Chinese investments in Africa increase opportunities

Last week, the founder of the consultancy group Beijing Axis touched on a phenomenon occurring in South Africa that is being replicated across the African continent.

“Far more Chinese companies are doing deals very quickly … What is to follow will be far, far greater,” Kobus van der Wath said of Chinese investment at the African Mining Congress in Johannesburg.

The Beijing Axis is a cross-border firm registered in South Africa that provides management consulting and international trade solutions to organizations with a China-Africa agenda.

However, in many Africa-related business cases, the West is absent. A report released by the U.S. Chamber of Commerce in May found that U.S. firms deemed the level of risk in Africa unacceptably high.

But where the West sees risk, China sees opportunity. Africa has provided the highest return on foreign direct investment of any region in the world with an average of 31 percent for two years straight, said a report released at the 2008 U.N. Conference on Trade and Development.

And as a result of China’s explosive growth, Africa has an opportunity to reduce its dependence on traditional trading partners such as the United States and the European Union (EU), said Michael Kulma, an expert on China’s economy at the Asia Society.

“If you look at Africa and China’s trade pattern, the numbers suggest that China and India combined make up about a third of export trade for African nations, which replaces the traditional U.S. and European relationships,” Kulma told Xinhua. “No doubt that China is gaining ground in that economic sphere.”

By importing Africa’s raw commodities, and more recently, African-manufactured value-added goods such as processed foods and household consumer goods, China has helped integrate the continent further into the global economy.

Adams Bodomo, associate professor of linguistics and African studies at Hong Kong University, wrote in a recent essay that Africa and China have entered a golden era. This era, according to Bodomo, is marked by high-level political visits and meetings, an increase in trade and the rapid establishment of African and Chinese migrant communities on both continents.

“Ten years ago, there was talk about the marginalization of Africa,” Bodomo told Xinhua during an interview. “Now, nobody talks about that.”

China’s presence has helped to “diversify the destination points for African exports and introduced greater competition while making available far cheaper manufactured imports than is usually the case,” said Ernest Aryeetey, a senior fellow at the Brookings Institute and director of the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana.

“It is not for nothing that the prices of many commodity exports from Africa remained fairly stable for the best part of the last eight years,” Aryeetey told Xinhua via e-mail.

Bodomo said all of this has presented Africa with the opportunity to funnel China’s interest into real investments in social projects.

“Africa has enjoyed a good decade of economic growth, and profit margins for foreign businesses there tend to be very healthy,” French Howard, who recently wrote an op-ed about U.S. interest in Africa for the New York Times, told Xinhua via e-mail while traveling through Southeast Asia.

“Chinese companies have … very smartly sought to expand in places where international competition is relatively weak. Africa is just such an environment.

“Having said this, Chinese business people deserve credit for understanding that Africa is a promising new stage for globalization,” he concluded.

With few U.S. firms willing to invest in Africa, Chinese state-owned enterprises have discovered an environment to conduct business with less competition.

Nevertheless, China is not immune to the risks that deter U.S. interest. However, Chinese businessmen are still involved in deals with Africa, and they are also taking preventive measures to ward off possible terrorist attacks.

In 2008, China-Africa trade volume reached 106.8 billion dollars, up 45.1 percent from a year earlier, according to the Chinese government statistics. This year, the trade volume is likely to continue to expand.

Source: Xinhua