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China’s investment in African resources rising

World Coal,

According to Standard Bank, China’s investment in African resources remain at a relatively early stage but this is likely to increase further over the next decade.

Dr George Fang, Standard Bank’s Beijing-based Head of Mining and Metals in Asia, said: “Africa is an increasingly important priority for Chinese companies looking to invest in the continent, especially those with a strategic interest in metals and mining and related infrastructure, such as power, road, railways and ports. Over the next five to 10 years we’re likely to see even more investment by Chinese firms looking to tap Africa’s resource superstructure, as well as other sectors”.

China’s economy grew 7.4% in 2014, the slowest pace in 24 years, and down from a five-year average of approximately 10% as the nation’s property market cooled and institutions ranging from state-owned companies to local governments were weighed down by debt. Standard Bank says China is transitioning from a high-growth phase, driven by abundant capital and cheap labour to a more mature phase in which continued growth will depend on gains in productivity and increased business efficiency. These will in turn be underpinned by ‘creativity’ and ‘innovation’ in the way Chinese companies and state-owned enterprises conduct business within the trade route and across Africa.

Although China’s demand for commodities will slow in coming years as the economy continues to consolidate at a “new normal”, Dr Fang believes the country’s outbound foreign direct investment (OFDI) is likely to increase as Chinese companies continue to secure mineral assets.

“China is going to become an increasingly important capital exporting country in coming years, which is likely to drive further investment in African mining”, he said. “In line with outbound FDI growth, Chinese companies’ outbound merger and acquisition activity has experienced rapid growth with a compound annual growth rate of over 33% since 2004”.

While China’s state-owned-entities have led this investment, an increasing number of private enterprises are taking part in the OFDI boom, accounting for no less than 37% of the total non-financial OFDI in 2013. Private and state-owned enterprises from China are adapting to regional dynamics across the continent. For example, the way in which enterprises partner with local technical specialists and advisors, demonstrate innovative approaches to local opportunities.

Dr Fang says Chinese institutions have significantly elevated their appetite to invest in the continent. This is evidenced by data from the Chinese Ministry of Commerce showing that the nation’s OFDI flows to Africa increased nearly eight times from US$318 million in 2004 to US$2.52 billion in 2012.

China’s lenders also remain significant lenders to projects on the continent, as evidenced by China Exim Bank’s decision in May last year to provide 90% of the US$3.8 billion project cost to construct a 609 km railway line linking the Kenyan port city of Mombasa to Nairobi, Uganda, Rwanda, Burundi and South Sudan.

“China has been rapidly expanding its global footprint via international acquisitions as it gradually evolves into a capital exporting country”, said Dr Fang. “The economic slowdown of growth in China is unlikely to hinder global commerce but is likely to unlock further opportunities for African mining and other sectors as well”.

“Chinese interests are clearly set on a path of one road, one belt and now we could add ‘one continent’”, he said. “In fact, China’s investment in Africa is already well down the road and it is not just about resources”.

Adapted from a press release by Emma McAleavey.

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