China’s burgeoning economy is demanding more and more natural mineral resources whether it is oil, copper, nickel, gold, and so on. Looking further into the future, the demands of China’s more sophisticated diets means that imports of food will be increasing as well
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There are some key forces both pushing and pulling China into Africa. First, China now has the world’s largest amount of foreign reserves, exceeding US$3 trillion, more than twice that of Japan and far larger than most other countries. Up to now a large portion of these reserves have gone into U.S. government debt but increasingly China is finding the necessity to diversify those reserves because of the growing precarious situation with the U.S. Dollar and concerns about U.S. government debt.
At the same time, China’s burgeoning economy is demanding more and more natural mineral resources whether it is oil, copper, nickel, gold, and so on. Looking further into the future, the demands of China’s more sophisticated diets means that imports of food will be increasing as well. In both areas, minerals and food, Africa has great promise. It is well known that Africa is rich in a wide variety of minerals from oil to copper. Africa’s vast amount of land could fit the entire land mass of not only China but also India, the United States, Mexico, France, Italy and a number of other countries. Besides land, and more importantly, Africa has huge resources of water essential for bountiful harvests.
China’s attraction to Africa is clear. Africa is also attracted to China - China is a developing country demonstrating a successful growth model and this is an opportunity for African leaders to learn from them. China has the money to import Africa’s resources and the money to help build Africa’s urgent need for infrastructure: roads, railroads, ports, electric power systems, and so on.
In 2000, the Forum on China-Africa Cooperation (FOCAC) was established to enhance economic and trade cooperation. Trade has expanded rapidly, moving from US$12 million in 1950 to over US$120,000 million now. China is now Africa’s largest trading partner and, surprisingly, China has a trade deficit with Africa, importing more than it exports to Africa. Visit any shopping center in any country in Africa and it is clear that China is flooding Africa with consumer goods as well as machinery, automobiles and electronic items.
80% of Africa’s exports to China are raw materials like oil but increasingly it is also manufactured and agricultural such as Egyptian oranges, South African wines, Ghana’s cocoa beans, Ugandan coffee, Tunisian olive oil and more. In order to promote that trade, China has bilateral trade agreements with 45 African countries, a number of which now have zero tariff preference with China.
In addition to trade, investment from China into Africa has also surged. In the six-year period ended 2009, investment increased from US$490 million to US$9.3 billion in 49 African countries in mining, manufacturing, construction, tourism, forestry and fisheries. China has also made efforts to protect its investments by signing bilateral agreements, which it has done with 33 African countries so far. A China-Africa Development Fund has already been created to invest in African equities. That fund has reached US$1 billion by investing in over 30 projects in agricultural, machinery or manufacturing industries such as electric power and mining. Plans call for the fund to expand to US$5 billion.
China is also promoting economic and trade zones in Zambia, Mauritius, Nigeria, Egypt and Ethiopia where companies can establish manufacturing and trading operations with appropriate infrastructure and certain government concessions. So far over US$600 million has been invested in such zones, creating more than 6,000 jobs.
In as early as the 1970s, China was helping build infrastructure projects in Africa. Projects include the 1,860 kilometer Tanzania-Zambia railway, 58,000 square meters Cairo International Conference Center and over 500 other projects such as a highway in Somalia, a harbor in Mauritania, a canal in Tunisia, a National Stadium in Tanzania and many others. China has also made preferential loans amounting to over US$10 billion to finance projects for airports, housing and hydropower plants.
The Chinese government has always supported African countries in their effort to reduce their debt, which has helped relieve their burden of debt to China. From 2000 to 2009, China canceled 312 debts of 35 African countries, totaling 19 billion Yuan. That demonstrates China’s determination to help Africa develop, and to help Africa reduce the debt it owes to other countries.
With that kind of flow of money, banks have followed. The China Development Bank, Export-Import Bank of China, Industrial and Commercial Bank of China, Bank of China and China Construction Bank are all now active on the continent. China has also supported the African Development Bank and the West African Development Bank by injecting funds, cancelling debts and establishing funds for specific projects.
Tourism is growing as well, with over 300,000 Chinese tourists visiting Africa each year. African airlines have direct flights to China and a number of Chinese airlines have direct flights to Africa.
All of this trade and investment is not without problems. Like other countries around the world, there have been scandals, corruption and disputes such as a Chinese infrastructure project in Algeria mired in a bribery scandal or arbitrary seizure of property in Zimbabwe, among other issues.
There is no denying, though, that capital markets in Africa are developing rapidly. We have been investing in South Africa for many years and its stock market is one of the world’s most sophisticated. In our frontier market funds, we have been active in countries like Kenya, Ghana, Mauritius and others. Nigerian companies now constitute the largest portion of those frontier funds which now have assets of over US$1 billion and growing. We expect to expand even further in Africa and invest in many more countries. For investors from China or anywhere else, for that matter, seeking high growth and new opportunities, the future is certainly in Africa.
Mark Mobius , June 2011
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