The final frontier

Rich in natural resources, with much fertile ground for agriculture, populated with a young, increasing globally connected workforce, China has long realized that Africa holds amazing potential for greater prosperity. Now, the rest of the world is recognizing Africa for its unexplored regions destined for development, with many firms and media labeling the continent the "final frontier."

According to the IMF, from 2000 to 2010, six of the world's 10 fastest-growing economies were in sub-Saharan Africa, and the forecast for the next five years is even more optimistic. While there are many factors that have contributed to Africa's growth story, the emergence of China in the world economy, and its engagement with the continent has, and will continue to play, a fundamental role in Africa's re-emergence on the world stage. China has exercised a two-pronged approach – trade and investment – throughout its decades-long engagement with the continent. According to the Ministry of Commerce, China's non-financial direct investment in Africa increased 58.9 percent year on year to $1.7 billion in 2011. By the end of 2011, Chinese investment stock in Africa reached $14.7 billion, up 60 percent from 2009.

Between 2000 and 2008, China's GDP expanded at an annual rate of 10 percent. Meanwhile, its annual demand for industrial raw materials has witnessed its own impressive boom. During this period, China accounted for two thirds of the world's entire growth in demand for steel and aluminium, and virtually all growth for copper and nickel. This rapid growth in China's natural resource consumption not only contributed to a surge in commodity prices but also created a boom in trade between China and Africa, a major supplier of raw materials. China has become Africa's largest trading partner and Africa is expected to surpass the United States and EU as China's largest trading partner in three to five years.  

In addition to external demand, a number of internal growth engines – Africa's ongoing urbanization process, an expanding labor force, and the rise of the middle-class – have been driving this trend. According to a new report from the African Development Bank, Africa's middle class has tripled in size over the last 30 years and now numbers 313 million people, or more than 34 percent of the continent's population. Today, 40 percent of the continent's 1 billion people live in urban areas, compared to just 28 percent in the 1980s. A large number of Fortune 500 companies have already identified this opportunity.

Successful international companies, many of them Chinese, have profited from the continent's high profit margins across a range of sectors. Accordingly, many Africans appreciate China's efforts to show them the path to emerge as an economic super power with a burgeoning middle class. Doing business in Africa requires both flexibility and a long term strategic approach. There will be challenges ahead, but the overall opportunity remains in the continent's long-term potential as one of the final underdeveloped frontiers.

The ChinAfrica Econometer is produced by The Beijing Axis, a China-focused international advisory firm operating in four principal areas: Commodities, Capital, Procurement, and Strategy.

For more information, please contact:

Daniel Galvez, danielgalvez@thebeijingaxis.com

www.thebeijingaxis.com