In the last two decades, the economic relationship between China and Africa has undergone a remarkable transformation. What once seemed like a distant partnership has now become one of the most significant and dynamic trade and investment relationships in the world. Today, China is Africa’s largest trading partner, as well as its largest creditor. This relationship has been facilitated by initiatives like China’s Belt and Road Initiative (BRI), which has helped bolster infrastructure development across the African continent. Yet, as global economic conditions change and both regions face new challenges, the next chapter in this economic relationship will depend largely on the strength of regional value chains within Africa.
China has steadily grown its influence in Africa, with trade volumes between the two regions reaching new heights. As of 2023, China’s total trade with sub-Saharan Africa amounted to $282 billion, with around 20% of Africa’s exports heading to China. These exports largely consist of primary commodities such as metals, minerals, and fuel, while Africa imports manufactured goods, electronics, and machinery from China. This trade relationship has had a profound impact on African economies, contributing to growth in sectors like mining, energy, and infrastructure.
China has also become Africa’s largest bilateral creditor. The Chinese government has provided loans and financing for a wide range of infrastructure, mining, and energy projects across the continent. Prior to 2005, China’s share of Africa’s external debt was less than 2%. By 2021, this share had surged to about 17%, amounting to $134 billion. These investments have been critical in helping to bridge Africa’s infrastructure gap, a key barrier to economic development in many African countries.
Additionally, China’s Foreign Direct Investment (FDI) in Africa has seen exponential growth. From a mere $75 million in 2003, Chinese FDI in Africa reached $5 billion by 2022, representing about 4.4% of the region’s total FDI. A large portion of this investment has been channeled through the Belt and Road Initiative, which focuses on developing transportation, energy, and mining infrastructure across Africa. The BRI has facilitated not just the building of roads and railways but also created a foundation for deeper economic ties between China and African countries.
However, the global economic environment is now changing. After decades of rapid growth, China’s economy is showing signs of slowing down, a trend that has been exacerbated by global disruptions such as the COVID-19 pandemic and the ongoing geopolitical tensions around the world. Similarly, many African economies are grappling with challenges such as inflation, debt burdens, and the impact of climate change. These economic headwinds have led both China and Africa to reassess their approaches to trade and investment. It is clear that in this new phase, they will need to focus on creating a more sustainable, integrated, and resilient economic partnership.
A significant part of this shift will involve the development of strong regional value chains within Africa. These value chains, which involve the production and exchange of goods and services within a specific region or sector, are crucial to enhancing Africa’s industrialization and economic integration. As the African economy becomes more unified through initiatives like the African Continental Free Trade Area (AfCFTA), regional value chains are set to play an increasingly important role in the continent’s economic future.
The African Continental Free Trade Area (AfCFTA), which officially began in January 2021, aims to create a single, integrated market for goods and services across Africa, offering tremendous opportunities for intra-African trade. By removing trade barriers such as tariffs and simplifying customs procedures, the AfCFTA is expected to drive economic growth and job creation across the continent. This will be crucial for Chinese businesses looking to expand their footprint in Africa, as the unified market will give them access to a broader range of consumers and suppliers.
The creation of strong regional value chains under the AfCFTA could have several benefits. First, it will enable African countries to specialize in certain industries and export goods to other countries within the region. For instance, countries rich in natural resources, such as Nigeria and Angola, can continue to export raw materials while developing processing industries that add value to these commodities. At the same time, countries with manufacturing capabilities, such as Kenya and South Africa, can export finished goods across the continent.
China’s private sector will likely be a key player in this transformation. In recent years, Chinese companies have increasingly taken a leading role in driving trade and investment in Africa. This shift from state-driven investments to private sector-led growth is a sign of the evolving nature of the China-Africa relationship. Chinese companies, especially in manufacturing, technology, and e-commerce, are expected to be more active in Africa’s regional value chains. They will help build infrastructure, transfer technology, and foster local entrepreneurship, which will be crucial for the development of robust and efficient value chains.
The establishment of these value chains will also make Africa less reliant on external markets. While China remains Africa’s largest trading partner, the continent’s dependence on Chinese imports and exports of raw commodities has highlighted the need for greater diversification. By fostering stronger regional value chains, African countries can reduce their reliance on foreign imports, create more jobs, and increase their domestic production capacity. This would also make the continent more resilient to global economic shocks, such as the ones caused by the COVID-19 pandemic or shifts in global demand for certain commodities.
Furthermore, a strong regional value chain will allow Africa to better leverage its position as a global player in emerging industries such as renewable energy, technology, and agriculture. With Africa rich in renewable energy resources such as solar, wind, and hydroelectric power, the continent has the potential to become a key supplier of clean energy to both China and other parts of the world. By developing regional value chains in these sectors, Africa can position itself as a critical player in the global transition to a green economy.
For China, strengthening regional value chains in Africa will not only help secure access to critical resources but also support its goals of advancing its manufacturing sector. As the global economy transitions toward automation, digitalization, and sustainability, China’s private sector is looking to diversify its markets. The African market offers immense growth potential, especially if Chinese businesses can establish supply chains that span the continent and tap into local markets.
In this next phase of China-Africa economic relations, both sides must prioritize the development of strong regional value chains. For China, it means deepening its private sector engagement in Africa, while for Africa, it’s about leveraging the opportunities offered by the AfCFTA to integrate the continent’s economies more closely. By working together to strengthen regional value chains, both regions can navigate the challenges of a global economic slowdown and create a more sustainable and mutually beneficial economic partnership for the future.
This new approach will be vital for Africa’s long-term economic development and for China’s continued growth in Africa. In the coming years, the integration of African economies through regional value chains will not only enhance trade and investment but also create jobs, reduce poverty, and drive industrialization across the continent. In this new era of China-Africa economic relations, the focus must be on collaboration, innovation, and resilience. The future of this relationship depends on it.
