Africa – Standard Bank, the continent’s biggest lender by assets, says China’s investment in African resources remains at a relatively early stage and is likely to increase further over the next decade, despite the economic slowdown being experienced in the world’s second largest economy.
“Africa is an increasingly important priority for Chinese companies looking to invest in the continent, especially those with a strategic interest in metals and mining and related infrastructure, such as power, road, railways and ports,” says Dr George Fang, Standard Bank’s Beijing-based Head of Mining and Metals in Asia. “Over the next five to 10 years we’re likely to see even more investment by Chinese firms looking to tap Africa’s resource superstructure, as well as other sectors.”
This is aligned with the macroeconomic long term view of China’s economic trajectory and vision of Beijing’s leaders. Consider, for example, an economic belt known as “The New Silk Road.” This trade route runs from China, broadly westward through central Asia and includes the pacific maritime trade routes to Europe. This vision was articulated by the Chinese government in 2013 as a roadmap to further integrate China into the world economy and it emphasises Africa’s geostrategic and commodity rich significance. Africa is central as both a conduit and destination within this trade route and the renminbi is foremost in leading transactional value along the route.
China’s economy grew 7.4% in 2014, the slowest pace in 24 years, and down from a five-year average of about 10% as the nation’s property market cooled and institutions ranging from state owned companies to local governments were weighed down by debt. Standard Bank says China is transitioning from a high-growth phase, driven by abundant capital and cheap labour to a more mature phase in which continued growth will depend on gains in productivity and increased business efficiency. These will in turn be underpinned by ‘creativity’ and ‘innovation’ in the way Chinese companies and state owned enterprises conduct business within the trade route and across Africa.
Although China’s demand for commodities will slow in coming years as the economy continues to consolidate at a New Normal, Dr Fang believes the country’s outbound foreign direct investment (OFDI) is likely to increase as Chinese companies continue to secure new mineral assets.
“China is going to become an increasingly important capital exporting country in coming years, which is likely to drive further investment in African mining,” says Dr Fang. “In line with outbound FDI growth, Chinese companies’ outbound merger and acquisition activity has experienced rapid growth with a compound annual growth rate of over 33% since 2004.”
While China’s state-owned-entities have led this investment, an increasing number of private enterprises are taking part in the OFDI boom, accounting for no less than 37% of the total non-financial OFDI in 2013. The way in which private and state owned enterprises from China are doing business, are adapting to regional dynamics across the continent. For example, the way in which enterprises partner with local technical specialists and advisors, demonstrate innovative approaches to local opportunities.
Although energy and metals are still the largest targets of Chinese OFDI, rapid increases are also being observed in agriculture and energy, according to Dr Fang.
Notwithstanding the more than 2 500 Chinese companies that are already operating in Africa, Dr Fang says the country’s institutions have significantly elevated their appetite to invest in the continent. This is evidenced by data from the Chinese Ministry of Commerce showing that the nation’s OFDI flows to Africa increased nearly 8 times from $317 million in 2004 to $2.52 billion in 2012.
China’s lenders also remain significant lenders to projects on the continent, as evidenced by China Exim Bank’s decision in May last year to provide 90% of the USD$3.8 billion project cost to construct a 609 km railway line linking the Kenyan port city of Mombasa to Nairobi, Uganda, Rwanda, Burundi and South Sudan.
“China has been rapidly expanding its global footprint via international acquisitions as it gradually evolves into a capital exporting country,” says Dr Fang. “The economic slowdown of growth in China is unlikely to hinder global commerce but it is likely to unlock further opportunities for African mining and other sectors as well.”
“Chinese interests are clearly set on a path of one road, one belt and now we could add ‘one continent’” says Dr Fang. “In fact, China’s investment in Africa is already well down the road and it’s not just about resources.”
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