/ 6 May 2011

China’s boom swells the coffers of African economies

Chinese investment in Africa is the single most important development of the previous decade for the continent — and a pointer to its future, too. In 2010 China became Africa’s largest trading partner, according to a new report by Renaissance Capital, titled “China in Africa”.

China’s trade with Africa, which now represents 10,4% of the continent’s total trade, is currently more than 10 times what it was in 2000, increasing from $11-billion to $129-billion. It is predicted that by 2015 Chinese-African trade may rise to as much as $400-billion a year. China’s largest trade partners in Africa are South Africa (25%), Nigeria (11%), Zambia (9%), Algeria (8%) and Sudan (6%).

According to the Chinese ministry of commerce, China has more than 1 600 companies in Africa, covering more than 83% of the continent. Chinese foreign direct investment in the continent has also resulted in an explosion in growth, quadrupling between 2005 and 2009 to $9,3-billion and predicted to soar to $40-billion by 2015. These figures are based on data supplied by the Chinese ministry of commerce but, according to the US Heritage Foundation, Chinese investment in Africa was as high as $44-billion between 2005 and 2010.

The biggest examples of that investment in the past decade include $8-billion invested with Nigeria National Petroleum in July 2010, $6,2-billion for railway construction in Algeria, $5,6-billion invested by the Industrial and Commercial Bank of China to buy a 20% stake in Standard Bank and $5-billion invested in oil infrastructure in Niger.

According to the report energy, transport and metals dominate the investments, with $19,3-billion, $15-billion and $13,9-billion invested respectively in those sectors between 2005 and 2010.

Imports from SA
One of the most significant qualities of Chinese-African trade is the fact that, unlike most of the continent’s other trade partners Africa holds the upper hand in the relationship because it has a trade surplus with China. China’s main dilemma is that its imports from Africa are heavily skewed towards petroleum and minerals, which constitute 65% of all imports.

“In 2009, 30% of China’s oil imports were sourced from the continent, principally from Angola (15,8%), Sudan (6%) and Libya (3,1%),” says the Renaissance Capital report. “Oil represented 60% of Africa’s total exports to China.” This is in line with China’s decision to diversify its oil imports from the less stable Middle East.

However, this resource-dominated import strategy has a significant impact on China’s trade deficit with Africa, which is a major headache for the superpower. According to the report, it is trying to address this through the terms and conditions tied to massive loans Chinese banks are making to countries on the continent.

The report flags the fact that Chinese aid to Africa, which is estimated at $11,5-billion since the 1950s, is being “overshadowed” by loans from the Chinese Eximbank (CEB) and China Development Bank.

The report states that CEB had loaned $7-billion to Africa by 2009 and the China Development Bank has promised $10-billion in loans and had disbursed $5,6-billion to 35 projects in 30 African countries.

“China’s cheap financing is giving it a dominant position in Africa, which will force developed and other emerging market economies to fight harder for access to African resources and markets,” says the report.

“In principle the projects financed by CEB must be undertaken by a Chinese company, with at least 50% procurement from China,” says the report. “Consequently, the loans are a conduit through which Chinese firms can enter developing markets.

“They are also an important means of trying to balance China’s increasing raw material imports from these countries with exports of Chinese goods and services,” says the report.

It further states that this strategy was beginning to work in 2007, when China exported more goods to Africa than it imported from the continent. In 2009 China saw a trade surplus with Africa, but the report says this was due to the collapse of commodity prices.

“While China’s exports rose 30% and reached a record high in 2010, the commodity rebound was so strong that its trade went back into deficit,” says the report.

China’s main exports to Africa include machinery/transport equipment (41%), manufactured intermediary goods (31%) and manufactured consumer goods (18%).

Nigeria is key to China’s plan to export goods to the rest of Africa, while oil makes up 93% of its imports from the West African nation. However, only $832-million worth of oil was shipped in 2009, compared with Angola’s $14,6-billion.

According to the report China is one of Nigeria’s largest sources of imports and a hub for Nigeria to re-export Chinese consumer goods to the rest of Africa. “There is a substantial Chinatown in Lagos, consisting of approximately 120 shops that sell Chinese consumer goods, imports and products manufactured by Chinese firms in Nigeria,” says the report.

About 50 000 Chinese nationals are estimated to live and work in Nigeria, which is also home to two Chinese-funded special economic zones.

Zambia and China have had a longstanding relationship that dates back to the ties between former Zambian president Kenneth Kaunda and the Chinese government. No surprise, then, that when the Bank of China opened its first Southern African branch in 1997, it was in Lusaka, or that China helped to build the 1860 km Tazara Railway connecting the country’s copper mines to Tanzania’s port city of Dar es Salaam.

Zambia was also the first country in Africa to develop a Chinese-funded special economic zone, in 2003. Copper is one of Zambia’s biggest exports and the commodity made up 83% of its exports to China in 2009. China first became involved in the copper sector when the China Non-Ferrous Metals Corporation purchased 85% of the defunct Chambishi Copper Mine for $20-million and then spent a further $130-million rehabilitating the mine. However, Chinese investment has led to some unrest in the past decade, with Zambian miners and Chinese firms regularly clashing. Disputes have extended into the sphere of local politics.

South Africa
South Africa accounts for a quarter of all Chinese foreign direct investment in Africa. The China Construction Bank and China Eximbank have offices in Jo’burg and the China-Africa Development Fund set up in the city in 2009.

Key Chinese investments in South Africa include the Industrial and Commercial Bank of China, the world’s largest bank, which became Standard Bank’s biggest shareholder in 2008, when it purchased a 20% stake for $5,6-billion.

In 2006 Chinese company Sinosteel bought a 50% stake in Samancor Chrome for $230-million, while in 2010 the Jinchuan Group and the China-Africa Development Fund bought a 51% stake in Wesizwe Platinum for $230-million. Also in 2010 Chinese company First Auto Works invested $100-million in the transport sector in South Africa.

On the export front cheap Chinese textile goods have flooded into South Africa, putting extreme pressure on local manufacturers.

In 2006 China agreed to export restraints; however, according to the report, during the 18-month implementation period alternative suppliers from Vietnam, Malaysia and Mauritius filled the space in the market left by the decreased number of Chinese imports.