• China lends Nigeria Dollars 2bn in exchange for oil talks. • Ft com site : China oils Nigeria talks with loan

China has also been investing heavily in Nigerian infrastructure. According to the governor of Central Bank of Nigeria, Professor Chukwuma Soludo, Nigeria will need to invest $510 billion over the next 15 years in the provision and maintenance of rail lines, road construction network and waterways if it hopes to match the current level of development for South Africa. One Chinese-backed rail development programme has already run into constitutional difficulties. The 25-year rail project in Nigeria was to be funded by an excess crude oil account, but according to the minister of transportation minister this has constitutional limitations and is therefore 'considered inappropriate'. The project had already awarded a contract worth $8.3 billion to China Civil Engineering Construction (CCECC) to construct the 1315 kilometre line from Lagos to Kano and was due to receive a $1.28 billion concessionary loan from Infrastructure China.
More infrastructure is certainly needed in the country. To reach the president's 20/20 goal it is estimated that Nigeria requires 60,000MW. The country currently provides 3,000MW. The disparity between the reality and the ambitions of Nigeria means that there is huge potential for banks with a strong presence in Africa, good links with export credit agencies and a healthy appetite to risk. n
Bush pushes OPIC funds to support African tradePresident George W. Bush has announced that the Overseas Private Investment Corporation (OPIC) will support five new private equity investment funds, with a combined target capitalization of $875 million, designed to invest in a variety of sectors vital to Africa's economic development, including health care, housing, telecommunications and small and medium-sized enterprises (SMEs). The new commitments represent the largest single-day announcement in the history of the agency's investment funds programme."Last year, we launched the Africa Financial Sector Initiative. As part of this effort, OPIC mobilised $750 million in investment capital for African businesses," President Bush said in a speech on the eve of his February 15-21 trip to Benin, Tanzania, Rwanda, Ghana, and Liberia. "Today, I'm announcing that OPIC will support five new investment funds that will mobilise an additional $875 million, for a total of more than $1.6 billion in new capital.""The new era is rooted in a powerful truth: Africa's most valuable resource is not its oil, it's not its diamonds, it is the talent and creativity of its people. So we are partnering with African leaders to empower their people to lift up their nations and write a new chapter in their history...The best way to generate economic growth in Africa is to expand trade and investment," President Bush continued.OPIC president and CEO Robert Mosbacher adds: "Establishment of these five new investment funds represents additional, tangible support for Africa, but with a dynamic focus on the social aspects of economic development and job creation on the continent.""These funds will encourage the growth of sectors critical to Africa's ongoing development, such as housing and telecommunications, as well as other developmental sectors, including health care and small businesses. Their overall impact will be to broaden African capital markets and provide critical investment for social development, a model that can be replicated in other geographic areas."Three of the new OPIC-supported funds will help to bring new levels of efficiency and productivity to sectors critical to the continent's continued economic growth: health care, housing development and telecommunications. The two other funds will support the growth of Africa's debt capital markets and its SME sector. (For full details of the funds visit www.tradefinancemagazine.comand search for 'president bush opic'.)


Document TRAFIN0020080325e4310002t

COVER STORY

COVER STORY - "The big deal"

