Striking the right balance

Proactive approach has helped Chinese businesses minimize risks, maximize rewards in Africa

Chinese businesses have been more proactive than others in utilizing the investment opportunities in Africa, says Abel Myburgh, associate director of the Africa Desk at global accountancy firm BDO.

"Africa has always been there and so also the opportunities. China realized this fact before anybody else and had the courage and conviction to invest in Africa," Myburgh says.

According to Myburgh, sub-Saharan Africa is an investment destination in Africa that carries high risks but offers rich rewards. And its opportunities have been well recognized by China, one of the biggest investors in the region.

"Over the past decade much of the region's economic landscape has gone through a fundamental change and for the first time in Africa's economic history, recorded high and uninterrupted growth," he says.

According to data provided by the Ministry of Commerce, there are more than 2,000 Chinese companies spread over 50 African countries. Chinese investment in Africa has increased 30-fold since 2005, and more than a million Chinese have moved to Africa in the past decade.

Myburgh says Chinese investment into Africa is becoming increasingly diverse, and spanning sectors such as infrastructure, energy and natural resources.

The best examples of Chinese investment in Africa are the border road between Guinea and Liberia, the joint venture for rail and harbor infrastructure development in Mozambique, and the launch of wireless television services across six regions in Tanzania.

Myburgh says Chinese acquisitions of Africa-based targets are also an emerging trend of Chinese investment in this region, with Mozambique being the country with the largest number of deals.

He says one notable example is PetroChina's acquisition of 28.57 percent interest in natural gas exploration company ENI East Africa for $4.2 billion earlier this year, which is a substantial share of the acquisition activities in sub-Saharan Africa.

Another example is PetroChina's acquisition of 10 percent stake in Videocon's Mozambique gas field earlier this year for $2.5 billion.

"It is clear that looking at the amount of oil and gas deals in Mozambique and neighboring countries, energy and power is the most active and attractive sector," Myburgh says.

He says Chinese companies have also been active in seizing opportunities in South Africa and Nigeria.

According to data provided by Thomson Reuters, acquisitions in Africa have risen by 86 percent in the first half of 2013 compared with the same period last year, totaling around $15.8 billion. Noticeably, China and South Africa accounted for nearly 64 percent of all deals in sub-Saharan Africa.

He says China is also active in the African mergers and acquisitions market by providing financing and financial services. Chinese lender ICBC holds a 20 percent stake in Standard Bank of South Africa, the main advisor for most of the M&A deals in Africa.

However, Myburgh believes that making acquisitions is just one step to success, because long-term sustainability in operating them is equally important.

"Chinese companies need to add value for the African continent. For this partnership to grow, Africa will not only need to show how it can contribute to China but for China to show how they can contribute to Africa," Myburgh says.

He points out that this process is already happening, as Chinese investors are following up projects that can help Africa's communities generate more sustainable growth themselves.

He says it is encouraging to see that China has spent more than $75 billion on aid and development projects in the past decade, which helps to foster the partnership.

Chinese medical teams have worked in Africa since 1963, and have recently expanded their objectives to introduce China's pharmaceuticals to advance Chinese health aid in Africa.

(China Daily Africa Weekly 10/11/2013 page7)