July 10, 2017 9:07 am JST

Some 10,000 Chinese companies now operating in Africa, report says

McKinsey notes Chinese tolerance for risk, practical experience

KENTARO IWAMOTO, Nikkei staff writer

Ethiopian factory workers sort shoes at the Chinese company Huajian's plant in Addis Ababa, Ethiopia (Photo taken on Jan. 5). © AP

TOKYO -- Chinese companies are increasingly rooted in Africa, with estimated over 10,000 companies operating in the region -- a number much bigger than in previously available data, according to a recent report by McKinsey & Company.

The findings show that companies from Asia's largest economy are actively pursuing opportunities and taking risks in what they regard as a promising market.

The U.S. consultancy did fieldwork in eight African countries -- Angola, Cote d'Ivoire, Ethiopia, Kenya, Nigeria, South Africa, Tanzania and Zambia -- which consisted of interviewing people at Chinese companies.

In the eight nations aggregated, the survey found, the number of Chinese-owned companies, totaling 4,821, is 3.7 times the number registered by the Chinese Ministry of Commerce. Extrapolated across the continent, this suggests there could be more than 10,000 Chinese-owned companies operating in Africa today, the report says.

According to the report, some 90% of the companies surveyed are private, far exceeding the number of state-owned enterprises. By industry, 31% are in manufacturing, 25% are in services, 22% are in trade, and 15% are in construction and real estate.

McKinsey estimates that manufacturing companies have already grabbed as much as 12% market share in Africa. As for construction and real estate companies, their share is estimated to be as much as 50%.

Among the Chinese companies in Africa are Bank of China, which has branches in several countries including South Africa, and First Automotive Works, which has investments in truck assembly factories in South Africa and Nigeria.

The report also noted that many Chinese-owned small businesses are operating in Africa, such as Bobu Africa of Kenya, a travel agency that introduces African culture to Chinese tourists.

McKinsey report also found that these companies mostly finance their African businesses by themselves and with bank loans -- only 13% of the investments are linked to the Chinese government. Also, 31% of the companies made profit margins of more than 20% in 2015.

China's involvement in African business is seemingly far ahead of other Asian nations. As for Japan, the second largest economy in Asia, the number of companies operating in Africa was at least 373 as of 2016, according to the Japan External Trade Organization (Jetro).

According to last year's Jetro survey on those Japanese companies in Africa, 52% said they were considering business expansion in the near future, and most said regulations and unstable politics were risks in African business. Such risks have also deterred other companies from entering the market.

"Market returns in Africa are high, but in many cases they're also risky, requiring a certain comfort level with unpredictable developing-market conditions," the McKinsey report says.

It points out that "China's entrepreneurial class, fresh from a three-decade run of building China in a similarly fast-paced and uncertain market environment with evolving institutions, has the risk tolerance, practical experience, and skill set to undertake such investments."

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