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Friday, 15 December 2017

Ancient traders together

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  • Ancient traders together

Chinese investment in Africa has been steadfast while in recent years other nations focused on problems at home. A relationship forged around commodities to fuel the fires at home has broadened, but critics fear the benefits come at a high cost.

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As the world recoiled from the financial crisis, a well-known economic weekly published a jarring front cover. The headline – “How China sees the world” – was a reaction to the post-Lehman carnage, wedded to Beijing’s active determination, in the form of a US$600bn stimulus package, to avoid a recession of its own.

In the cover image, child’s-cartoon simple, a fissure ran down Wall Street. Foreclosure signs dotted the American landscape. Europe was praised faintly as the producer of Hermes and Prada handbags – and little else.

But the most arresting symbolism was Africa, represented as a scattering of oil derricks and mineshafts. The message was clear. To Beijing, Africa was merely a giant natural resources warehouse, a strip of earth containing all the minerals and energy a rising superpower needs.

Nor has this notion changed much since. Chinese oil and gas majors such as Sinopec and CNPC continue to gobble up energy reserves from Ghana to Mozambique. Beijing usually arrives armed with funding and its own Mandarin-speaking construction crews, who build rail lines and highways linking copper mines and oil fields to the coast. Some even build new ports, allowing supertankers to ship the ore and oil home.

Plus China doesn’t peck-and-pester the way the West does, tying development capital to transparency and human rights. The latter is important, but African leaders tend, understandably, to resent being lectured before being handed their pocket money.

By contrast, Hu Jintao, the former Chinese president and a regular visitor to the continent, announced a US$20bn African investment package in July 2012 at the opening of the Forum on China-Africa Cooperation in Beijing. Hu pointedly reiterated a “non-judgemental” approach to business, noting that China “wholeheartedly and sincerely supports African countries to choose their own development path”. He also decried the “practices of the big bullying the small”.

Some Africans have grown weary and resentful of their increasingly unbalanced relationship with yet another powerful, resource-hungry nation. Chinese manufacturers, generously subsidised by the Chinese state, flood local markets with low-cost produce. African manufacturers, disorganised and lacking government support, cannot compete, forcing many out of business. In March 2013, the respected Nigerian central bank chief Lamidu Sanusi spoke for many when he described China’s activities in Africa as akin to “colonialism”.

Accelerating investment

Yet such concerns have not slowed the pace of inward Chinese investment – quite the opposite.

“We don’t think China’s investment in Africa will slow,” said chief ANZ China economist Li-gang Liu. “To the contrary, investment will only increase because the African markets have become more important to China.”

Benoit Anne, head of emerging market strategy at Societe Generale, said that China is very clearly “going to stay committed to investing in Africa” in the long term.

According to the US Congressional Research Service, Sino-African trade in 2011, the latest annual figures, was worth US$127.3bn, up from just US$8.9bn in 2000. Two development lenders, China Import-Export Bank (Chexim) and China Development Bank have become key lenders in Africa to both Chinese and African corporates. Chexim alone has pledged to channel US$20bn into Africa in the three years to end-2015.

Ripe for development

Look deeper and a more nuanced relationship reveals itself, one in which parity between China and Africa, two of the ancient world’s great traders, is closer than you think.

For one thing, Chinese investment across Africa is becoming increasingly diverse. Beijing will import African copper and coal for decades to come, certainly until its urbanisation drive runs its course. But some of the more eye-catching deals in recent months have come in sectors far removed from energy and resources.

In early August, Chinese conglomerate Perfect China agreed to buy a majority stake in Val de Vie, one of South Africa’s leading wine estates. Founded in 1994, Perfect is a conglomerate spanning everything from barcode machines to skin care. Yet its first investment in Africa wasn’t in the resource sector, or in soft commodities (China has become a major buyer of foodstuffs, including palm oil from Ghana and Gabonese peanuts) but in wine, the ultimate upscale consumable.

