Broader horizons

African resources may lose some sheen as Chinese investors seek wider portfolios

Chinese investment has impacted on Africa like no other continent but now it is moving into overdrive.

The country's outbound direct investment, or ODI, seems to be exceeding all expectations.

The Chinese government set itself the target of equalizing ODI and foreign direct investment, or FDI, in the current Five-Year Plan (2011-15).

But last month's Ministry of Commerce figures suggest ODI could race ahead of FDI some time this year.

The statistics show that China's ODI increased by 16.8 percent to $90.17 billion last year.

This put it only $27.42 billion behind FDI, which rose just 5.25 percent to $117.59 billion in 2013.

Ministry spokesman Shen Danyang said in January ODI could outstrip FDI into China even as early as this year but certainly within two years.

Already this year there have been a number of high profile deals. Only this week it was announced that Dongfeng Motor Group Co, China's second-largest carmaker, was buying a stake in loss making French carmaker PSA Peugeot Citroen for 800 million euros ($1.1 billion).

This follows computer giant Lenovo announcing last month that it was buying Google's Motorola handset division for $2.91 billion, although the US company in return will be taking a 5.94 percent stake in the Chinese private company.

Whether Africa will directly benefit from China's rising ODI remains to be seen.

The cumulative stock of Chinese investment in Africa rose from just $500 million in 2003 to $22.9 billion in 2012, according to The China Analyst produced by The Beijing Axis, the international advisory and procurement firm.

Last year Chinese ODI to Africa rose 144 percent from $3.2 to $7.8 billion, according to A Capital, the China-based investment fund.

During the year there were a number of high profile deals. China National Offshore Oil Corporation finalized $1.4 billion for a 33 percent stake in oil exploration interests on the shores of Lake Albert in Uganda.

Outside of the resources sector, Yangzhou-based Perfect China bought the Vale de Vie estate in the Western Cape in the first Chinese investment in South Africa's wine industry.

It may be, however, that China's increased ODI may not be all good news for Africa.

Some commentators believe that China's outbound investment will eventually move away from resources investment, which has had a dramatic impact on a number of African countries, to buying up businesses in the technology and consumer sectors in Europe and the United States.

China's resources ODI investments increased just 7.7 percent in the first nine months of last year to $23.7 billion, compared to $22 billion in the same period of 2012, according to A Capital.

ODI investment in industry and services - many of the targets located in Europe and the US - increased by 46 percent from $12.6 billion in the first three quarters of 2012 to $17.9 billion in the equivalent period of 2013.

Andre Loesekrug-Pietri, founder and managing director of A Capital, which has offices in Beijing and Brussels, says this represents a big shift.

"Resources is no longer the big story as far as China's ODI is concerned. Far more interesting is what is happening to industry and services. This is now where China's ODI is targeted," he says.

Johnson Chng, Greater China managing partner for international management consultants AT Kearney, also believes the focus of China's ODI may change with implications for Africa.

"We also have seen this change in pattern from the largely state-owned enterprises' resources-type investment to more commercial investment not just by private enterprises but by state-owned ones too."

Chng says the Chinese companies also have a clear geographical focus of what sort of targets they will find in different locations.

"They look at Germany for high precision engineering, France and Italy for high fashion luxury goods targets and to the US for high-tech companies. They are very clear in their minds where to look for what and for what purpose," he says.

Michael Power, global investment strategist at Investec Asset Management, based in Cape Town, says what might have implications for Africa is that the Chinese may move away from making investments in mines and other resource facilities to simply buying commodities on the international markets.

"In a buyers' market, as now, you can afford to deal with the vagaries of that international market," Power says. "Five years ago when China was doing a lot of deals it was a sellers' market and coming into to Africa and owning 45 percent of the equity or whatever of a facility was a very clever way of doing it."

One of the factors that may put the Chinese off is the increased competition they face not just from Western companies but those from emerging markets such as India, Indonesia and Thailand when making investments on the continent, he says.

"Because there are more players the Chinese are not getting a clear run at it anymore. Some of the big government-to-government deals have already been done for the time being and when there is a private sector seller there is all this competition," he says.

Whatever the geographical destination of China's ODI, the size of its outbound investment is making the Chinese economy more international, according to Loesekrug-Pietri.

His company has come up with its own reference indicator, the A Capital Dragon Index, to chart the growth of China's ODI.

Starting at 1,000 in 2001, it had grown to 2,483 in the first nine months of 2013, a near 2.5 times increase.

"What essentially this means is that the Chinese economy is 2.5 times more globalized than it was just over a decade ago," he says.