2,010 words

1 March 2008

China Economic Review

QEDCER

English

Copyright © 2008 China Economic Review Publishing. All Rights Reserved
It took less than three years after a chance encounter in Shanghai for China’s largest bank to make what was then the largest-ever foreign investment by a Chinese company.
Industrial and Commercial Bank of China (ICBC) has since been replaced at the top of that list by Aluminum Corp of China, which bought into mining giant Rio Tinto in January. But this won’t undermine the sense of occasion when shareholders in South Africa’s Standard Bank approve the sale of a 20% stake to the Chinese lender in early March. The price tag is US$5.5 billion.
The recent global share slump - which began after the deal was agreed on - is not ideal for ICBC. However, the true value and significance of its investment in a bank with a pan-African network will only be realized in the long term.
“There was unbelievable symbolism to me … that the biggest transaction ever done by a Chinese company at the time should be in Africa. It says something about the geopolitical landscape,” said Standard Bank CEO Jacko Maree.
“It tells you that China is thinking differently about the world. It also tells you something about Africa: It’s not the sort of lost and dark continent that is often portrayed ... It is on the move in its own way, admittedly from a low base.”
The deal emerged as a result of the talks between Maree and ICBC chairman Jiang Jianqing. The two first met in 2005 when China hosted the annual meeting of the International Monetary Conference (IMC). They crossed paths again during the China-Africa Cooperation Summit in Beijing a year later and were united for a third time when South Africa hosted the IMC in 2007.
Over the course of two years, the focus of Jiang and Maree’s discussions expanded from cooperation to strategic relations. ICBC deciding to invest in Standard was the logical final step.
The deal was something of a departure for a country that, if the international media is to be believed, cares only about African oil and other natural resources. Growing complexity
Exact numbers are difficult to determine, but the growth of two-way China-Africa trade is undeniable. Between 2001 and 2006 trade grew at an annual rate of about 40%. It would be easy to attribute the growth to Beijing’s need for natural resources but the reality is more complex. In that same 2001-2006 period, for example, Chinese exports to Africa quadrupled.
By 2010, China wants trade with the continent to top US$100 billion.
“We increasingly see more business going on between African countries and China,” Maree said. “Trade or investments often have a financing or advisory component and we try to tap into this.”
The deal with Standard Bank will give ICBC access to a networking 19 African countries, enabling it to help Chinese businesses take better advantage of opportunities in the continent. This is in keeping with ICBC’s goal of diversifying its revenue streams so a larger proportion of its income - 10%, up from the current 3% - comes from overseas operations. There will be a particular focus on emerging markets, and if there is one thing Africa has to offer it is emerging markets.
“China sees Africa very much as an investment in the future. It sees Africa industrializing, becoming more peaceful and stable and, over the next 50 years, following the same path as Asia,” said Dirk Kotze, general manager of The Beijing Axis, a consultancy that focuses on China-Africa related trade.
According to Kotze, African development may parallel that of post-Second World War Southeast Asia, when economic development began to thrive in a region still do tted with conflict.
“Before the current problems started, Kenya was growing at over 7% a year,” Kotze said. “Nigeria saw a peaceful transfer of power last year - that is extraordinary when you look at the country 10-15 years ago. Then there is the growth in Zambia and Mozambique, which was the world’s second poorest country in 1990.”
His list stretches on and on.
Policy papers and comments from Chinese think tanks make it clear that China expects Africa to grow steadily during the first quarter of this century, and that the time to lay down roots is now.
According to a report by Jian-Ye Wang, an economist with the International Monetary Fund, “The government has been actively encouraging private firms, small and medium as well as large, to invest in Africa … Trade and other commercial activities have grown faster than aid flows. The private (more broadly, the corporate) sector, rather than government ministries, is increasingly the engine of economic exchange between China and Africa.”
Commodity focused
While the nature of this growth speaks volumes about China’s commitment to Africa, there can be little argument that large-scale investments have so far targeted one thing above all else: commodities.
In 1979, Africa produced about 6.8 million barrels of oil per day. In 2005, the number was 9.8 million. The continent holds 8% of the world’s oil reserves but, through 2010, West Africa may account for about 38% of global oil production.
Although China is the world’s second largest energy importer and its pursuit of oil receives a lot of attention, Beijing’s activity in Africa is relatively small compared to the international oil companies operating across the continent.
According to Wood Mackenzie, African national oil firms loom large, with investments worth US$279 billion as of March 2007. International oil companies followed with US$168 billion and Chinese firms trailed with US$13 billion.
The reality is that Chinese companies are latecomers. Shell first entered Nigeria in 1938 and enjoyed a monopoly there until the country won its independence in 1960. Viewed in this way, China’s energy deals with pariah states (like Sudan) become easier to understand - there was little left to choose from.
