Outsourcing is win-win for Africa, China
Source:  View: 287 Date: 2018-09-21

Such an approach will provide a network linking production of goods and services to a population that is eager for modernization

A friend of mine who owns a construction company in Monrovia, the capital of Liberia, started a conversation with me about the prospects of our country's construction sector and how it would affect thousands of jobless youths, who are also pretty eager to scale down Liberia's infrastructure deficit.

His ambition for the industry is profoundly considerate, probably because he's cognizant of its enormous potential - for his company as well as the country.

However, he's aware of the lurking challenges: Small Liberian companies often struggle to win large contracts, leaving bigger enterprises that have capital and financing capability to attain lucrative contracts.

In this case, he tells me, the survivability of these small local enterprises hinges on the bigger ones.

Without doubt, I agreed. But I had to jog my memory and consider my recent experience reporting on the local construction market. I found that local companies are making inroads but have to seek more financing - which doesn't come easily from commercial banks - if they are to be elevated to the international level.

My friend also told me how a certain Chinese road construction company had been outsourcing contracts to local companies and that he had been lucky to win a subcontract a year ago. It helped to solidify his presence in the local industry.

"This is how many smaller companies survive, and I think there can be a better framework put in place to ensure more contracts are outsourced so that the local companies can grow," he said.

Perhaps to improve the situation of outsourcing contracts, the government should set aside a certain percentage of the total worth of a contract, and this would go to local companies hired by bigger foreign companies, he said.

In my mind, China-Africa cooperation, which heralds the importance of a shared future and win-win approach, can widen the prospects of companies on the continent.

The success of the 2018 Forum on China-Africa Cooperation Summit in Beijing has renewed local entrepreneurs' aspirations for more Chinese foreign direct investment in Africa, as well as the possibility of outsourcing manufacturing and construction contracts as the continent keeps its sights on modernization and industrialization.

The numbers are emphatic: China is Africa's biggest trading partner. And the diplomatic bond is strengthening each year. In the past two decades, China has grown from being a small investor on the African continent to our largest economic partner, prompting Africa-China trade to grow at approximately 20 percent per year. At the same time, foreign direct investment is accelerating by 40 percent per year.

Chinese have lived through decades of industrialization, and as the largest developing nation in the world, China knows what it wants to share with Africa.

Chinese companies have thrived while treading a similar path. There was a time when many Western companies turned to them for cheap labor. Now times have changed, and as China is getting richer, labor is not as cheap as it was more than three decades ago.

Nevertheless, China is still generating huge benefits from service outsourcing contracts. Last year, a news report citing Ministry of Commerce data for 2016 stated that services outsourced to Chinese enterprises had reached $145 billion (124 billion euros; £110 billion) - making China the second-largest outsourcing provider in the world.

Weighing-in on these statistics, it is only logical to conclude that emulating the Chinese experience or model of outsourcing - manufacturing or construction services - would trigger a kind of 21st-century industrial revolution on the African continent and at the same time empower homegrown companies. The need for industrialization is ever growing on the continent, as many African countries look to add value to their raw materials and create jobs for the continent's soaring population.

More Chinese companies are reportedly opting to outsource production overseas as a means of lowering costs in China. Several African companies are among the beneficiaries of this new trend of producing apparel and textiles, and even steel manufacturing companies have moved their production to Africa. Take East Africa, for example. Chinese shoemaker Huajian has been hiring thousands of locals to work at its factory in Ethiopia. This is influencing manpower development and economic growth for the East African nation. Now industry experts see Ethiopia as one of the world's top outsourcing destinations for producing shoes and garments.

In Nigeria, a Chinese mobile phone company has begun manufacturing smartphones this year. As the most populous and arguably the largest economy in Africa, Nigeria continues to lure multinational investment that is helping to drive the manufacturing sector.

Meanwhile, market research indicates that internet technology outsourcing to Africa will reach a new level by 2020. According to tech market researcher Technavio, healthcare, telecommunications, banking and finance are attracting IT upgrades that require massive service outsourcing on the continent. Already, Chinese technology giants Huawei and ZTE have gained a foothold on the continent, inspiring several emerging IT companies that will be looking to provide outsourcing services for bigger contracts.

Like China at the start of its reform and opening-up policy 40 years ago, Africa can use its young population and relatively cheap workforce to leverage the benefits of outsourcing investments.

In Liberia, two major Chinese construction companies that have stayed more than 10 years in the country and have cemented their relationships with local companies are subcontracting to many local enterprises.

Chongqing International Construction Corp and China Henan International Co have outsourced more than 200 contracts - some are still being implemented - and the desire among many local companies for more subcontracts is growing.

For example, CICO has a 10-year contract to build and maintain a major highway in Liberia, but it has outsourced a two-year maintenance contract worth more than $480,000 to a local construction company. The local company is hiring hundreds of Liberians to carry out the project.

"Because the maintenance job is just labor work and we need to empower the local company that does not have much high-tech equipment, we gave them the contract so that they can grow as a company," says Li Punfeng, CICO's senior engineer.

Outsourcing contracts may have its own challenges, but I think it is a conduit for smaller, inexperienced service providers to blossom while creating jobs at the same time. Considering that several African countries are entering industrialization, outsourcing will provide a network that links production of goods and services to a population that is eager for modernization.

As trade between China and Africa continues to flourish - President Xi Jinping announced an additional $60 billion in support for sustainable development in Africa at the recent FOCAC summit in Beijing - many Africans, including myself, expect outsourcing of services to help take the continent's companies into a new era that will thrive on win-win outcomes.

The writer is a journalist with FrontPage Africa based in Liberia. The views do not necessarily reflect those of China Daily.
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