Geographically, the Indian Ocean separates China from the African continent. But nothing separates South Africa, the most prominent economy of them all, from its biggest trading partner in the now famous alphabet soup, the BRICS. And now it seems the camaraderie between the two extends well beyond this acronymic fellowship to the mutually beneficial realm of bilateral trade.
The African continent, known for its vast metals and mineral resources, is of immense interest to the fast-growing economy of China. Still, Chinese interests are limited not only to resources. Huge investments have been made in units that manufacture garments as well as industrial products. South Africa, the largest economy in the region, has caught the attention of the Chinese more than other smaller African economies such as Zimbabwe and Nigeria. In fact, foreign direct investment from China in South Africa was clocked at $2.3 billion in 2009, as an FT report points out.
But the trade relations between the two economies seem to be slightly imbalanced. Huge mineral exports to China are no match for the quantum of Chinese manufactured goods that South Africa imports. China, though, appears to be making an effort to put this skewed commercial relationship onto the right track. Recently, China has agreed to pump $2.5 billion in investments into South Africa, according to a Reuters report. The latest tranche of Chinese investments also involves the participation of development banks from both economies, which will identify specific projects to be developed, according to a statement from South Africa’s Deputy President Kgalema Motlanthe reported by the Financial Times. The deputy president added that the new deal would also envision the creation of new jobs on both sides rather than just the export of raw materials. Hopefully, the monitoring of fund flow from China to Africa jointly by the China Development Bank and the Development Bank of South Africa would add to these transactions the much-needed transparency and accountability as well. Notwithstanding the effort to balance bilateral business ties, the fact still remains that China’s African safari targets two things – the continent’s vast resources and a market to sell their wares made back home.
Investments from China in South Africa are spread across various sectors such as mining, financial services, and infrastructure development. Perhaps the biggest Chinese foreign investment in the country outside the minerals sector was Industrial and Commercial Bank of China’s decision to buy a 20% stake in South Africa’s Standard Bank for $5.6 billion in 2007. Just last year, Chinese investments in the South African mining sector included China Metallurgical Group’s plan to construct an iron-titanium mine in the country. Standard Bank also has an agreement with China Railway Group to fund infrastructure and rail projects in Africa, according to a Reuters report. Along with direct foreign investments, infrastructure building by the Chinese will have a positive effect even for sectors other than natural resources. Africans stand to benefit from the cheaper consumer goods imported from China. And overall, Chinese investments have helped create hundreds of local jobs.
Though China leads foreign investments in Africa, with the figure estimated to be between $30 billion to $40 billion, its fellow BRIC economies are not too far behind in their quest for expansion. Standard Bank projects that over the course of the next decade, emerging economies will contribute 30% of the new foreign investment headed for Africa, according to an FT report. Adding to this, the contribution of emerging economies to investments in Africa was 21% in 2010, compared to 17% in 2000. India was the first to emulate China with telecom company BhartiAirtel purchasing the African assets of Kuwait’s Zain Telecom for $10.7 billion. Notwithstanding the mega deal, India already had investments to the tune of $14 billion to $20 billion in Africa, an FT report points out. Brazil comes a close second to India as it has invested between $8 billion to $12 billion, mainly in countries such as Angola and Mozambique. Understandably, mining multinational Vale and state-owned oil company Petrobras lead the Latin American foray into the deep recesses of Africa. Russia, with around $5 billion in investments, probably has the smallest piece of the investment pie in the region. Though the flow of funds from the BRIC quartet to Africa dropped last year, the extent of decline was the smallest compared to any other continent. Raking in $125 billion, small wonder that South Africa is the top recipient of BRIC investment on the continent, followed by oil-rich Nigeria with $69 billion, according to an FT report.
At a time when western economies confront fears of a renewed recession, China’s commitment to making long-term investments in South Africa is more than heartening. On their part, African governments too are eager to break bread with the Chinese, making an effort to ease the conditions for setting up business, without burdensome conditions such as environmental controls.
Yet, there is an unhappy twist to this hugely successful tale of Chinese entrepreneurship. In some African countries, China is viewed suspiciously as a “colonizer”, out to plunder the continent’s natural resources much like the European colonialists in the 19th century. What’s more, China risks damaging its own reputation as well as its economic interests in the region, by backing unpopular governments in Zimbabwe and Sudan just to further its business interests. Moreover, Chinese managers have come under fire apparently for paying little heed to local sensitivities and regulations in their business dealings. And an important flip side to this Africa economy fillip: a large number of textile-manufacturing factories across Africa have had to pull down their shutters, as they have lost the market to cheap Chinese garments.
Despite the occasional murmurs, both countries seem to realize all too well the importance of remaining united in their own best interests. Chinese Premier Wen Jiabao recently commented that his country treats South Africa as an equal partner in business relations. South Africa too responded in kind by denying a visa to Tibetan spiritual leader Dalai Lama, China’s bête noire. So it seems that such small gestures may go a long way in keeping the warmth of the Sino-African bear hug sustained in the years ahead.
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