For the past two decades, China has been a powerhouse partner for Africa, becoming the continent’s largest trading ally and creditor under programs like the Belt and Road Initiative (BRI). Today, though, both China and Africa are bracing for changes as the global economic landscape slows down. In this new era, one thing is clear: regional value chains across Africa could be a game-changer in advancing the China-Africa economic bond.
But what does this new phase mean for both sides, and how will regional value chains actually help Africa? Let’s take a deeper look into the evolving dynamics of China-Africa relations and the role these value chains can play.
The Current State of China-Africa Trade Relations
Recently, China has risen to become Africa’s most significant trading partner. As of 2023, around 20% of sub-Saharan Africa’s exports go to China, while about 16% of the region’s imports come from China, totaling a record-breaking trade volume of $282 billion. This trade mostly involves African exports of raw materials—like minerals, metals, and fuels—while Chinese imports to Africa include manufactured goods, electronics, and machinery.
But it’s not just about trade. China has also emerged as Africa’s largest bilateral creditor, offering much-needed financing for infrastructure, mining, and energy projects. While its share of African external public debt was under 2% before 2005, by 2021, China’s involvement had grown to around 17%, amounting to $134 billion.
Yet, as China’s economy decelerates, its focus on Africa is evolving. Rather than maintaining the same levels of infrastructure financing, China seems to be shifting its focus to trade credit, allowing Africa to export more goods and receive increased private investment. This shift aligns with a broader move toward sustainable development, with China leaning on its private sector for future Africa investments rather than relying solely on state-backed financing.
The Rise of Regional Value Chains
This pivot is timely, as Africa has its own game-changing strategy in play: the African Continental Free Trade Area (AfCFTA). The AfCFTA, launched in 2021, is the world’s largest free trade area by number of countries, promising to break down trade barriers across African nations. This means a unified market of 1.3 billion people with a combined GDP of over $3 trillion.
One of the AfCFTA’s biggest goals is to encourage regional value chains—networks of production and supply that allow African businesses to process and add value to raw materials locally before exporting them. This could help Africa avoid the so-called “resource curse” by allowing it to export not just raw commodities but finished or semi-finished products.
For Chinese companies, a unified African market means easier and more profitable operations. By investing in regional value chains, Chinese businesses can access a larger consumer base and establish local supply chains that are more resilient and diversified.
The Evolution of China-Africa Economic Cooperation
The China-Africa relationship isn’t a recent phenomenon; it’s rooted in decades of cooperation. Since 2000, the Forum on China-Africa Cooperation (FOCAC) has served as the main platform for discussions and agreements between China and African nations. Through FOCAC, both sides have focused on infrastructure connectivity, financial integration, trade facilitation, and policy alignment. The BRI has also been a major framework, aligning with the African Union’s Agenda 2063—a vision for transforming Africa’s economy over 50 years.
Together, these platforms have created some impressive results. Roads, bridges, railways, and ports have been constructed across the continent, making it easier to move goods and people. But recently, China’s focus has begun to shift from infrastructure financing toward other forms of trade and economic integration. In the last FOCAC summit in 2021, China pledged $40 billion for Africa, a significant reduction from the $60 billion promised in 2018. This decrease reflects a move toward more sustainable development and a shift in priorities.
Why the Shift? China’s Economic Slowdown
The economic slowdown in China is having ripple effects around the world, including in Africa. China’s growth rate has been slower than expected in recent years, affecting its capacity for large-scale foreign investment. China’s interest in building up its domestic market and reducing debt levels has meant less availability of massive infrastructure loans for Africa.
While this change could be challenging for African countries that have relied on these loans, it’s also an opportunity. As China focuses more on trade credit and private investment, African countries are encouraged to build industries that can stand on their own. China, for instance, has cut down on crude oil imports from Africa, which has forced major oil-producing countries to seek new buyers or focus on other industries to compensate for the revenue drop.
According to the International Monetary Fund (IMF), a 1% slowdown in China’s GDP can lead to a 0.25% decrease in Africa’s GDP. This means that as China slows down, Africa must brace itself for impacts, particularly those countries heavily dependent on Chinese trade and investment.
The Private Sector as a New Driver of Investment
In this new phase of China-Africa relations, the private sector is expected to lead future growth. Private businesses bring innovation, agility, and competitiveness, which could be exactly what Africa needs for sustainable development. These companies are less likely to be driven by political considerations and more by profit, which could make them effective partners in Africa’s economic transformation.
For example, Chinese firms in the manufacturing and services sectors are increasingly investing in African markets. Companies like Huawei have become significant players, supporting technological development across the continent. Similarly, companies in agriculture, healthcare, and logistics are establishing a presence, looking to tap into Africa’s vast potential.
With regional value chains, these private-sector companies can benefit from the AfCFTA and contribute to localized production. They could set up assembly plants, establish local distribution networks, and invest in skill-building programs. In this way, private-sector investments from China can help build sustainable economic ecosystems across Africa.
Challenges and the Way Forward
While this shift to regional value chains and private sector involvement holds great promise, there are challenges. African nations will need to invest in education and skills development to prepare their workforce for new jobs in manufacturing, services, and technology. Additionally, improving infrastructure remains crucial for fully realizing the benefits of AfCFTA. Building roads, improving railways, and upgrading ports are all essential to ensuring products can move freely within the continent and beyond.
There’s also the issue of regulatory frameworks. African countries will need to standardize regulations to attract Chinese private-sector investment. Transparent policies, fair trade practices, and legal protections are critical for businesses considering investments in Africa.
The Potential Payoff: A More Balanced Partnership
As China and Africa enter this new phase of their economic relationship, the shift toward regional value chains and private-sector-driven investments could be a win-win. Africa could become more than a supplier of raw materials; it could be a hub for processed goods, with Chinese companies playing a key role in helping build this capacity. This means more jobs, increased economic diversification, and a stronger, more resilient economy for Africa.
At the same time, China benefits by securing a stable, growing trade partner in Africa, diversifying its supply chain, and gaining access to a huge consumer market. In this balanced partnership, both China and Africa can look forward to mutual growth—if they navigate the challenges wisely.
Building a Sustainable Future Together
As China and Africa look to the future, the importance of building strong regional value chains cannot be overstated. The AfCFTA offers a unique opportunity to create a robust, interconnected African market, and China’s private sector is well-positioned to contribute. Through mutual investment, innovation, and cooperation, China and Africa can craft a new chapter in their economic relationship—one that prioritizes sustainable growth and shared prosperity.
In this evolving partnership, the potential for a brighter, more balanced future is within reach. It’s a journey that both regions are ready to embark on, each step strengthening the foundation of a lasting economic bond.
