about the effect of the 20 000 Africans who have studied in China. African interest in China is demonstrated by the success of the Centre for Chinese Study at Stellenbosch University in South Africa, which is a unique educational asset in Africa.
Africa’s potential status is not only recognised by China, but also by other Asian countries. Japan, India and even South Korea, which reportedly plans a $6bn investment in shipyards, oil refinery and pipeline in Nigeria, are becoming more active in Africa. South-South initiatives are growing. The talk in Africa is that both China and Russia are keen to join the India Brazil South Africa (IBSA) initiative. UNCTAD Secretary General, Dr. Supachai Panitchpakdi recently called the momentum of South-South relationships the second wave of globalisation. If he is right about the new trend in globalisation, it might be because Africa could become the next major growth market and is already a fast growing continental economy.
China is supporting African growth. By the beginning of 2007, China had invested over $6.6bn in Africa, growing from $280mn to $370mn in one year. As Jean-Marie Masse of the International Finance Corporation reported, China-Africa trade grew by 30% year on year for the fifth consecutive year to $55.5bn in 2006. Exports to Africa were up by 43% to $26.7bn and imports from Africa were up by 37% to $28.8bn. China has scrapped tariffs on 440 categories of African commodities. Some predictions are that Chinese-African trade might reach $100bn by 2010. (Forgive me, as a South African with the Soccer World Cup on the agenda, we are not thinking beyond 2010! You are all invited.)
Africa is also a growing tourism destination and consumer market. Between the Beijing Olympics next year and the 2010 Soccer World Cup in South Africa, tourism between Africa and China is bound to be stimulated markedly.
While Africa’s need for more and better infrastructure is common knowledge, it should be noted that infrastructure development creates other market opportunities. Better transport, telecommunications and power generation stimulates consumer demand and facilitates consumer need fulfilment.
China and India are competitors in Africa
China and India both need the raw materials available in Africa to sustain their supply chain, both have a long history of involvement in Africa and Africa is increasingly also a political partner to both China and India in response to the developed world challenge. So South-South cooperation is as much a political as an economic and trade phenomenon. However, growing South-South ties do not preclude competition between China and India in Africa. The China strategy seems to differ markedly from the India strategy, but both are beginning to challenge Europe on the African continent President Hu Jintao spelled out the China strategy in South Africa, earlier this year: “The policy steps taken by the Chinese government to enhance practical cooperation with Africa and support Africa’s development are designed to strengthen Africa’s capacity for self-development and improve the welfare of the African people.” You won’t find Africans arguing with that intention, but questions arise about its practical implementation. The Chinese strategy in Africa presents both risks and opportunities for India and Europe in Africa.
China leads the way in government-to-government action —; exchanging resources for infrastructure and a policy of non-interference, which has benefits and concerns for Africans. The benefit is that China is not seen as a potential coloniser of Africa and in his speech to my alma mater, the University of Pretoria in February this year, President Hu Jintao went to great pains to point it out. Neither China nor India carry the burden of former colonisers in Africa. But China should be concerned about the impact of grassroots African reactions against Chinese businesses and products if, as a result of the policy of non-interference, China is regarded as supporting unpopular and undemocratic regimes. Examples of popular discontent with China in Zambia and elsewhere in Africa are early symptoms.
The next stage of the Chinese strategy for Africa is apparently to create business-to-business partnerships with African companies. China seems now to be entering the business-to-business arena more aggressively, as illustrated by the purchase by the Industrial and Commercial Bank of China (ICBC) of a 20% shareholding in Standard Bank of South Africa. This currently makes ICBC the biggest single foreign investor in South Africa, knocking Barclays Bank from its perch. This partnership model will be very appealing to African companies. It should no longer be unthinkable that China could eventually overtake Europe in Africa.
Europe still leads in business-to-consumer relationships in Africa, because of the strength of European brands in Africa, but India is beginning to challenge its leadership in branded consumer products. Eventually India may gain the same grassroots consumer support that some European companies currently have for their products. For instance, rumour has it that Unilever has 95% market share in some of its product categories in Africa, but they have not experienced any backlash against such market domination so far. That could be ascribed to the strength of the brands built by Unilever in Africa for more than a century. Tata and other Indian companies, like the Indian pharmaceutical and information technology companies, are particularly notable as commercial players investing in their own brands in Africa.
Given the differing strategies for Africa of China, Europe and India, the outcome of the battle of the brands will probably be determined, amongst other factors, by the standing of Brand China versus branded Indian consumer goods and the ability of European brand owners to defend their own consumer brand equity in the African market. Asian country brands like Brand India, Brand Japan and Brand South Korea, are not significant players in the African consumer mindset, perhaps with the exception of Japanese vehicles. Brand Europe is not a significant brand in Africa, although European consumer brands still carry a premium. It is not for nothing that the African elites are still colloquially called the Wabenzi.
What China should do
Given the importance of its Brand China versus India’s consumer brands strategy, China needs to shape Brand China more actively in Africa, to also develop a relationship with African consumers and grassroots. At the same time, given the risk for China of damaging the reputation of its consumer relationships whenever something goes wrong with Brand China, it is imperative to manage the reputation of Brand China and Chinese consumer goods better by assessing and managing reputation risks. China should encourage Chinese companies to build reliable Chinese brands, recognised for qualities other than only price — style, innovation, novelty and uniqueness could all be developed. The more China partners with African brands in Africa (and in China), the less attractive European partners will be, who may be regarded as prescriptive and dominant due to Europe’s colonising past. Finally, China should make corporate social investments to reach the people of Africa directly, not only indirectly through their governments. Brand China needs to be a friend of Africans, not only of Africa.
Whatever political strategy African governments may prefer to pursue with China in future, African business could be expected to play a more active role in determining the economic role of China as business partners in Africa. In an increasingly democratic Africa, the views of its citizens as consumers will become ever more important for China. China would therefore do well to heed the views of African consumers and businesses as much as those of African governments, in the interests of sustainability. In the long term, the reputation of Brand China will matter as much as those of Chinese consumer brands, but in the short term, Brand China needs work if it is to compete more effectively against Indian and European consumer brands in Africa.