September 07,2009

China Expands Investment in South Africa and the Whole Continent

By CSC staff, Shanghai

Although trade has declined between China and Africa in the global slowdown, China still sees this as a good time to expand investment in Africa. With the help of the China-Africa Development Fund (CADF), China's large state-owned enterprises (SOEs) are entering the field of industrial infrastructure in South Africa.


South Africa is seeking business opportunities now to help firms with difficulties in financing. At the beginning of this year, it launched a three-year infrastructure investment plan, amounting to 787 billion rand (1 rand = about 0.89 yuan).


Chinese SOEs are mainly interested in sectors such as energy, transportation, information and telecommunications, infrastructure, mining, agriculture and manufacturing.


To support and encourage Chinese enterprises to invest in Africa, in 2007 China founded the CADF, with an initial investment of $1 billion, to establish three to five trade and economic cooperation zones. CADF has cooperated with a number of large domestic firms, including Sinosteel Corporation, China National Building Material, and Hainan Airlines, completed investment decision-making for more than 20 projects, and invested over $500 million of its own while promoting investment of more than $20 billion by Chinese companies. In March, China and South Africa signed a framework agreement. The South Africa branch of CADF looks for Chinese enterprises to invest in Africa and is providing assessment for financing in power and alternative energy-related projects there.

It is expected that by the end of this year the total investment CADF has committed will reach $700 million, and the actual investment will total about $300 million. Li Jiping, vice-president of China Development Bank, said in an interview that CADF has plans to raise $2 billion for expanding business links in China and Africa.


Pumla Ncapayi, Director of Export Promotion for the South African Ministry of Trade and Industry, said that his department has close ties with CADF's other activities and programs in South Africa. "We believe that the role of investment in infrastructure and trade in reducing poverty and promoting regional economic development can't be overstated. In this regard, we think that CADF will play a key role."


Yunus Hoosen, director of Investment Promotion for the Ministry, says, "We have special financial support, and our development banks cooperate with Chinese banks. Therefore, projects approved by CADF can be financed quickly."


Sinosteel Corporation is the largest Chinese firm in terms of investment volume in South Africa at present, and last year committed to add new investment of $400 million in Limpopo Province. Last year, China Industrial and Commercial Bank acquired a 20% stake in Standard Bank of South Africa. In July this year, China Construction Bank signed a strategic cooperation memorandum with First Rand Bank, the second-largest banking group in South Africa. Shenzhen Huaqiang Holdings Limited, CADF, and the South African Industrial Development Company plan to join hands in investing $250 million for the establishment of a theme park covering 770,000 square meters. CADF also supports power generation projects and vehicle programs.

The trade volume between China and 53 countries in Africa reached $106.8 billion in 2008, exceeding $100 billion for the first time. Due to the international economic situation, Sino-African trade declined in the first six months to $37.07 billion, down 30.5%, year-on-year.


According to the Ministry of Commerce, China's 2009 direct investment in Africa totals $552 million, up 81%, year-on-year. By the end of 2008, China's direct investment had reached nearly $50 billion. Currently, there are over 1000 Chinese enterprises approved or filed with the Ministry of Commerce operating in Africa in many fields such as trade, production and processing, resource development, transportation, agriculture, and comprehensive agricultural development.

The Ministry of Commerce says that African countries lack building funds due to the financial crisis, so the cost advantage of Chinese enterprises has become prominent. In the first six months of this year, new labor contracts signed by Chinese enterprises in Africa reached $ 22.45 billion, and the completed turnover totaled $11.53 billion, up 25% and 61.1%, respectively. "Since the founding of the China-Africa Cooperation Forum, China-Africa trade has contributed 20% to African economic growth," said He Wenping, director of Africa Research Center of Chinese Academy of Social Sciences.

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