China fans outs its investments in Africa

As continent undergoes its own industrial revolution, Chinese companies are finding opportunities in the infrastructure, manufacturing and service sectors

Chinese companies are gradually diversifying their investments in Africa, as they transform from aid-providers to mature investors, says Cao Jiachang, deputy director-general of the Department of Western Asian and African Affairs in the Ministry of Commerce.

China's accumulated investment in Africa increased from $9 billion in 2009 to $26 billion in 2013, according to Ministry of Commerce statistics, thanks to the 2,500 Chinese companies that have hired more than 100,000 local workers in Africa.

"Premier Li Keqiang has proposed that China achieve a direct investment amount of $100 billion by 2020, and we are approaching that," Cao says.

He attributed China's record amount of investment in Africa to three factors.

"First, Africa is increasingly more appealing to foreign investors because of its rapidly growing economies, large markets and cheap labor force. Second, more Chinese companies are capable of operating overseas. Finally, China and Africa's economies are complementary, so investing in Africa benefits both sides."

Last year, among the 10 fastest-growing countries in the world, seven in Africa made the list.

"It is a silver lining within the international financial crisis," Cao says. "Between 2000 and 2013, China-Africa trade volume has been growing by 25 percent annually, and now China is Africa's biggest trade partner."

According to research by the United States Department of Commerce, investors in Africa received an average return of more than 36 percent in 2013; the return in Asia was 16 percent and 14 percent worldwide.

Cao says that in a contracting global market, China's role is significant: Chinese projects account for one-third of the African market.

"Africa is going through an industrialization phase that is being supported by the active involvement of Chinese companies," Cao says. "During this phase, Chinese companies can find enormous opportunities in the infrastructure, manufacturing, agriculture and service sectors."

He says the Chinese government will continue to encourage Chinese companies to invest in specific sectors, such as high-speed railways, highways and regional aviation systems, a point Li Keqiang emphasized during his May visit to Africa.

As Chinese investment pours into Africa, the investment landscape is quietly transforming, Cao says, from a predominant interest in mining to the current buildup in infrastructure.

"By 2012, of the total Chinese investment, infrastructure increased to 23.6 percent, which is on par with investments in mining. Investments in Africa's financial systems and manufacturing accounted for 17.9 percent and 15.8 percent of the total," he says.

A recent PricewaterhouseCoopers report says a slow recovery in mature markets has turned investors' eyes to emerging markets such as Africa, particularly in infrastructure.

The report predicts that by 2025, infrastructure budgets in Africa will reach $180 billion annually.

The report adds that infrastructure is essential to economic growth and poverty reduction, and can generate annual return of 5 to 25 percent.

A study from the Institute of African Studies at Zhejiang Normal University says 24 percent of investments in infrastructure is from international financial institutes such as the World Bank, 17 percent from China, and 13 percent from the US and European investors.

By the end of 2013, Chinese companies constructed more than 2,200 kilometers in rail lines and more than 3,500 km in roads. Among the 322 projects that broke ground in Africa before June 2013, Chinese projects accounted for 12 percent, most of them to build railways, roads, harbors and power stations, the institute says.

Cao says Africa also needs foreign capital and technologies to modernize its economy, a position that China occupied 30 years ago.

"Manufacturing is the foundation of any model economy, and products made in Africa can benefit both Africa and China." Cao says. "Preliminary manufacturing starts with labor-intensive industries. With the rising cost for labor, China needs to transfer some of these industries to Africa, and African governments need them to create more jobs."

By 2012, China's total investment in manufacturing in Africa reached $3.43 billion, ministry figures show.

Much of what Chinese investment has helped generate can be seen in Ethiopia.

"Chinese companies have established glass factories, tanneries, medicine capsule factories, and auto facilities in Ethiopia, which not only bring in manufacturing technologies to the country, but also have created more than 5,000 jobs."

"Some companies in Ethiopia are hiring more than 80 percent of their workers from within the country. China National Petroleum Corp is a role model in this area. Among its 20,000 workers in Africa, more than 80 percent are Africans."

Greg Munyai, commercial director of South Africa's embassy in Beijing, applauds the Chinese commitment to boosting Africa's domestic economies. Earlier this year, he suggested that foreign companies pay more attention to localization measures.

"For instance, if you want to assemble cars in South Africa, you have to consider engaging with domestic suppliers and contributing to the whole supply chain."

Service industries comprise the new highlight of this gold rush on the continent, Cao says.

In recent years, Chinese investments have been attracted to new areas such as finance and trade industries, he adds. "For example, Chinese companies have teamed up with Angolan companies to develop an international trade center, making it the biggest logistics, exhibition and investment center in southwestern Africa. This represents a new trend among Chinese investors."

Cao says that it's not just state-owned enterprises that are making large contributions, "The participation of private enterprises makes the local economy more vigorous."

"In Nigeria, more than 40 private Chinese companies are investing in agriculture, textiles, construction and mining, with a total investment volume of more than $800 million."

Facing criticism from some Western media that China is ripping off Africa for its natural resources, Cao explains that "some African countries rich in resources but poor in manufacturing have to use their natural resources to attract foreign investments".

He notes that many African countries are raising the bar for foreign investors who want to step into this area.

"It is understandable that African countries are trying to have a bigger say over their natural resources," Cao adds. "We need to respect their national policies and cope with it accordingly."

Many African governments expect foreign investors to help with the local infrastructure before they start exploring oil or gas, Cao says. For example, Chinese investors built a hospital and a road for the local community while they explored a copper mine in Democratic Republic of the Congo. Investors established a trade zone near a copper mine in Zambia, which created 6,000 jobs for local workers.

"Chinese companies need to extend their value chain locally, so the exploration not only benefits the investors but also the home country," he says.

wangchao@chinadaily.com.cn