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Africa remains a favoured investment destination for Chinese firms

Africa remains a very important and strategic investment destination for the approximately 2,000 Chinese companies operating on the continent even as the Asian economic powerhouse shows signs of an economic slowdown, according to Standard Bank.

“When Chinese firms consider investment destinations around the world, Africa is always top of mind,” said Dr George Fang, Standard Bank’s Beijing-based head of Mining and Metals in Asia. “Africa is usually among the first destinations that are considered by Chinese companies that are looking to expand internationally, not only because of its abundant natural resources but also because of its rich cultural heritage, which in many ways is more similar to Chinese custom than that of the Western world.”

China is still unquestionably Africa’s largest single trading partner, with Standard Bank research estimating Sino-African trade to have reached US$210bn in 2013, up 6% from the $198bn figure that prevailed in 2012. Chinese imports from Africa, which largely comprise hard commodities, reached approximately $115bn last year while Chinese exports to Africa totalled about $94bn, according to Standard Bank data.

Despite China’s official Purchasing Managers Index (PMI) slipping to a six-month low of 50.5 in January, Standard Bank still expects the Chinese economy to expand by 7% in 2014. That follows economic growth of 7.7% in each of the preceding two years.

Fang says this slowdown is partly due to China’s government placing greater emphasis on more sustainable economic expansion, rather than simply chasing growth for its own sake. Although the global economy has undergone a fundamental paradigm shift since the 2008 financial crisis, Africa remains an important strategic partner for China going forward, he argues.

“The economic ambitions of Africa are ultimately the same as those of China – to open up new worlds of opportunity for its people,” said Fang. “When China visits countries in Africa it creates partnerships and investments, it doesn’t leave a vacuum behind.”

Data from the Information Office of the Chinese State Council shows that China’s cumulative investment in Africa more than doubled from $9.33bn in 2009 to $21.23bn in 2012. Standard Bank estimates that China has loaned African governments between $30bn and $40bn, the bulk of which has been used to improve infrastructure on the continent.

Some recent examples of China’s involvement in Africa include China National Petroleum Corporation’s acquisition of a stake in Mozambique’s offshore natural gas fields, China National Gold Group Corporation’s investment in the Republic of Congo, China National Nuclear Corporation’s acquisition of a stake in a Namibian uranium mine, and the Chinese-invested iron ore project expansion in Sierra Leone.

China also played a very active role at last year’s BRICS Summit in Durban, which saw the establishment of the Multilateral Infrastructure Co-Financing Agreement for Africa, thereby paving the way for the establishment of co-financing arrangements and investments for infrastructure projects across the continent.

“The economic futures of Africa and China are fundamentally intertwined,” said Fang. “Africa’s rich natural resource base coupled with its emergence as one of the world’s fastest growing economic regions suggests its importance to China is only likely to increase over the coming years.”

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