News
China As A Vital Force for Africa
(June 08, 2012)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.
(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
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.
(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)