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Developing Madagascar.

Summary: Dr. Cornelian Tremann, an expert with the United Nations Development Programme, digs into how Chinese migrants in Africa can affect the local economy, with a case study on entrepreneurship in Madagascar

A lthough estimates concerning the size of the Chinese diaspora in Africa are speculative-due to the often transient and sometimes undocumented nature of their stay-recent figures have estimated more than one million ethnic Chinese throughout the continent. The majority are employees of Chinese state-owned enterprises (SOEs) and semi-private Chinese companies, but there are increasingly larger numbers of independent migrants arriving in Africa seeking economic opportunities. The latter do not enter the established wage labour market in their new communities, but instead launch their own business, most commonly retail or wholesale of Chinese goods, Chinese restaurants or Chinese traditional medicine clinics. These migrants are often perceived as threats to local businesses-yet is this really the case? Relatively little is known about the Chinese entrepreneurs, their economic activities, or how these are impacting local producers and entrepreneurs. Evidence from Madagascar suggests that although Chinese traders do sometimes displace indigenous producers, in other instances they are enhancing economic opportunities for local businesses through their more indirect and fluid impacts resulting from human capital flows from China to Africa.

Human capita-the knowledge and skills that allow an individual to be an economically productive member of society-also applies to migrants who bring with them new concepts regarding business creation, management, and resource mobilisation. African societies can enhance their levels of entrepreneurialism by exploiting new 'human capital that will have to come mainly from the developing world, particularly from China' Jan Joost Teunissen, founder and director of the Forum on Debt and Development, predicted in 2005. The human capital would come through 'large-scale immigration of a kind that diversifis, widens, deepens and augments Africa's limited human resource base,' Percy Mistry, Director of Oxfam International, forecasted in the same year.

Chinese entrepreneurs introduce human capital through kinship and business networks established in China, which are then expanded in their host countries. Since networks are by definition informal, they are assuming complex forms of interactions with local entrepreneurs in Africa. On the one hand, they enable Chinese traders to exploit increasingly fluid comparative advantages in their particular host countries without many positive spill- overs to indigenous entrepreneurs. Improved access to informational and financial networks provides a faster approach to credit, information, and technology for the Chinese members of the networks, which is not the case for their African counterparts. On the other hand, contact with Chinese networks could help to invigorate African entrepreneurship through flows of models, ideas, and resources from outside the region. Via formal and informal contact, they accelerate information sharing in their host economy. In the case of trade, information sharing helps match buyers and sellers, and in terms of investments, it helps identify new and potential opportunities, Hong Song said in a 2011 article for journal China & World Economy.

CHINESE ENTREPRENEURS IN MADAGASCAR

Between 2001 and 2011, the population of Chinese nationals residing in Madagascar grew from an estimated 20,000 to between 70,000 and 100,000. The majority of them are temporary migrants who plan on progressing to the African mainland or returning to China within the next five to ten years, although some of them may end up staying in the country longer than intended. Most of them settle in Antananarivo as traders of imported items manufactured in China. Between 1998 and 2005, the number of Chinese-owned shops registered in the commercial neighbourhood known as Behoririka rose from 40 to over 500 according to local newspaper La Gazette de la Grande EAle. Although they are increasingly moving into other areas around the city, in 2010, close to 90 per cent of temporary Chinese migrants in Madagascar were registered as small-scale traders in Behoririka by the Malagasy Institute of Statistics. Table 1 illustrates that estimates that the Chinese migrant population in Madagascar have more than quadrupled between 2001 and 2011.

NEGATIVE IMPACTS ON LOCAL BUSINESSES

The proliferation of Chinese merchants and manufactured goods imported from China has spawned a range of perceptions relating to how temporary Chinese migration to Madagascar is impacting local producers, most of which are negative. According to the French Economic Counsellor in Antananarivo, Chinese traders are widely considered to have 'basically ruined the local textile industry, and are in the process of ruining the artisanal industry, the plastics industry, the blanket industry, and the little agricultural industries'. Over the past five years, a significant number of Malagasy companies have experienced displacement after the introduction of low-cost Chinese imports, especially in the textiles and blanket industry.

Nearly half of Madagascar's imports from China are textile products. Almost all of the newly created Chinese businesses are engaged in the importation and retail of textile, electronics, or household items manufactured in China. Table 3 shows that 35 per cent of imports from China consisted of raw materials for the textile industry, such as thread, silk fabrics, wool, cotton, linen or synthetic, and 12.4 per cent were made up of clothing and clothing accessories.

