Of Chinese investment in developing countries and implications for Nigeria

The rapid economic growth and development that has taken place in China in the last 40 years has been described as a miracle by all standards. Indeed, this year marks the 46th anniversary of China’s reform and opening-up.

The opening-up has fueled huge Foreign Direct Investment and encouraged international companies to enter the market, bringing new opportunities and experiences to people across the country. Since opening up 46 years ago, China has transformed into a country that is at the forefront of various technological advances, including artificial intelligence. Indeed, China is the world’s factory.

2. Meanwhile, with the exception of 2020, China’s GDP has been averaging 7.6% for almost twenty years resulting in a per capita income of $12,614. The size of this per capita income can only be appreciated if the size of the population of over 1.4 billion is taken into consideration. The result is that over 750 million people have been lifted out of poverty. No other country in the world apart from China has lifted so many people out of poverty in just 40 years, which is a truly remarkable feat considering the size of China’s population. China’s contribution to international trade is around 30 per cent and the second largest economy in the world. The resources available to the government are astonishing and the surplus foreign exchange available to the country is unprecedented, thus the imperative for investment abroad.

3. The downside of this staggering economic development is the massive overcapacity in some sectors of the economy, especially coal and steel and the devastating impact on the environment. Of immediate concern to the Chinese economic planners is how to solve the problem of pollution caused by indiscriminate manufacturing activities over the past 30 years. New studies in the country have linked these industries to the destruction of the ozone layer and causing smog in most Chinese cities. Consequently, major Chinese cities are now so polluted and considered unsafe that some Chinese are taking such extreme measures as relocating to other cities and outside the country due to the fact that they are suffering from debilitating air-borne diseases. China’s arable land has also been fatally affected and the country is beginning to depend on food imports. China’s underground water has not been spared. Experts say the underground water has an unsafe level of contaminating chemicals due to polluting materials from manufacturing industries.

4. To address these emerging problems, new regulations in China require that factories contributing to environmental pollution pay heavy fines, relocate or shut down entirely. Moreover, the government is now embarking on a major economic transformation that is spurring the creation of new drivers of growth, new industries, numerous high-tech parks, new institutions and new opportunities in the technology and innovation space. Furthermore, the government has been encouraging private Chinese investors and state-owned Enterprises (SOEs) that are into manufacturing to move to other ASEAN countries, in Africa, including Nigeria to set up industries to manufacture products ranging from household items to railway locomotives.

5. The long-term impact of such production activities in Nigeria and Africa can only be imagined. Apart from the guaranteed future economic returns, other factors determining the huge and generous overseas investments are the strategy against protectionism, overcapacity and environmental pollution. Outwardly, the government calls the move a demonstration of its belief in global investment and the realisation of President XI Jinping’s signature programme, the Belt and Road Initiative.

6. China’s commitments to International Conventions and Regulations, such as that of climate change, which places responsibility on the country, especially reduction in carbon emissions also imply that these polluting factories must either be forced to close or move elsewhere under the guise of Foreign Direct Investment outflow. All these are the consequences of China’s rapid industrial growth without a properly coordinated regulatory framework.

7. Provinces like Guangdong and many others have started enforcing strict bans on such polluting factories and requested same to relocate elsewhere. Some of these factories include those manufacturing tyres, plastics, and chemical plants or industries using dangerous chemicals and those factories whose industrial wastes are harmful to the environment. Some of these factories are relocating to Southeast Asia, Africa and Nigeria, in particular.

8. Meanwhile, China is investing heavily in new energy technologies, divesting or shutting down its coal-fired power plants and gradually phasing out vehicles and cars that run on fossil fuel. Besides, China has been subsidising electric vehicles for many years. China indeed has a goal to remove or make the combustion engine obsolete in the long term. Moreover, other countries are now exploring the possibility of manufacturing electric cars. This is a challenge to oil-producing countries, including Nigeria that is dependent on crude oil sales with implications for foreign exchange earnings. However, the demand for crude oil will not diminish in the short to medium term.

9. Notwithstanding, China’s economic foray into Africa and Nigeria should indeed be seen as a welcome development. It is a demonstration that the policy of economic diplomacy of the Ministry of Foreign Affairs and the government is working and Nigeria remains an attractive investment destination. Relations remain cordial at government-to-government and people-to-people exchanges. The country is indeed friendly to Nigeria and other African countries, without attempting to interfere in the internal affairs of those countries.

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10. However, while these Chinese SOEs and others in the private sector are helping to finance and build roads, railways, airports and terminal buildings, and industrial parks, thus bridging the deficit in her infrastructural development and creation of employment opportunities, it is important to have a robust regulatory framework in place to tackle the challenges that will accompany China’s investment in Nigeria, especially in the mining and manufacturing sectors. As a first step, an inventory of all Chinese factories and businesses in Nigeria should be taken with a view to knowing what these factories or industries are actually producing, both during their regular shift in the day time and the late night shift. This is due to the fact that a number of factories in China have been found to be producing what they are not set up to produce at odd hours.

11. Moreover, Chinese-owned or operated mines and industries involved in the production of chemical products should be closely and constantly monitored to avoid the production of pollutants that will be harmful to the environment. Required Environmental Impact Assessments should be carried out on all Chinese manufacturing plants in the country to ensure compliance with local regulations.

12. This is the way to go in achieving win-win harmonious economic relations.

Wale Oloko, a Policy Analyst, writes via [email protected]