YEAR OF THE DRAGON China’s agenda on Africa... just the beginning

China continues to mark its footprint in Africa with its Foreign Direct Investment (FDI) growing from 0.49% to just above 13% to date with most of the resources channeled into the mining sector.

A recent breakfast meeting hosted by PWC’s Business School and presented by the Chief Executive Officer of Frontier Advisory, Dr Martyns Davies, showed that Chinese expansion has not spared the Namibian extractive sector, which experienced a uranium boom five years ago; a move that attracted the Chinese companies to buy a considerable 49% stake in extract resources, which were originally held by Kalahari Minerals PLC. The Chinese company; China Guangdong Nuclear Power Corp (CGNPC) bought it out for £632m in a bid that would boost China’s efforts to meet its growing energy needs.

Davies argues that Chinese outward stock investments in Africa depicts that mining is at the pinnacle with 29.2%, followed by the manufacturing industry with 22%, then construction with 15.8% and financing with 13.9%.

Agriculture, scientific research, commercial services, wholesale and retail as well as other services constitute the minor percentiles in the stock investments in Africa.

To backup Davies’ sentiments, the Chinese government last year announced that they would target Africa as a potential market in a bid to break United States’ and Britain’s growing industrial monopoly in the continent.

While mining contributes significantly to the Chinese booming business, Namibia has also become a retail market for cheap sub-standard Chinese products.

Chinese dominance is slightly ahead of other groups of countries including BRICS member countries like South Korean, Brazil, India, Russia and Singapore that have more or less the same purpose of driven ideologies in terms of economics in Africa.

China’s foray into Africa mainly focuses on energy security, resource assets and equity-seeking activities, whilst the other key market actors generally focus on construction, agriculture, mining and energy sectors.

China’s development curve highlights how at the moment, it is transitioning from a producer to an investor and to a consumer in the global economy due to its engagement in Africa due to political enablement.

Although significant, Chinese investments in Namibia have not gone unchallenged as the Chinese are known for their poor labour practices.

Davies highlights and raises the issue of China’s changing industrial structure; questions arise on what implications that has on Africa. The rising costs of production in China will possibly have an impact on Africa in the sense that there is a possibility that Africa could be the next destination for Chinese manufacturing.

The question then is: Are African governments at par and willing to engage with the Chinese manufacturing investments and would that have ripple effects on Africa’s supply of commodities to the world?

Analysts have also credited massive Chinese investments in Namibia to a rapidly growing infrastructure development as the Asians scoop most of the lucrative construction tenders.

In Namibia, China made N$3.2b returns on investments last year alone, which was mainly contributed by the construction sector as compared to the Namibian government, which only made N$3.6b from all the investors for the year.

This highlights how the Chinese play a vital role in Namibia’s economy, at the same time single handedly dominate most of the sectors in Namibia.

In construction alone, the Chinese have dominated the scene with them clinching multi-million-dollar construction deals as compared to the locals.

It is projected that acquisition of resources will continue and increase in Africa and this can be attributed to different factors, which depict that China has numerous factors that contribute to their competitive and comparative advantages.

Africa’s trade with our Asian counterparts shows that China is at the summit with 4.7% in 2000 rising to an unbelievable 13.9% in 2009. India in these statistics, followed second with almost half in both instances as compared to China.

This shows the dominance of the Chinese in Africa as they lapse their other Asian competitors. The total trade (import/export) between Africa and Asia from 1995 was a total of US$3.9b (approximately N$31.2b), which rose to an astounding US$123b (N$984b) in 2010.

By late last year, the Chinese had poured in a whooping US$150b into African economies with US$14b coming into sub-Saharan Africa.

The rising level in trade highlights the magnitude of Chinese activities in Africa and how they can be pointed to as the new capitalists in Africa.

In terms of Asia-Africa trade, Angola is at the top rank as the number one total trader due to the abundance of oil at its disposal in the market. South Africa, which is Namibia’s largest exporter of goods, is the second largest trade partner in the sub-Saharan region on total trade but tops the list on China’s top export destination and it is placed second after Angola as China’s top source of imports.

Namibia has also been deliberately following a ‘look-east’ policy in a bid to unlock new potential markets for its beef and evade the growing conditions from the European Union brought about by the currently negotiated Economic Partnership Agreement. PF