Mining a rich seam

Machinery makers bank on big-ticket infrastructure projects in Africa for growth

Big-ticket mining projects are helping Chinese machinery makers consolidate their presence in Africa and offset losses from dwindling demand in developed markets.

Shanghai Shibang Machinery Co, a high-technology enterprise, is one of the Chinese firms seeing sturdy demand for its products in African countries such as Angola, Botswana, Namibia and Sierra Leone. To further expand its business in Africa, the company plans to set up warehouses, service and technical centers in Ghana and Nigeria over the next five years.

Many of the opportunities are due to Africa's growing demand for mining and infrastructure projects, especially as mining has a big role in generating foreign exchange, says Cui Gaofeng, sales director of Shanghai Shibang.

The Chinese company recently won a contract from a Sudanese gold processing company in North Kurdufan state in Sudan. The contract entails the design, construction and maintenance of the production line, he says.

Though most of mining activities in Africa are focused on gold and diamond exploration, Cui says, there is growing demand for mining other base metals such as iron ore and copper.

Africa holds about 33 percent of the earth's mineral reserves and produces more than 63 metal and mineral products such as gold, rare earths, iron ore, copper and diamonds.

"We are seeing a flurry of activity in base metals, especially in countries such as Tanzania, Nigeria and Zambia," Cui says.

According to Cui, most of the base minerals produced in Africa are still exported without any downstream processing.

"This cuts the potential of selling more value-added mineral products in various overseas markets and also constrains profit margins," he says. "What this means is that there is a growing demand for various types of crushers throughout Africa."

African mines lack adequate machinery, technical knowledge, and qualified personnel, Cui says. The investment on exploration activity in most African mines has remained below $10 per square kilometer compared with an average of $50 per square meter in China and Australia, which shows the low degree of industrialization.

"Using high-efficiency mining machinery and mature operating procedures from China can significantly improve the output and reduce profit losses," says Wang Lijie, a professor at the China University of Mining and Technology in Beijing.

"From a long-term perspective, African governments can use the money realized from mining investments on other sectors as it will help create jobs and help build an industrial chain in a smart way."

Shanghai Shibang has already delivered crushing equipment to Nigeria, grinding machinery to Angola and sand-making machines to Zambia. The company's African presence is spread across 15 countries, and its revenue in the continent stood at $41 million last year.

The company expects its sales revenue in Africa to reach $58 million this year. Currently, African business accounts for 25 percent of its global operations.

According to Cui, the company plans to establish new regional sales offices in Kenya and Algeria next year to tap local business. The company already has an office in Accra, Ghana, that focuses on West Africa.

Despite Africa experiencing a process of industrialization and urbanization, its overall industrial foundation and ability are still weak, he says. African governments have realized that quality infrastructure is the best bet for the continent to attract foreign capital and talented people.

Cui says many people in East Africa are keen to buy construction machinery such as impact crushers, mobile cone crushers and sand washers to become small contractors for big projects carried out by local or Chinese construction companies.

Kenya's 2010 constitution has introduced fundamental changes in the management of public finances, and given more financial autonomy to provincial governments to undertake projects for improving the economy and infrastructure. As a result, work on building new roads, highways, and even small airports is rapid in Kenya.

Ghana has also adopted polices to encourage private investment in building roads and bridges, and sweetened the process further through favorable tariff policies for construction machinery.

Thanks to political stability, advanced port facilities and relatively well-developed logistics firms, Kenya and Ghana have become major regional markets for construction machinery makers.

"Most of our clients have deep pockets and like value-added services, and we want to bring the entire gamut of our products to them," Cui says. "This will not only help add customers, but also draw more companies and rich individuals to our brand."

The construction machinery business in Africa is unusual in that manufacturers are required to deliver goods to buyers much earlier than anywhere else, usually two months before the project begins. This, however, puts a lot of pressure on machinery makers' cash flows.

Shanghai Shibang has set up direct-service platforms for its customers and often sends them the latest product information, while specialists in different places offer tips on saving fuel, maintenance and replacing component. The company has three warehouses, in Accra, Lagos and Nairobi, where spare parts are stored.

Bai Xuefeng, director of the trade department at China Chamber of Commerce for Import and Export of Machinery and Electronic Products, says Chinese infrastructure equipment makers are set to gain the most from the infrastructure boom in Africa, especially as competitive prices, localization and alliances with key market movers are key to success.

Africa is now the second-largest overseas project contracting market and fourth-largest overseas investment destination for China. Chinese mining companies have also made considerable progress in mining investment projects across South Africa, Zambia, Angola, the Democratic Republic of the Congo and Sudan.

Considering China's strong presence in Africa and its expertise in infrastructure project development, mining and refining of various metals, Cui says partnerships with Chinese construction companies will be mutually beneficial.

To further expand its sales channels, the company is also working with large state-owned enterprises such as China Minmetals Corporation, China Communications Construction Co, China Road and Bridge Corp to increase its presence in Africa.

zhongnan@chinadaily.com.cn

(China Daily Africa Weekly 12/20/2013 page20)