From acorns to trees

Versatility has been the magic wand for Chinese businesses in Africa for more than a decade, and could well be in the future, as China starts taking rapid steps to further enhance its growing economic influence on the continent. For more than a decade, China has been steadily increasing its direct investment in Africa. That investment has evolved from the small one-off goods shipment deals to private equity deals and even mega infrastructure projects that have withstood the test of time.

Asoka Ranaweera, an investment consultant based in Washington, still remembers the early days of Chinese direct investment in Africa, particularly a $15-million glass factory project in Ethiopia. Located in the capital city of Addis Ababa, the factory was built in 2009 with funding from the China Africa Development Fund and was considered to be a "flagship investment" given the project size and scale.

Ranaweera says the project was also the first private equity funded project set up by Chinese investors in Africa. The CADF was set up in 2007 and had planned to spend about $300 million in 2008 on projects in Africa.

The project, executed by Chinese construction firm CGC Overseas Construction Group Co, aimed to produce 60,000 tons of glass sheet every year, with 30 percent of the output earmarked for domestic use and the rest for exports to other East African countries.

"At that time it was considered by many to be a flagship investment," says Ranaweera, founder and chief executive of Grid2Grid, an investment consultancy, which was approached by the China Africa Development Fund for assistance in locating viable projects in West Africa.

"The project was executed four years ago. So it is more or less safe to say that private Chinese direct investment in Africa is still at a relatively early stage. China's direct investments in Africa are very difficult to measure or attach a value to," he says.

CGC, the Chinese construction firm involved in that project, has also been involved in several development projects in Ethiopia, including a $40 million water supply project for the historic eastern town of Harar and a project to supply 2,000 construction vehicles for the Ethiopian Ministry of Works and Urban Development.

According to current estimates, there are more than 2,000 Chinese enterprises operating in more than 50 African countries and regions, across all major business sectors. The Chinese investment has also gone into projects including building a hospital in Angola, building a road between Zambia's capital, Lusaka, and its southeastern city of Chirundu, and building a stadium in Sierra Leone.

In street markets in cities such as Cairo, Luanda, and Johannesburg, a variety of Chinese goods - clothing, jewelry and electronics - are finding favor with African citizens due to their affordability.

"As per capita incomes grow, Chinese consumer goods like microwaves, refrigerators and washing machines are becoming increasingly popular in Africa," Ranaweera says.

Future course

Investment by Chinese businesses in Africa has surged from $75 million in 2003 to $2.9 billion 2012, with an average annual growth rate of 50 percent, National Development and Reform Commission says.

Though investment has grown, it has also attracted a criticism from Western experts, who see the hand of Chinese colonialism. But others say the investment has produced results that have brought new hope and direction to many Africans.

Zambian-born economist Dambisa Moyo is one expert who believes that Chinese investment has helped Africa. Moyo argues in her latest book, Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa (2009), that Western aid has hampered growth in Africa, while Chinese assistance has helped create a transformation.

"By saying this, I'm not saying that China should be given a red carpet, or carte blanche, to come into Africa or, indeed, anywhere in the world, and do what they like. What we need is investment, job creation and actual trade," the economist said in a recent interview.

"I think what's really essential is to focus on what China can do for Africa, as well as what Africa can do for China," she says.

China's investment efforts in Africa are expected to create some 85 million manufacturing jobs in the coming years, says Moustapha Ndiaye, country manager for the World Bank in Uganda. This projected number means a lot in Africa, where as according to the World Bank, young people account for over 60 percent of the unemployed Africans.

Africa has the youngest population in the world with about 200 million people aged between 15 and 24 - a figure that is set to double by 2045 - according to the 2012 African Economic Outlook report.

Mthuli Ncube, chief economist and vice-president of the African Development Bank, believes that China is probably the best partner that Africa can have right now.

"Africa needs to step up and develop a strategy for engaging China, so that both regions can move on to even greater heights," he says.

Robert Rotberg, a visiting Fulbright scholar at the Canada-based Centre for International Governance Innovation, says while China's investment in Africa has had a positive effect, African nations need to "diversify to make better use of the Chinese cash inflows".

"The onus is on African nations to further develop manufacturing and other industries and also make use of the knowledge imparted by Chinese companies," Rotberg says.

According to Ncube, African nations can also use their growing engagements with China to create a broad framework for foreign investment on the continent. The first steps of such an effort would come when African nations start making various parts for goods that are made in China. Ncube feels that Africa should see China more as a "ladder" which it can climb on to reposition its role in the global economy.

"Africa should aim to be the factory of the world just like China was when it started its journey some 15-20 years ago," Ncube says.

"Interestingly, China's current investments in Africa mirror exactly the same pattern of American and European investments on the continent," says Ranaweera. "In other words the bulk of Chinese investment is currently in minerals and natural resources (oil, gas, mining and forestry)," he says.

Ranaweera says that China has faced criticism in Africa due to the competitive concerns of Americans and Europeans.

"Americans and Europeans criticize China, but their pattern of trade is exactly the same. In other words, Africa provides primary commodities to America, Europe and China," he says.

Trade numbers

China overtook the US in 2009 to become Africa's largest trading partner. Bilateral trade between China and Africa - which has risen tenfold in less than a decade - will continue to grow. It was $10.5 billion in 2000, $40 billion in 2005 and $200 billion in 2012.

Exports from China to Africa rose 5 percent last year, a much higher growth than in other regions. According to Standard Bank of South Africa, over 18 percent of African imports last year were from China, a 10-percent growth over 2008.

