Impacts of China’s investments in Africa

Posted on February 11, 2016 by ATB Chartered Accountants

Over the decade from 2004 to 2014, China’s outward foreign direct investment (OFDI) stocks in Africa grew from $US1 billion to over $US30 billion. Of this money spent, the investment in timber grew from 8% in 2007 to 84% in July, 2015. China is currently investing in timber in 25 countries in Africa.

Although there has been a global movement towards meeting demand for the protection of forests, China has become the world’s leader in importing and processing logs, with a large number of these being imported directly from Africa. The International Institute for Environmental Development (IIED) claims that approximately 75% of African timber exports are sent to China each year. Of these exports, 60% were sourced from the African countries of Mozambique, the Republic of Congo, Cameroon and Equatorial Guinea. The IIED also claim that China was responsible for the logging of half of all tropical trees exported in recent years.

With such a high level of investment from China’s economy in African countries, there are mixed community impacts faced by these exporters. While the level of trade being demanded by China does create an increased income source for local operators and an increase in market access, there have been findings of low contribution to local employment, poor labour practices, deforestation and an illegal logging trade. Chinese Small and Medium Enterprises (SMEs) are beginning to play a larger role in the African forest market. These SMEs have limited financial ties to banks and the Chinese government, and so are much less likely to follow guidelines which indicate social and environmental protections. One particular example of this was uncovered by the Environmental Investigation Agency (EIA) where a Chinese SME engaged in illegal log exports in Mozambique one month after the company representatives attended a guidelines meeting.

The investments by China in African forests have also moved up in the supply chain, giving the trading companies the ability to acquire land concessions and open timber factories in countries such as Gabon and Mozambique. This gives Chinese companies a greater amount of power in the management of forests in Africa.

Countries including Mozambique, Gabon and Cameroon have introduced national restrictions on the export of unprocessed logs in recent years in attempt to counter the lack of employee benefits faced by workers. However even with this movement by various African governments, the increasing Chinese presence in these markets renders these restrictions relatively ineffective. There has been recent trends by Chinese importing companies to outsource their logs from alternate countries to avoid these exporting bans, such as from the Democratic Republic of Congo.

With trade between China and Africa expected to double by 2020, there is an urgent need for reform by governments to develop a sustainable trading agreement which will be both beneficial for the importers, labourers and the environment. Laws and a regulatory authority should be implemented in China to ensure the timber being imported is not from illegitimate sources, and African governments must strengthen their forest governance to ensure all forestry managers are logging in the least environmentally damaging way possible.