On the frontline of development

Investment from Chinese companies helps Africa in its quest to become a major goods producer

Chinese companies have a key role to play in ensuring sustainable development in Africa and in helping the continent tackle challenges such as poverty and unemployment, experts say.

Buoyed by Africa's ability to provide new markets and sustain growth, a growing number of Chinese companies are now expanding their footprint across Africa, particularly in Kenya, Zambia, Malawi and Nigeria.

China-Africa trade amounted to $198.49 billion in 2012, a 19.3 percent growth over 2011. Bilateral trade between the two sides for the 10-month period between January and October in 2013 was $172.83 billion, a 5.5 percent increase over the same period in 2012, says data provided by the Ministry of Commerce. During the same period, China's investment in Africa rose to $2.54 billion, a 71.6 percent growth over 2012.

Justin Yifu Lin, former chief economist at the World Bank, says that industrialization and modern agriculture will get a major fillip in Africa due to the growing presence of Chinese companies on the continent. At the same time, the African experiences will help Chinese companies in their quest to move up the value chain, he says.

Most of the sub-Saharan African economies are poor not because they do not know how to consume, but because they do not have the requisite production capacity, both human and physical, Lin said in his remarks at a forum hosted by the China-Africa Business Council in December.

Though many African countries such as Kenya, Angola, Ethiopia and Ghana have gained fast economic growth and confidence, Lin says, others still face uncertainties due to their economic background and the challenges of having a singular economic structure.

As a result of the singular economic structure, it is not uncommon to see African nations that are excessively reliant on exports of agricultural and natural resources such as grains, tea, copper, oil and timber. But it is ironical that these nations do not have any say in the actual pricing process, Lin says.

"To tackle this issue, Africa must go through the same industrial transformation that China did three decades ago," he says. "In time, Africa will also become a major goods producer by building its own manufacturing system, rather than just being a shipper of raw materials to different foreign destinations.

"More Chinese companies will move their factories to Africa and help upgrade the continent's technological capability during this long-term transition."

The Beijing-based China-Africa Business Council, which represents the interests of more than 550 Chinese companies in Africa, says that most of its members are keen on investing in agriculture and manufacturing businesses, such as sisal and cotton planting, steel, cement, electronics products, textiles and clothing, and car assembly lines, rather than resources industries in Africa.

China-Africa Development Fund, the nation's largest equity fund focused on Africa, is expected to raise another $2 billion this year to help more Chinese companies to invest in Africa, especially in the continent's agriculture and manufacturing sectors.

Chi Jianxin, president of the CAD Fund, says more Chinese companies are now looking for alternate investment options in Africa, rather than just infrastructure projects such as roads, bridges, ports and cement plants.

The fund, which became operational in 2007 with a target of raising $5 billion, raised $1 billion in the initial phase and another $2 billion through the China Development Bank in 2012.

"With a huge pool of young talent and abundant natural resources, African countries offer good opportunities to capitalize on high prices of both international agricultural products and commodities," Chi says.

With agriculture seen as crucial for stable development and poverty reduction efforts in Africa, the CAD Fund had so far provided financial assistance or formed joint ventures in a number of agriculture or related projects, including grain processing in Mozambique, sisal production in Tanzania, cotton planting in Malawi, and grain planting and poultry in Zambia.

The fund will also work with Shanxi Tianli Enterprise Group Corp on a $60 million cotton-planting project in Madagascar later this year. The CAD Fund and China Development Bank will invest $12 million and $20 million, while Shanxi Tianli will provide the balance.

China's direct investment in African agriculture has risen from $30 million in 2009 to more than $82.47 million by 2012. Investment by Chinese companies in African agriculture has helped increase grain supplies in the countries concerned and raised the agricultural productivity of more than 18 countries.

Unlike China's financial or construction project aid to Africa, the CAD Fund doesn't allocate projects by countries. It operates independently through market-based mechanisms and bears risks on its own. The fund can also engage in new projects, share in buying, mergers and acquisitions of expanding and mature enterprises, and venture capital.

The fund recently signed a cooperation agreement with Shandong-based Shankou Steel Pipe Group for a project in Africa. The CAD Fund and the steel pipe producer will jointly build a welded pipe-processing plant in Ghana to take advantage of the growth opportunities in West Africa's energy, logistics and infrastructure markets. The pipe plant's annual capacity is expected to hit 250,000 metric tons, including welded pipes, rebars, wire rods and other products.

The CAD Fund has invested $2.7 billion in 75 projects in more than 30 African countries, including cement and glass factories in Ethiopia, a heavy-duty truck plant in South Africa, a container port in Nigeria and a power plant in Ghana.

More than 700,000 people have benefited directly from the CAD Fund in Africa, and its investment has contributed more than $1 billion in tax revenues to different African governments and $2 billion in goods for export every year.

Chen Lin, president of Beijing-headquartered Chuanbei Group, which conducts infrastructure and mining businesses in Gabon, says Africa has abundant natural resources, and a friendly investment environment.

"Gabon is keen on welcoming more Chinese companies as it believes that a well-developed infrastructure system can help attract more foreign investment," Chen says.

Chuanbei started its sojourn in Africa three years ago by building an urban residential housing project in Gabon in 2011, and later moved to oil exploration. Chen's new plan is to build a cement plant in Gabon for local sales and self-supply this year, and enter the real estate markets in Benin and Liberia over the next three years.

Liu Daiwen, chairman of China Hyway Group, a company that has businesses spanning several industries such as construction, mining, manufacturing, furniture and steel in Mozambique, Angola, Guinea and South Sudan, says some Chinese companies, especially small and medium-sized ones, are concerned about expanding in Africa as they are not familiar with African languages or laws.

"When in Rome, do what the Romans do is the phrase that I often tell Chinese entrepreneurs keen on doing business in Africa," Liu says adding that, "they need to let Africans know that they can bring in capital, build big infrastructure projects and create employment opportunities across various destinations in Africa."

Liu says employing local lawyers and translators or interpreters can help small and medium-sized Chinese companies win more local support and accelerate the pace of localization.

To help more Chinese companies in Africa, the All China Federation of Industry and Commerce and the Ministry of Commerce are drafting a plan to train Chinese staff selected from state-owned and private companies to learn languages, African business regulations and related laws through designed courses to handle future work in Africa.

Contact the writers at zhongnan@chinadaily.com.cn and liaoxue@chinadaily.com.cn

(China Daily Africa Weekly 01/10/2014 page14)