In the 1980s, Madagascar counted six major textile companies. By 2008, La Societe Malgache des Couvertures (Somacou), was the largest company remaining, possessing a significant market share of 80 per cent. However, by 2011, Somacou's market share had fallen to 20 per cent. In its place, blankets imported from China, which retail for around 10,000 Ariary (roughly $5) (as opposed to the 30,000 - 70,000 Malagasy Ariary that a blanket made by Somacou can cost, depending on quality), now command 80 per cent of the market share. A general lack of infrastructure, widespread economic recession, the 2009 loss of the African Growth and Opportunity Act (AGOA), the influx of cheaper Chinese blankets, and the under-declaration of the value of goods by Chinese importers have all combined to play a role in the decline of the local blanket industry.

SUCCESS STORIES

However, despite their ephemeral nature, human capital flows from China to Madagascar are also providing new business opportunities for many Malagasy entrepreneurs. For instance, although Chinese entrepreneurs manage all of the shopping complexes in Behoririka, they have to lease the buildings from a Malagasy because a foreigner is not allowed to buy land in Madagascar. A significant number of the outlets in the new Chinese-built shopping complexes are in turn rented by Malagasy businesses. Instead of competing with Chinese imports, many of them choose to buy Chinese imports in large quantities and sell them to other Malagasy retailers, who vend them in smaller shops or stalls on the streets of Behoririka. By moving into wholesale, these firms remove themselves from direct competition with Chinese retailers and enhance their competitiveness by being able to lower their prices.

In another example, competition from Chinese imports was a principal reason for the Paper Company of Madagascar (Papmad) to change its business strategy, which ultimately led to an expansion in sales. In operation in Madagascar since 1963, the company recently launched a new line of recycled toilet paper with a marketing strategy specifically aimed at its Chinese competitors. The product was priced just below its Chinese rivals, it was packaged and marketed as young, fresh, and Made-in-Madagascar, and targeted at the capital's younger clientele that would normally purchase items from Behoririka while taking advantage of the widespread sentiment that Chinese products are of low-quality. To lower production costs, Papmad also bought three new industrial printing machines from a Chinese company based in Beijing. In 2010, the company expanded by exporting recycled paper to Mauritius.

Thus, while some Malagasy businesses have not been able to compete with Chinese imports, others are finding ways to exploit the presence of new Chinese business networks and supply chains in the country. The examples mentioned above suggest that local African entrepreneurs can take advantage of new Sino-African business linkages that are created and nurtured by Chinese migrants. Rather than solely harming the local economy by crowding out local producers, the movement of entrepreneurial talent and ideas from China to Africa could help invigorate elements of local economies. Although human capital flows are more indirect and fluid than conventional economic development inputs, they are equally, if not more, vital to the long-term growth of the local private sector in Africa.

Table 3: MadagasCar's Ten PrinCiPal iMPorTs froM China, 2007

Product Per centage of total imports from China

Thread and tissues

29.10

Clothing and clothing accessories

12.40

Generators and transformers

9.78

Motors and mechanical appliances

6.85

Synthetic thread and tissues

5.98

Vehicles, tractors, motorcycles

3.99

Iron and steel works

2.23

Rice and other cereals

2.69

Chemical and other medical products

2.00

Shoes

2.89

Source: Ramiandrisoa, Razafindravonona, and Rafalimanana, 2008.

This number is based on information acquired from Veeck and Diop (2012), Fournet- Guerin (2006), personal interviews conducted in Antananarivo between September 2010 and July 2012, and informed speculation.

ABOUT CORNELIA TREMANN

Dr. Cornelia Tremann is an independent research consultant with interests in China-Africa development relations, South- South cooperation, China's influence on the geopolitics of development, politics of development, and the nexus between governance and development. She holds a PhD from the School of Oriental and African Studies (SOAS), an MSc from the London School of Economics (LSE) and a BA from the University of Queensland. Her PhD, titled China and Madagascar: Perceptions, Engagements, and Developmental Effects, resulted out of almost two years of fieldwork during which she was based in Antananarivo. She currently lives in Beijing, China, where she has been working as a Policy Analyst on China's South-South Cooperation for the United Nations Development Programme (UNDP).

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Publication:Banker Africa
Geographic Code:60AFR
Date:Sep 30, 2014
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