China’s urban elite is now a class of wine-lovers. Yet a recent spat with the European Union involving solar panel pricing led Beijing to threaten the imposition of stringent tariffs on imported EU wine. Both Brussels and Beijing backed off, but Perfect’s deal, which includes a pledge to invest in new production at the Cape Town estate, came as Chinese wine distributors start looking for investments outside France and Italy.

Then there’s the financial services space. Beijing’s largest lender, Industrial & Commercial Bank of China, has owned 20% of South African lender Standard Bank since 2007. Since then ICBC has bought its partner’s Argentine retail banking operations and, in early August 2013, announced it was in talks to buy a majority of Standard’s UK operations. Also in August, Johannesburg-based Nedbank, Africa’s fourth-largest lender, tied up a joint venture with Bank of China.

Not all is sweetness and light on a continent whose original name, Ifriqiya, means “sunny place”. The charges of colonialism have stuck: after Nigerian central bank chief Sanusi’s comments, the speed with which incoming Chinese president Xi Jinping embarked on a six-nation African goodwill tour was telling. Mainland workers, blamed in many countries for taking African jobs, have been hounded, most recently in Ghana, following a crackdown on illegal Chinese-run gold mines.

Sino-slowdown

Then there’s the spectre of a long Chinese economic slowdown. While Africa’s economy continues to roar, China’s has sagged. A mini-stimulus package in mid-2013, aimed squarely at struggling state-owned enterprises, will likely boost third-quarter growth figures. But this is merely papering over the cracks, said Neil Shearing, chief emerging markets economist at Capital Economics in London. For the first time, GDP in the People’s Republic is slowing on a systematic basis. State officials say GDP is growing at between 7%–8%; independent economists put the figure below 6%.

China’s new leaders appear determined to let the economy slow to a manageable level, while seeking to boost both consumption and production at home. That, said Peter Attard Montalto, chief emerging markets economist at Nomura, may well trim Chinese investments overseas, including in Africa. “Investment by Chinese companies is likely to slow this year” versus last year’s figures, he said. “You’re already seeing fewer new Chinese natural resources projects coming on-stream in Africa this year. As GDP slows in China, this process will continue.”

Then there’s the US. George W Bush was seen as a good friend to Africa: the former president re-authorised the African Growth and Opportunity Act, a trade pact between the US and Sub-Saharan Africa originally signed into law by Bill Clinton, and remains a regular visitor to the continent.

But under his successor, Barack Obama, America has neglected Africa. A three-nation tour in June was only the current president’s third visit to the continent. In his first term in office, he spent just 20 hours on African soil: a flying visit that included sleeping. During that four-year period, former Chinese president Hu crisscrossed Africa seven times.

Goodwill tours may not always translate into hard-nosed commerce, but the data doesn’t lie. China overtook the US as Africa’s leading trading partner in 2009. Within two years, American trade with Africa, at US$94.3bn, had fallen to three-quarters of China’s total.

Obama’s recent tour has been described in some quarters as too little too late. China is playing the long game in Africa, said SG’s Anne, remaining “heavily involved in long-term foreign direct investment” in sectors from mining to resources to, in recent months, advanced products like luxury goods and financial services. European and US investors meanwhile “look at shorter-term portfolio investment strategies”, he said, mostly in the equity and debt markets.

Not all is lost. African and Chinese cultures are chalk and cheese, and businessmen from Durban to Dakar retain stronger ties at all levels – financially, educationally, culturally, politically – with a reinvigorated America and an improving Europe than they likely ever will with the People’s Republic.

A few African governments, including Ghana’s and Zambia’s, have even begun pushing back against Beijing’s full-court press. And Obama, for all his ambiguity about Africa, is likely to reaffirm Agoa in 2015, giving African exporters continued duty-free access to the US market. China may still be the rising star in Africa, but its continued ascent is far from ordained.

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