INVESTING IN AFRICA'S FUTURE

With relations between China and Africa stronger than ever, China is planning to increase its investment in Africa. Thousands of Chinese companies have invested in Africa and most of this investment has gone into the energy, transport, trade, mining, construction, project financing and manufacturing industries, as well as oil production as China's state-owned oil companies are active throughout the continent.

Endowed with enormous cash reserves, China has pledged that it will continue to lend financial support to many emerging economies in Africa alongside the China Development Bank (CDB), which is planning to expand its financial assistance to Africa. During President Xi Jinping's visit to South Africa, the CDB signed a groundbreaking agreement with South Africa's freight rail company Transnet, providing a $5 billion loan to help improve Africa's infrastructure.

The CDB, China's largest foreign investment and financing bank, recently announced that it has provided various forms of financial support to more than 30 African countries, including $16 billion in loans to African governments and $700 million in loans to African SMEs. During the Fifth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) in 2012, China pledged to provide an additional $20 billion in loans over the next three years to support Africa's infrastructure, agriculture, manufacturing and the development of SMEs.

Apart from the CDB, the Chinese Government has launched a series of initiatives, including the China-Africa Development Fund (CADFund) and the China-Africa Economic and Trade Cooperation Zone, to encourage enterprises to invest in Africa. According to the CADFund, future Chinese investment in Africa will be more focused on infrastructure and manufacturing to better serve Africa's economic transformation and industrialization demands. In the end, a more industrialized Africa and sustainable African economy mirrors China's long-term interests in Africa. China has also introduced several large-scale financing programs to help Africa develop its manufacturing sector. With its rising labor costs, China's manufacturing sector has started to relocate to other countries, and African countries are hoping to take advantage of this trend.

Even taking into account all of China's efforts thus far, there is still some room for improvement. For example, it is currently very challenging for African companies to access capital from Chinese institutions. Furthermore, China could also encourage its companies to share more technology and expertise with their African counterparts.

Chinese companies are also starting to consider entering the vast African market. However, not all the responsibility should fall on China's shoulders. For example, before a Chinese company establishes a manufacturing base in Africa, they first have to evaluate the long-term stability of the society, as well as the consistency of its local policies, laws and regulations, to see if it is safe and profitable to do business there, just like any other investment in any other country. By investing in core pillars of an economy such as infrastructure and education, African governments will be able to attract more Chinese investment.

The ChinAfrica Econometer is produced by The Beijing Axis, a China-focused international advisory firm operating in four principal areas: Commodities, Capital, Procurement, and Strategy.

For more information, please contact:

Daniel Galvez, danielgalvez@thebeijingaxis.com

www.thebeijingaxis.com