Africa is becoming China 2.0

The Chinese middle class is growing and, with it, so are the costs of labor. Only a few short decades ago, the world turned to China (as well as some other Asian countries) to produce manufactured goods for low costs. Now China is looking to do the same. China’s target: Africa.

Over the past few months and years, Africa has seen increased investment from China. This was mostly due to China wanting to more easily extract raw materials such as oil and copper. Another reason for the growing investment is the low labor costs of the African people.

In China, wages for factory workers are around $400 a month. In Africa, workers are being paid around $40 a month. Because of this huge difference, China is planning on exporting 80 million manufacturing jobs to Africa.

The countries in Africa are vying to get China’s attention. Countries such as Ethiopia, Kenya, Rwanda, and Senegal are at the top of the list. The standout so far has been Ethiopia, which is currently the most attractive due to cheap labor, low electricity costs, and a government that is encouraging foreign investment through the creation of industrial zones that have better infrastructure and include tax exemptions. In fact, foreign investment has increased 3.4 times to $953 million last year from the previous year.

Although the wage costs are lower, outsourcing manufacturing jobs from China to African countries is not easy. This is because many African countries have untrained work forces, inconsistent power supplies, poor roads and infrastructure, and inefficient governments.

The weaker consumer spending in the Unites States and Europe has led to an increase in demand for retailers to find lower cost producers. Because most of these producers are in China, and Chinese labor costs are on the rise, Chinese companies are beginning to feel pressure to source lower cost labor. A country like Ethiopia (that has lower labor costs than Mexico, China, India, Vietnam, and Bangladesh) seems like a good long term investment, despite some of the setbacks.

In the years to come, more companies will surely begin to invest even more into the African nations to take advantage of the low labor costs.

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