China as a vital force for
Africa By Gavin du Venage
Chinese businessmen fanning across Africa
these days need a thick skin. They are all too
often accused of being exploiters, harsh employers
and the ultimate insult - neo-colonialists
interested only in stripping the continent of its
mineral wealth.
But is this fair?
To be sure, much of what brings Chinese
investors to Africa is below the ground, rather
than above it. This is far from the entire story,
however. Increasingly, money is beginning to find
its way into everything from construction to
agriculture to heavy engineering.
This
month, for instance, Chinese energy firm Sinopec
teamed up with South African counterpart PetroSA
to explore building a US$11 billion oil refinery
on the country's west coast. Refineries
are notoriously
unprofitable, with razor-thin margins. Since South
Africa has no significant oil or proven gas
reserves itself, the proposed plant would depend
on imports, and would have to serve the local
market to be viable.
The plant will
therefore serve the South African market and not
be used to process exports to China. This is only
the latest of such investments that demonstrate a
willingness by Chinese investors to put down roots
and infrastructure in Africa. It also shows that
China's dragon safari is about more than just
sourcing commodities for export.
In 2007,
the Industrial and Commercial Bank of China (ICBC)
paid $5.5 billion for a 20% stake in Standard Bank
of South Africa, the continent's largest lender.
The deal caused much breast-beating in South
Africa at the time, particularly as few in this
part of the world had even heard of ICBC.
Today, though, the partnership has matured
into one of the most successful banking alliances
in Africa. Standard has more than 500 branches
across 17 countries in the continent, most of
which offer easily exchangeable yuan for local
currencies. The availability of the Chinese
currency greases payments for subcontractors and
eases raising loans for businesses where Chinese
corporations are involved.
And
increasingly they are.
"Agriculture, as
well as services such as banking, finance, and
insurance, is part of the new sectors where China
invests in the continent," says Daoude Cisse, a
research fellow at the Centre for Chinese Studies
at Stellenbosch University in South Africa.
Direct investment from China to Africa
reached $13 billion in 2011, Cisse says, and total
trade for the year was $155 billion. "China has
contributed to African economic growth, making
some African countries the fastest growing
economies in the world."
China is eager to
export not only manufactured goods, but ideas;
plans to construct six or seven "African
Shenzhens" - a reference to the
village-to-megacity special economic zone in
southern China - are being discussed with various
countries up and down the continent. In
Mozambique, one of Africa's poorest countries,
Chinese backers have funded a $26 million
industrial park to establish a textile and
clothing manufacturing center.
This has
not prevented a creeping resentment at China's
growing economic footprint. Last year, copper rich
Zambia voted Michael Sata in as president, a
candidate who campaigned on a platform heavily
laden with anti-Chinese rhetoric.
"The
Chinese are very crafty. I know the Chinese very
well," Sata said in a much-publicized interview
with a Danish radio station in the run-up to his
election last year. He had tapped into a
widespread feeling amongst ordinary Zambians that
the Chinese were competitors, rather than
investors, within the country.
Since
taking office, Sata has toned down his fiery
language and gone some way to repairing the
bruised relationship. Such hiccups are likely to
become more frequent as more and more Chinese
become part of Africa's economic fabric. Some of
the criticism is justified - Zambians still rankle
at the shooting and injuring of 11 mineworkers
protesting over wagers by Chinese supervisors
several years ago.
Much of the
unhappiness, though, is misplaced. Unrealistic
expectations may be partly to blame. When Chinese
companies first began showing up in numbers in
countries from Angola to Rwanda, their ability to
tolerate a high level of risk, not to mention
discomfort, made them stand out in contrast to
Western competitors.
Instead of the
air-conditioned offices and expatriate camps their
American, British and French counterparts would
expect, Chinese engineers sweated in the heat and
bunked down in makeshift tent or trailer
accommodation.
Though Chinese companies
may be less averse to the rigors of Africa than
others, there are limits to what they will put up
with - a point often lost to many critics. For
instance, a clear preference to invest in
countries where infrastructure is good and laws,
especially property regulations, are respected.
It's no surprise that the bulk of Chinese
investment is still with South Africa, the
continent's largest and best-developed economy. It
received $4.15 billion in Chinese investment in
2010, almost half of the total for the entire
continent.
"The policy requirements to
attract Chinese investments are actually very
similar to those for other investors," says Cisse.
"Infrastructure development, political and
economic stability, regional trade and economic
integration among different African countries."
Agriculture is a case in point; up to
eight out of 10 Africans live off the land, and
rural poverty rivals that of China during much of
the 20th century. China's bootstrap upliftment of
its farming sector is appealing to many Africans,
but the idea of selling off cherished ancestral
lands to foreigners remains a sensitive issue.
For Chinese investors, poor legal
protection for property rights adds to the risk of
putting money into agriculture. This explains in
no small part why farming accounted for less than
4% of Chinese investment activity in Africa by
2009, according to figures from Information Office
of the State Council (IOSC)
Still, the
Chinese are not ignoring farming altogether. More
than 150 agricultural projects of various types
are dotted around the continent. Given China's
vast appetite for food imports, such deals would
likely increase exponentially if legal issues
around land ownership were firmed up.
Other sectors are also seeing substantial
Chinese interest. According to a recent
International Monetary Fund report, Ethiopia, one
of the world's poorest countries and with no
significant mineral resources to speak of, has
attracted substantial Chinese investment. In the
West Ethiopia is viewed as a symbol of starvation
and poverty; to the Chinese, it seems, Ethiopia is
a land of opportunity with 80 million consumers.
"China's financing (foreign direct
investment - or FDI - and loans) in
non-resource-rich Ethiopia is driven primarily by
a large and growing market (with more than 80
million people, the second-largest population in
sub-Saharan Africa) and opportunities for
involvement in large public investment projects,
rather than by a search for resources," reads the
report.
"In fact, the manufacturing sector
accounts for the largest amount of Chinese FDI in
Ethiopia, attracted by low-cost labor and
large-scale land leases, in addition to Ethiopia's
market size."
There have even been reports
suggesting that Chinese manufacturers,
particularly of footwear, are now relocating
production facilities to Ethiopia to escape rising
costs at home.
As of 2009, manufacturing
accounted for 22% of all Chinese economic activity
in Africa, according to IOSC. This is not
significantly far behind mining, which receives
around 29%.
Since the third Ministerial
Conference of the Forum on China-Africa
Cooperation, held in Beijing in November 2006,
Beijing has turned up the heat on the continent.
As a result, Africa, once the basket case of the
world, is beginning to emerge as an economic force
in its own right.
Gavin du
Venage is a business writer in South Africa,
specializing in commodity and investment
analysis.
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