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AFX, June 2007
Growing China-Africa investment targets energy, raw materials

BEIJING (XFN-ASIA) - China's rapidly growing trade and investment with Africa will figure increasingly in the global trade mix as Africa supplies China's thirst for energy and raw materials, said the founder of a Sino-African business organization.

"There's more pragmatism, more business focus in how China engages in foreign policy. I wouldn't say China's interest in Africa is newfound, but an old set of relationships wearing a new jacket," said Kobus van der Wath, founder and managing director of The Beijing Axis.

Van der Wath said Sino-African ties have always been strong, but have moved from a political to an economic bias over the past decade.

In the mid-1990s, then-president Jiang Zemin visited Africa and set a more modern policy and China is now putting business first in its engagement with the continent.

"China's relations with Africa entered a new phase. China's social, political and economic landscape changed for the long term, and that implied the need for more and diverse raw materials, different types of international business relationships. In that context, a new approach to Africa was necessary," van der Wath said.

He said it was clear that China saw Africa as a pipeline for raw materials and oil and this was part of its reassessment of Africa.

This includes oil and gas in refined and unrefined forms, metals and minerals, and might also include tobacco or fishery products.

"But the main focus is on energy, metals and minerals. "The travel we see (to Africa) is not an accident, it's not a coincidence. It's strategic," he said.

"If you look at other Chinese senior officials' travels to Africa -- in the NPC, the CPC, the State Council -- at all those different levels you have Africa more traveled than any other continent, and South Africa probably the most traveled country."

Africa is becoming a key supplier of base metals to China.

"China imports around 60 pct of its copper needs, and the copper belt around Zambia, the Congo and South Africa is renowned for its endowments. Also, South Africa is one of the five top iron ore exporting countries in the world. I think roughly half the bauxite and alumina that goes into the production of aluminum in China is imported," he said.

Van der Wath said that increased stability in Africa has encouraged the Chinese to take a more long-term view of their investment in the continent.

"Given more stability in Africa compared to 20, 30 years ago, there's a lot of economic growth, and a lot of infrastructure development taking place. The Chinese are trying very actively to supply into those projects," he said.

"For example, in Angola, if you go and look at port development facilities, railway track, pipelines and crude oil refineries, the Chinese have the ability and technology to go design, engineer and construct these types of projects," he said.

Also, Africa's exports to China extend beyond minerals. South Africa has a sophisticated service sector and its firms sell safety technologies and information technology to China.

South African banking, asset management, credit and risk management firms are also a major source of trade.

Van der Wath said that despite the growing interest in new investment opportunities Chinese businessmen will continue to be drawn to the resources sector.

"China's capital will be guided more toward upstream investments, with heavy engineering to support that -- or general projects and design to support these raw material supply lines," he said.

And for these projects, seen as critical by China's economic planners -- Beijing was turning to its established, well-connected state-owned conglomerates.

"It's going to be driven largely by industry champions like CNOOC and Sinopec. They will be the ones that will be pushed and orchestrated to go into new markets and develop these beachheads," van der Wath said.

However, although many Chinese engineering companies are trying to get contracts in Africa a large number of them fail.

"They typically have a good solution, but they don't know how to tender," said van der Wath.

"They don't understand the issues and sensitivities in the tendering process including local content requirements and regulatory barriers, nor the safety, health and environmental rules that are typically part and parcel of tenders and contracts."

But he said China was learning.

Chinese were moving in to control mines, processing lines and port infrastructure. Engineering companies were coming to install infrastructure themselves but the practice of Chinese companies importing their own labor had caused tensions, he said.

Van der Wath said Chinese investment in Africa may seem sporadic and lacking cohesion, but the bigger picture showed a pattern.

"Moving iron ore out of the ground, overland by truck or train over great distances to a port, onto a ship, is a costly undertaking that takes a lot of time, and the Chinese are very strategically increasing their investments in Africa to improve these supply lines.

"This is no coincidence. If you don't understand something the Chinese are doing, just observe long enough and you'll begin to see the strategy," he said.