The vast majority of China’s oil production in Africa, 81%, is in Sudan, which has 5% of Africa’s proven oil reserves.
“It is actually not easy for us to find projects. The oil market has more than 100 years of history and all the good projects are already taken. As a newcomer, it is obviously not easy to do well,” said Fu Chengyu, CEO of China National Offshore Oil Corp is quoted as saying in a report by Erica Downs, China energy fellow at the Brookings Institution in Washington DC.
In the same report, Downs argued that the notion of a state-driven push to buy up global resources may be more fact than fiction. For example, Sudan was omitted from a list of countries that Chinese companies are encouraged to invest in, but this didn’t stop China National Petroleum Corporation from filling the void left by Western oil firms following America’s decision to impose sanctions on Khartoum in the mid-1990s.
“The lack of close coordination among China’s [oil firms] is due to the fact that [they] view one another as rivals, competing not only for oil and gas assets, but also for political advantage,” Downs claimed.
New horizons
But oil is only part of the story - Chinese companies from a wide variety of sectors regard Africa as a viable market.
“It wasn’t just the oil and mining companies,” Standard Bank’s Maree said of his experiences dealing with Chinese corporate interest in the continent. “It was also the mobile phone companies and the construction companies, and so on.”
In the tech sector, Shenzhen-based Huawei saw sales in the continent top US$2 billion across 40 countries by 2006.. Huawei’s rival ZTE plans to invest US$400 million in Angola with a view to cornering the local market. China National Electric Equipment Corp, meanwhile, enjoys profit margins in Africa that are five times what it can get in more competitive mature markets.
The scope of Chinese involvement is vast: It may be logging in Mozambique, shoemaking in Nigeria or household goods production in Sierra Leone.
Then there are the banks. China Export and Import (Exim) Bank is funding more than 260 projects across 36 African countries while China Development Bank had loaned more than US$1 billion to Africa as of March 2007. This money has so far helped build 9,000 kilometers of roads and railways as well as eight large- and medium-sized power plants.
One country that has attracted a fair share of Chinese attention is Zambia. More than US$300 million has been sunk into the mining, manufacturing projects, construction and agriculture industries. Zambia’s copper belt has proved such a hit with Chinese mining firms - as well as a host of spin-off industries - that Beijing set up a special development zone there earlier this year.
Beijing made a commitment to establishing at least five of these zones at the China Africa Cooperation Forum in 2006. One already exists in Mauritius and it has been reported that two more are planned for Nigeria.
The idea behind these zones is to provide access to Chinese officials who may grease the wheels of trade by providing business contacts, reduced tariffs and streamlined processes. Beyond this, though, it is difficult to say exactly what the zones entail, who funds them and how African businesses might benefit.
“There is a little bit of opaqueness when it comes to China and Africa and this is one of those areas,” said Chris Alden, a lecturer in international relations at the London School of Economics who has written much on Asia-Africa ties.
Different approach
The Chinese government has highlighted these zones as potential vehicles to deepen economic ties with specific countries. In this way, they can be seen as part of an approach to Africa that differs from that of Western countries. It is all about cash, with no questions asked about human rights or institutional corruption. However, loans from China are often used to hire Chinese companies. Similarly, infrastrucure investments are closely tied to access to natural resources.
The irony is that China may be acting like a developed country by taking a single approach to a very varied continent.
“The Chinese have, so far, approached Africa in an odd way with a single formula,” said Alden. “No conditions, certain forms of packages and inducements to win positions.”
As their relationships in the continent deepen, however, this approach may become untenable.
“They have to get away from Africa as a whole and start viewing it through the prism of local politics, local economics and the like,” Alden added.
The deal between ICBC and Standard Bank may be a giant step in that direction, opening the door to a wealth of local knowledge. Standard’s Maree said initial cooperation would likely focus on Africa, with ICBC looking for access and Standard Bank for new customers.
It is worth asking how prospective Chinese clients, many of which are state-backed and perhaps unfamiliar with stringent credit checks, will work with the more sophisticated checks and balances at Standard. Chinese banks may be improving their standards but they still have a tendency to push deals through without paying enough attention to risk.
“There is a let’s-get-the-deal-done attitude, which is refreshing in a way. But of course we have to make sure that whatever deals we do have had all the right due dilligence and that everything stacks up,” said Maree.
Kotze takes this a step further, suggesting that, through deals like the ICBC-Standard tie-up, Chinese companies can aquire invaluable experience - about both managing international business in general and operating in Africa specifically.
In this way, the country will be better-equipped to fill what he believes is a vacuum being created by waning Western political influence in the continent.
“Africa is that last beachhead. The EU and the US have pulled out, really - they are only after resources - so it’s a bit of a vacuum. It’s up for grabs.”
Document QEDCER0020080303e43100006

