African agribusiness to benefit from rising Chinese presence
China’s rising presence in Africa will have a big impact on food prices, land prices and agriculture on the continent. That’s according to Alex Pestana, investment strategist at Sanlam Investment Management, speaking at the Second Annual African Cup of Investment Management in Cape Town.
Pestana says agribusinesses could enjoy significant benefits as a result. China is currently the sixth largest investor in Africa. China-Africa trade increased to US$120-billion last year, from negligible levels in 1999. Pestana says China’s interest in Africa is deliberate, and has specific emphasis on Africa’s arable land. He says only 15% of sub-Saharan Africa’s potential arable land is currently being used for agriculture.
“Given China’s growing urbanisation; increase in life expectancy; rising incomes and its limited resources as a result of the desertification in China, prices for agricultural products will undoubtedly rise, and food security will become important.” Pestana says China is urbanising at a rate of 24 million people a year.
At the same time, the consumer as a percentage of the Chinese economy is forecast to grow from 35% today to 50% by 2025. “That will have an impact on the consumption patterns in China. As the Chinese become wealthier, higher income will translate into higher food needs. So a more intense form of agriculture will be required to feed the huge population.”
As a result, China has built 20 agriculture technical demonstration centres in Africa today. It has also sent 50 agricultural technical teams to the continent. Pestana says other industries that will, and have, benefited from China’s presence in Africa are luxury goods, tourism and travel, durable goods, top brands and commodities. Base metals such as iron ore and copper have been in particular demand from China. Currently some 80% of South Africa’s exports to China are commodities. As an example, China consumes 62% of the world’s iron ore supply. But Pestana warns that a significant slowdown in China’s growth would have a big impact on commodity prices.
China has also developed a new model wherein it offers concessionary loans to the continent. While there are few conditions attached to these loans, a large portion of the repayment of the loan is expected to be channeled to Chinese contractors operating in the country. This model has led to criticism of China’s role in Africa, most notably because it fails to create jobs for locals. Pestana says, “China also doesn’t really pay heed to environmental issues, there are low safety standards and a low transfer of skills.”