China in Africa
12. Implications for Japanese Investors
The fundamental lesson to learn from China’s economic engagement with Africa is that Western companies are primarily answerable to their share-holders while Chinese companies are primarily answerable to the state or more specifically the CCP. Herein lies conflicting world views on how business is conducted and what the ground rules of engagement should be. Profit is not the primary consideration driving the decision-making process of major Chinese companies. Instead positional access to cheap raw materials and consumer markets, using the subsidized muscle of state financial institutions to monopolize resource access in countries to ensure a secure supply of resources to China is. In a nutshell political imperatives of the CCP inevitably override or at the very least influence business decisions taken at board levels of major Chinese companies.
When political and national security considerations underpin investment decisions, Chinese companies are willing to pay a higher price or a “political premium” to clinch energy and development deals that would otherwise be considered unviable or too expensive by Western companies. Likewise the institutional support enjoyed by Chinese SOEs investing in Africa by their respective governments effectively lowers the risk threshold of such entry into unstable African markets.
For Western companies, the challenge is more acute, having to compete not just Chinese companies but against a whole phalanx of state backed political and economic institutions which provide a measurable advantage to such companies operating in the African energy environment. In a sense, Western companies are competing not just against Chinese corporates, but rather against the economic and political institutional power of the nation state itself.
Japanese companies doing business in Africa, will therefore require a holistic approach to investment decisions to meet the China’s investment challenge in Africa - one that will require closer coordination and collaboration between the private sector and the state on a range of economic and political issues. An element of state leverage in the form of tailored economic and political packages to sweeten investment deals mooted by private companies is one consideration. For example, Western companies often express frustration at the lack of infrastructure to support new planned energy or mining projects in most African countries. China circumvents this problem by offering not just money for a mining project but assistance in establishing the necessary infrastructure network to support the mining operation, in addition to foreign aid grants, political junkets and other “add-ons” to make the deal attractive to the recipient company.
Other adoptive positions for Japanese companies to consider include the following:
- Immitate the successful elements of the Chinese approach, without embracing the “dark side”.
- Every business approach into African countries requires a parallel political approach.Successful business deals are not just clinched on the quality of the product but whoone is speaking to and the choice of local JV partners.
- Every business plan must include projects to assist civil society through training and education, science and technology development.
- A good business intelligence platform is required in order to know who to contact, who to lobby, who to sell. The Chinese have been extremely successful in doing this.
- Forging links with local media is important and PR firms are crucial, both from a PR point of view and to help expose opaque practices, inefficient systems, and inferior hardware and software being offered by Chinese firms. Without prior public knowledge, it is sometimes difficult for African leaders to decide on technologies that are arcane to them, most of the times.
- It is always important for foreign investors to deal with targeted countries at the very highest macro level. There is a need to co-opt the power elites before focusing on negotiations with government parastatals and potential private local JV partners. There is a need to lock in the interests of the top decision-makers before pursuing the business side of any new investment venture.
The emergence of a new Chinese business model which integrates Chinese overseas investment projects with its overall global economic, military and political objectives, constitutes a package of incentives unmatched by other foreign companies.
The challenge facing non-Chinese operators in Africa is not just understanding business plans of Chinese firms, but how they fit into China’s broader internal development plans related to both consumer and military needs, the importance of high technology acquisitions and China’s global hegemonic outlook.