China's widely debated investment in African infrastructure has also been gaining ground. The country has invested in several initiatives such as the $20 billion credit to African countries to develop infrastructure and the African Talents Program, which aims to train 30,000 Africans in various sectors. The Export-Import Bank of China has reportedly financed more than 300, or the majority, of infrastructure financing arrangements by China in Africa.

"China has had the experience in the last 35 years of moving away from a low industrial base to an advanced industrial nation. This experience can prove invaluable to African countries," says Ranaweera, adding, "it can also help boost skills, knowledge and the experience base of African countries".

That Africa continues to be a vital cog in China's future investment plans became evident when it was one of the first overseas destinations that President Xi Jinping decided to visit after taking office. The African trip included visits to Tanzania, the Republic of Congo and South Africa.

Xi was the first Chinese head of state to visit the Republic of Congo since the two countries established diplomatic relations in 1964. Trade between the two jumped from $290 million in 2002 to over $5 billion last year.

In a speech in Dar es Salaam, the seaside economic hub of Tanzania, Xi set the tone for the future of Sino-African relations, by reassuring China's own growth and rising international stature would not hamper the course of its bilateral relations with Africa, and reiterated that "the importance of Sino-African relations will not decline, but will instead increase".

"China has and will continue to work alongside African countries to take practical measures to appropriately solve problems in trade and economic cooperation so that African countries gain more from the cooperation," Xi said. Last year, China provided $20 billion in loans over three years for African infrastructure development, farming and businesses.

During his Africa trip, Xi said investment from China would continue, and he announced that China would provide training for 30,000 Africans over the next three years, including 18,000 scholarships.

He also said China would strengthen mutually beneficial cooperation with African countries in agriculture, manufacturing and other areas, and help African nations convert their resource advantages into developmental advantages.

Xi's pledge for "never-ending support for Africa" at the BRICS summit in Durban, South Africa is not surprising, given the history of Sino-African relations, says Jon Taylor, a political science professor at the University of St Thomas, Houston, Texas.

"To be frank, China differs from the US and Europe by providing more infrastructure support and investment in exchange for development, with an eye on trade relations. With such strong economic ties, it should come as little surprise that China's development model is viewed by African leaders as more viable than the Western development model," says Taylor, an avid China watcher.

Economic zones

Douglas Zeng, a senior economist focusing on Chinese, global and African economy with the World Bank, says while China is rapidly emerging as a key economic player in Africa, its overseas activities are being closely scrutinized by international media, research institutions, and donor agencies, "yet much of the conventional wisdom about Chinese development finance rests on untested assumptions, individual case studies, and incomplete data sources".

Economic cooperation between China and Africa has contributed more than 20 percent to Africa's growth over the past 13 years. Africa's economy has grown by 5 percent annually in the new century with the help of China's aid and investment, according to the Ministry of Foreign Affairs.

In 2006, China said it would support the setting up of more than 50 special economic zones in Africa. Eight have been set up, including six in Sub-Saharan Africa.

"These zones can help jumpstart the manufacturing sector in Africa," says Zeng, the senior economist at the World Bank.

"Some of these zones have made good progress in terms of building infrastructure and attracting investments," Zeng says, adding that they also face challenges, including improving the management capability of the zone developers and difficulties in coordination with host government counterparts.

Data from the Center for Global Development and AidData shows that there were more than 1,600 Chinese development finance projects worth $75 billion in 50 African countries between 2000 and 2011. Health, education, transport and storage projects have received the largest funding from China.

"The sectoral distribution of Chinese aid to Africa stands in contrast to the pattern of traditional donors, who have channeled the lion's share of their funding - nearly 50 percent - into social and humanitarian sectors. In this sense, Chinese aid is complementary to the assistance from Western donors," says Zeng from the World Bank.

Contrary to Western perception, Chinese investors are far from being "colonizers" and are instead investors who are keen on bringing about a change in Africa.

HNA Group, the largest privately owned air transport company in China and the fourth-largest airline in terms of fleet size, recently teamed up with the United Nations World Food Program to help provide take-home rations to promote girls' education under its school meals program in Ghana.

Last year, the HNA Group extended its Brightness Action - a 10-year charitable program the company launched with Beijing Tongren Hospital in 2004 to tackle avoidable blindness - to the African continent. The program helped restore eyesight to more than 1,400 people in Zimbabwe, Malawi and Mozambique.

HNA Group also has several business projects in Africa. Last year, it signed a cooperation agreement with the Ghanaian Africa World Airlines to launch a joint venture co-financed with the China Africa Development Fund among others. It was the first-ever aviation investment made by a Chinese company in Africa.

HNA's involvement in Africa also showcased a new trend of investment by Chinese companies. It is a privately held firm and most of its investments are in new areas, while its corporate social responsibilities are spread across the world.

"China's investments in Africa have come primarily from state-owned companies ... In the future one key area to look out for is private Chinese companies and individuals making investments in Africa," says Ranaweera.

Most of the over 1 million Chinese who are currently living in Africa are small traders and business people, says Ranaweera.

"The next great wave will come when medium to large private enterprises from China deploy capital in partnership with Africans on projects to make money," he says.

"An example of this might be in the future when a large Chinese property developer links up with an African partner to develop commercial and residential real estate in a fast growing African city," Ranaweera says.

yuweizhang@chinadailyusa.com

(China Daily Africa Weekly 06/14/2013 page6)