CAD tops $3 billion in investments

The office of China-Africa Development Fund in South Africa. The fund has nurtured numerous projects in Africa since its establishment in 2009. Wang Jing / China Daily

Flagship China-Africa fund ups the ante after injecting capital into some 70 projects

China's largest private equity fund focusing on African investments has now injected more than $3 billion into some 70 projects on the continent, according to the latest official figures.

The China-Africa Development Fund was set up in March 2007 with initial capital of $1 billion provided by the China Development Bank. Early in 2012 it received a further $2 billion.

The fund was set up to invest in stocks, convertible bonds and other quasi-equity type investments, but as more Chinese companies have looked to Africa for opportunities, it has seen itself play an increasingly important financial support role, and officials say it is soon expected to grow to $5 billion in value.

Talking to China Daily, an official from the fund's representative office in Johannesburg, South Africa, who asked not to be named, says: "We are the bridge for many Chinese enterprises investing in Africa," he says.

"Chinese investment in Africa has improved a lot in recent years. The size of Chinese corporate involvement has dramatically expanded in terms of capital, employees and resources while their global vision expanded.

"But many still lacked enough understanding of local markets.

"So introducing Africa to Chinese enterprises has now also become a crucial part of our work, with many Chinese businesses turning to us just after they arrived on the continent for the first time.

"We introduce them to the various industry development practices, and the different business environments; we offer investment tips and precautions, as well as match them up with local enterprises and authorities," the source adds.

"But simply copying domestic practices, especially for state-owned enterprises in Africa, is not applicable."

He adds the most crucial move for any company in Africa is to increase its level of localization, using local teams and talent in key positions.

The creation of the fund was initially planned to bring the needs of both sides together: China had the technology and excess capacity while Africa needed industrial development.

China has now been Africa's largest trade partner for five years, and Africa remains China's most important source of imports, the second largest market for Chinese contractors, and the fourth largest destination of investment, the official source adds.

The latest government figures now show that in 2013, China-Africa trade reached $210.2 billion and some 2,500 Chinese enterprises had created more than 100,000 jobs in the continent.

China's investment in Africa exceeded $25 billion by the end of last year, according to the commerce ministry.

Money from the fund was initially invested in greenfield projects, mainly long-term construction contracts aimed at providing slower returns.

It was never planned to be used on large-profit-margin projects, but as opportunities increased, and it became more comfortable with the local environment, officials have become more aggressive in looking for better returns.

The move to expand the fund to $5 billion was first announced in May during Chinese Premier Li Keqiang's visit to Africa.

That trip, which included Ethiopia, Nigeria, Angola and Kenya, was seen as a strong indication of the country's intention to strengthen its ties with the continent, especially in its involvement in key infrastructure projects, particularly high-speed railways, motorways and regional airports.

Its other priority target sectors now include manufacturing, new energy and agriculture.

The fund has set up four branch offices, in South Africa, Ethiopia (covering East Africa), Ghana (west) and Zambia (central).

The Johannesburg office remains its busiest, with six local staff members, and seven Chinese, adds the official, accounting for the lion's share of investments, in terms of project numbers and value.

It has invested in 11 projects in the country, worth around $400 million, he says.

"Despite recent troubles caused by strikes, South Africa is still the best investment destination in view of its sound legal framework," he says.

"Countries in the south of Africa in general are well developed in different industries such as mining, manufacturing, media and energy."

The South African government is currently planning to further open its market to private capital. Its latest announcement to increase power purchase agreements will significantly reduce risk and develop the country's energy industry, including those in coal and hydro-power, he adds.

Officials in the capital, Pretoria, have also emphasized renewable energy and the construction of nuclear power plants, and China's technology and operational skills in those sectors are expected to fit well with its plans, the official says, adding that the country's stable and transparent policies provide the perfect level playing field to bid for future projects.

"We expect Chinese enterprises to invest in South Africa's energy and renewable energy sectors, including coal, wind, solar and nuclear.

"Manufacturing is all very well, but rising labor costs and increased strikes in this labor-intensive business can prove to be a problem. The country's services sector is also mature, and proving hard for Chinese investors to get into," says the CAD official.

In 2013, the fund joined hands with Chinese power giant GCL Poly Energy Holdings Ltd to build two 75-megawatt solar photovoltaic projects in South Africa with total investment of 5.1 billion rand ($476 million, 350 million euros).

Other landmark projects in the country have included China First Automobile Works building a $100 million truck and passenger car plant in the Eastern Cape of the country.

Commenting on the latest CAD update, Liu Guijin, China's former special representative on African affairs, pointed out that despite its rapid growth, Africa still accounts for less than 5 percent of China's total foreign trade and only 4 percent of China's overall outward investment, suggesting there is still huge potential, especially in infrastructure projects.

Liu Hongwu, a researcher at Zhejiang Normal University, adds that growing China-Africa cooperation is vital to promote China's products, technology and talent across the globe.

In May, Premier Li said that his ambition is to boost China-Africa trade to $400 billion and increase China's investment in Africa to $100 billion by 2020, which will more than double China's exports of manufactured products and equipment to the continent.

Justin Yifu Lin, the former World Bank senior and an economics professor at Peking University, adds that the continent is set to become a perfect host for the relocation of some over-capacity Chinese industries, in view of its advantages in labor costs and raw materials, and its favorable position for global trade.

"Chinese enterprises have been doing well through building clinics and training facilities for local communities rather than just earning money. But they still have room for improvement, such as further standardizing labor use," the CAD official says.

Contact the writers at lijiabao@chinadaily.com.cn

(China Daily Africa Weekly 07/18/2014 page20)