/ 14 June 2013

Patel makes sense of Chinese rands

Patel Makes Sense Of Chinese Rands

The launch of a new consumer electronics factory by the Chinese state-owned company Hisense in Atlantis, Cape Town, last week pointed to the changing trade and investment pattern between South Africa and the world's second-largest economy.

The establishment of the factory, a R350-million investment in the country, was part of a growing trend of direct investment by China in South Africa, Economic Development Minister Ebrahim Patel said at the opening.

China dominates trade between the two countries, with South Africa predominantly importing manufactured goods from China, and China importing raw minerals from South Africa.

But after signing the Beijing Declaration in 2010, the two countries have been working to increase the export of value-added products from South Africa to China.

In the long term, the Atlantis factory is expected to create 600 direct jobs and 1 000 indirect jobs; 300 people have already been employed in the first phase of the factory's operation.

The investment was made with the assistance of the China-Africa Development Fund, which has invested $700-million in 10 projects across South Africa.

Launch deal
Hisense also received a R26.8-million cash grant from the department of trade and industry's manufacturing investment programme and the Industrial Development Corporation signed a memorandum of understanding with Hisense and the China-Africa Development Fund to cover the assembly of airconditioners and other products.

The plant will produce LED televisions and refrigerators destined for sub-Saharan Africa.

Patel said at the launch the deal was part of an increasing trend by Chinese companies to invest in South Africa. They saw the country was capable of producing goods that could be sold to other parts of the world.

He said South Africa had ramped up the production of electronics. It imported televisions and projectors worth $175-million from China in 2012, although this figure was 19% lower than in 2008 and 34% lower than in 2011.

The costs of imported TVs from all countries, including China, also dropped in 2012 – they were 34% lower than in 2008 and 29% lower than in 2011. But exports of televisions to all countries were valued at $94-million in 2012, a 77% increase from 2011. About 90% of the exports were to other African countries.

The vice-president of the China-Africa Development Fund, Lu Quincheng, told the Mail & Guardian that strong economic and diplomatic ties between China and South Africa, the size of South Africa's economy (making up an estimated 25% of that of the continent), and the fact that a number of Chinese companies already operate in the country, make for a solid foundation for Chinese investment here.

Opportunity for Chinese companies
The current weakness of the rand and the recent strengthening of the Chinese renminbi relative to the dollar also provide an opportunity for Chinese companies to import goods from South Africa, Lu said.

The recent labour unrest is a concern, said Lu, given that the fund has $700-million invested in South Africa.

Along with partners on the various projects, the total investment is about $2-billion. He said he hopes the South African government will be able to negotiate a reasonable settlement with the unions and increase investor confidence.

According to Patel, Chinese investment in local manufacturing is increasing. It includes the establishment of a factory in Springs last year to assemble Beijing Automobile Works taxis and a R600-million investment by First Automobile Works in a truck assembly plant at Coega in the Eastern Cape, due to be completed by the end of this year.

Chinese foreign direct investment (FDI) in Africa is seemingly minimal in comparison to other markets, according to a research report by Standard Bank released last month, although these figures may dramatically understate the growth of private Chinese investment.

Official data puts Chinese FDI at roughly $20-billion, or just 3% of Africa's total FDI stock, research analysts Jeremy Stevens and Simon Freemantle noted in the report.

But these figures could underestimate the amount by about $5-billion and belie the extent of Sino-African trade, which rose to $200-billion in 2012, according to the report.

In addition, the role of private Chinese firms was underplayed, with a number of firms from Chinese coastal provinces playing an increasing role on the continent in sectors such as textiles, shoes and tanneries, food products, restaurants, wholesale and retail centres, and other service providers.