$2 billion booster for development projects

Chinese companies get funds backing to diversify investment in African industry

The China-Africa Business Council and the China-Africa Development Fund have decided to set up two new funds this year to boost China's investment in Africa. One fund is for commercial ventures, the other for mining activities.

Zheng Yuewen, chairman of CABC, which represents the interests of more than 550 Chinese companies in Africa, says each fund will raise $1 billion in its initial phase from member companies and the CADFund, China's largest private equity fund focusing on African investments. Offices for the funds will be established in Beijing this month.

"China has been looking to invest in different ways in Africa, instead of focusing only on building infrastructure projects such as roads, bridges, ports and stadiums throughout the continent," says Zheng.

The changing global investment environment and the lingering debt crisis in the eurozone have prompted major economies such as the United States, the United Kingdom, France, India and Japan to shift their investment focus from traditional markets in Europe and Asia to Africa.

Additionally, Africa's ambitions for urbanization, commodities, jobs, new overseas markets, and improved manufacturing, trade, services and resource sectors, has presented unprecedented business opportunities to foreign investors.

"African countries have good opportunities to capitalize on high international commodity prices, their young energetic labor force and abundant resources," Zheng says.

"They also can take advantage of the global investment trend to seek solutions to poor levels of infrastructure, high unemployment and poverty by accelerating transformation through commodity-based industrialization.

"The continent can go through the same industrial transformation as China did three decades ago, and in time it will become a major goods producer, rather than just being a shipper of raw materials to different foreign destinations."

Zheng says that during this long-term transition, more Chinese companies will move their factories to Africa and help upgrade the continent's technological capability.

To further strengthen cooperation with Africa, the Chinese government has consistently encouraged state-owned and private companies to invest there.

It has also supported the African Development Bank and the West African Development Bank by injecting funds, canceling debts and establishing joint funds for a number of manufacturing and construction projects.

China-Africa trade stood at nearly $200 billion last year, while Chinese investment in Africa has reached $17 billion, according to the department of African affairs at China's Ministry of Foreign Affairs.

In December 2012, CABC surveyed the 198 member companies that had established a presence in 32 countries across Africa. With 34,000 local employees and 6,400 Chinese workers, the companies had trade relations with 51 African countries and $2.4 billion in sales revenue last year, representing about 16 percent of their total business revenues.

The 198 companies, including Chongqing-based automobile producer Lifan Group, Guangdong shoemaker Huajian Group and power supplier Shenzhen Energy Corporation, have so far invested $1.1 billion in the 32 African countries and have plans to invest an additional $5 billion over the next three years.

He Jingtong, a professor of economics at Nankai University in Tianjin, says as China readjusts its industrial structure and economic growth slows down, an increasing number of Chinese companies are targeting Africa to reduce the heavy dependence on domestic consumption.

"Under the current international trade environment, for Chinese manufacturers, carrying out export business to Africa requires a new business mode rather than simply pushing goods onto container ships and selling them in different African destinations," He says.

As tariffs increase and profit margins shrink, Chinese companies are seeking new methods to enter the African market, including forming joint ventures with local mining companies or government utilities, and establishing complete knock-down assembly plants, where equipment is shipped in parts and assembled locally, and materials purchased locally.

Zheng says CABC found that its member companies are more inclined to put their money into manufacturing businesses such as steel, cement, electronic products, textiles, and clothing and car assembly lines, than resources industries.

"Chinese companies should decide what kind of industrial sectors African governments urgently need, or which industries to treat as a priority, then it can be easy to complete all the official procedures before getting down to the real work," he says.

Around 80 percent of CABC's members are private companies with the rest state-owned enterprises.

Chi Jianxin, president of the CADFund, says: "In contrast to state-owned enterprises, whose African sales are largely based on huge infrastructure projects, private-sector Chinese companies are more sophisticated in processing local products like cotton and leather into manufactured goods such as garments and shoes."

Chi adds that although logistics costs remain high in Africa, preferential tariffs for African exports to developed markets, low labor costs and favorable investment policies can make up for this.

More than 700,000 people throughout the continent have benefited from the CADFund over the past six years. Its investment now contributes $1 billion in tax revenues to different African governments, and funds the export of some $2 billion worth of goods each year.

The latest China-Africa ventures include a partnership between Chinese cement producer Tangshan Jidong Cement Co Ltd and household appliance manufacturer Hisense Group, who have built a cement plant with 1 million tons annual production capacity, and a home appliance factory that will be operational in South Africa this month.

Elsewhere, a cotton industrial park in Tanzania and an iron mine in Liberia will be launched in the second half of this year.

Robin Mwanga, business information executive of Malawi's national investment and trade center, says the pace of economic growth in Africa has been boosted by improved public spending management, an upturn in commodities, regional integration of trade within Africa, and market liberalization.

"On the other hand, African governments are also keen to have more Chinese companies set up manufacturing facilities in their countries," Mwanga says. "Nations such as Malawi, Nigeria, Tanzania and Ethiopia now are investing more in vocational education, and building roads and power stations to attract more Chinese investors to stimulate the local job market."

zhongnan@chinadaily.com.cn