Those of us who research Chinese business in Africa have always struggled with a seeming paradox: we study Chinese firms specifically because they are such a critical, rising force in African economies, yet many of us balk at the hype and hysteria often perpetuated by the media and politicians about Chinese businesses in Africa simply because they are Chinese. And I’ll be the first to admit that my own work contributed to this sense of Chinese exceptionalism in Africa: by targeting Chinese firms as the object of research, I had no way to draw rigorous comparisons with local firms or firms of other nationalities operating in Africa.
That gap in comparability has finally been solved thanks to a four-year effort by Carlos Oya, Florian Schaefer, and their team at SOAS University of London. Oya and team carefully sampled leading firms in two sectors in Angola and Ethiopia. Importantly, they gathered large enough samples to be able to compare results across three groups: Chinese firms, other foreign-owned firms, and local firms. And critically, they surveyed 1,500 workers employed by these businesses, thus ensuring not just the perspective of capital, but also of labor.
The findings of their synthesis report are striking. In short, the fact that Chinese firms are Chinese doesn’t matter. As they write,
“regression analysis suggests, for both countries, that individual attributes of workers, firm size, location of firms and skill level are more significant predictors of wage levels than the origin of the firm.”
So while it is true that in some industries and for some skill levels, Chinese firms paid on average less than firms of other nationalities, it turns out that these wage differences are actually driven by how the firm is positioned in the sector and the strategies with which it is competing. For example, in the manufacturing sector in Ethiopia, Chinese and other foreign firms tend to be in industrial parks, which often have lower wages because they are located in more rural areas than the urban outskirts where Ethiopian firms tend to be located.
This finding that Chinese firms are no different than other firms, given similar situations, has important policy implications. For example, in the Angolan construction sector, Chinese firms have a lower workforce localization rate than non-Chinese firms: 71 percent versus 86 percent. Yet Oya and colleagues’ deeper analysis finds that rather than a cultural or inherently Chinese explanation for this phenomenon,
“Chinese firms had been subject to particular stringent timeframes and strong pressure to complete projects, especially prior to elections, given the political expediency associated with the process of national reconstruction.”
In effect, Chinese firms occupied a segment of the construction sector specifically valued by its customers for expediency and fast project completion. If Angola wants to localize the workforce in its construction sector, it needs to understand this trade-off with timeframes and allow longer project timelines that enable the hiring and training of relatively inexperienced local workers. And there’s evidence that Chinese firms have no problem doing this: in Ethiopia, the workforce localization rate for Chinese firms in the construction sector is above 90 percent.
For far too long, Chinese firms in Africa have been identified mainly by the fact of their being Chinese, which turns out to have been a red herring. Instead, to improve the lives and opportunities of workers and citizens in their countries, governments need to develop a more nuanced understanding of business, based not on nationality, but rather on industry and business model.
For the authors’ presentation of the main findings of this SOAS study and my longer commentary in conversation with the co-authors, please watch the video here.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.