COVER STORY

COVER STORY - "Size doesn’t matter"

2,232 words

1 March 2008

China Economic Review

QEDCER

English

Copyright © 2008 China Economic Review Publishing. All Rights Reserved
In the last 15 years, the trickle of Chinese economic migration into Africa has become an increasingly stronger stream. Now, with new policies in play and fewer barriers in place, the stream is turning into a veritable flood.
While the world focuses on investments by state-owned enterprises (SOEs) in resource-rich African nations, Chinese entrepreneurs are spread across the continent looking for business opportunities.
There are virtually no reliable statistics to pinpoint the number of Chinese working in Africa but experts claim it is well over 750,000 - the number given by the official Xinhua News Agency last year. In South Africa alone, the Chinese community has grown from about 120,000 to 300,000-400,000 in 15 years.
Chinese populations are also expanding rapidly in countries like Angola, Sudan, Nigeria and Zambia.
“Each environment offers different barriers and different opportunities and the Chinese communities respond to that,” said Chris Alden, a lecturer at the London School of Economics who has written several books on the economic ties between Asia and Africa.
There are over 900 Chinese enterprises doing business in Africa but, according to a report by Jian-Ye Wang, an economist with the International Monetary Fund, only 100 of these are state owned.
“The rest are private businesses with interests ranging from trade, manufacturing and processing, services, and communications to agriculture and natural resource development,” Wang wrote.
Many of these entrepreneurs are thriving in places where Westerners fear to tread. They are often the only ones willing to open restaurants, shops or small manufacturing bases virtually anywhere with the smallest possibility of customers.
“They are out there in obscure places. You go to the outer reaches of rural Namibia and Angola and you’ll see shops set up that weren’t there a few years ago,” said Alden. “They are bringing low cost items to rural areas for low prices but apparently enough to make a little money.”
Willing customers
With a number of African economies posting respectable growth in recent years, there are more African people with the means to buy goods at prices only Chinese traders can offer. Their competitive advantage comes via vertically-integrated supply chains that rely on networks of friends and family.
“They can reach back into China in a seamless way,” said Joshua Eisenman, a fellow in Asia Studies at the American Foreign Policy Council who tracks Chinese investment in Africa. “We met a Chinese trader in Nigeria who told us that he has a brother in Botswana, a sister in Kenya, and an uncle who owns a textile factory in Fujian and supplies them all.”
There may not be a single small manufactured product - transistor radio, mobile phone, bicycles, flashlights, cigarette lighters - that cannot be made cheaper and possibly better in China than Africa. Even with the cost of shipping included, Chinese-made products are often still more cost effective and, as a result, more attractive to local customers.
African traders who also look to source from China are often thwarted by the language barrier. They end up purchasing in Hong Kong where they pay a premium on products made in the mainland. A general mistrust of Africans among Chinese does not help.
“Even if they get to China it’s difficult for West Africans to just turn up in Fujian and do business. The Chinese don’t have those barriers: In China because they are Chinese and in Africa because a low cost product speaks for itself,” Eisenman added.
Continental disconnect
The commercial dynamism of the Chinese traders exacerbates the core problem for African business - a lack of competitiveness. African exports account for 2% of global trade, according to the World Bank, but most telling are the internal barriers. Only 10% of those exports stay within the continent but about 70% of the tariffs paid by Africans go to other African countries.
These numbers belie a common fallacy in China-Africa relations: “China-Africa” may be a nice catchphrase and Beijing may have a pan-African macro strategy, but there is not such thing as a cohesive African entity.
Egypt is entirely different from South Africa. Ethiopia has less in common with Liberia than India does with Japan. The economies and politics of Kenya, Sudan and Sierra Leone are so different that comparisons - much less groupings - are meaningless. Africans often look at each other with mutual distrust, and consequently, trade between one African country and another can be more difficult than between an African nation and a country in Europe, the Americas or Asia. Sub-Saharan African countries are three times more likely to impose non-tariff barriers than developed countries, according to the World Bank.
What’s more, about 40% of African capital may have fled the continent, sent abroad by rich Africans themselves.
For Chinese traders, this lack of cohesion represents an opportunity: If Africans won’t provide for themselves, the Chinese are happy to step in. This sets the stage for conflict that has never been there before, as Chinese businesspeople interact more closely with African populations, becoming part of the fabric of society.
Problems have already surfaced. Last year, mass protests in Zambia against Chinese employers followed a fire at a Chinese-run explosives factory that serviced a Chinese-run mine.
“A lot of the discontent … was related to the behaviour of Chinese retailers, Chinese investment in agriculture, buying up land, things like that,” said Alden.
And the media, which rarely dwells on complicated topics, may not be painting an accurate picture of the nuances of this emerging relationship.
“The media attention on China-Africa has been very alarmist, very sensationalist. Chinese people, people with Confucian values, running around Africa is a new image. People never imagined it would happen,” said Dirk Kotze, general manager at The Beijing Axis, a consultancy that focuses on China-Africa trade.
“It’s a very good news story. ”
Much of the spotlight has been on China’s infrastructure investments and on its policy of non-interference in internal politics. There has also been some debate about how China is changing Africa. But Kotze believes the relationship between the two will develop naturally, exhibiting the ups and downs of any multi-faceted relationship between complex entities.
This natural development does not come without a certain amount of risk - particularly political risk that could jeopardize the goodwill China is eager to build in the continent.
In years gone by, when trade between China and African countries was dominated by SOEs, Beijing had a considerable amount of control. Now, local embassies often don’t know how many Chinese are in their particular countries or what business they are operating.
“It is really a different type of phenomenon that will produce different outcomes,” said Alden. “Their behaviour often can affect the general relationship between China and a particular country.”
Anecdotal evidence suggests Chinese entrepreneurs tend to export employment conditions along with cheap mobile phones. This often means paying the least possible wage for the most possible work, with little in the way of incentives or job security. Workers’ rights legislation is seen as an inconvenience that is easy to avoid.
“I think this is where China will come to realize that grandiose statements and large loans alone will not do it for them. If they engage a country, they not only engage a government - the guy across the table - they actually engage an entire people,” Kotze said.
Farming out
The issue bubbled up briefly last November when Li Ruogu, the head of China’s Export-Import Bank (Exim Bank) said China was willing to fund farmers looking to relocate to Africa.
“There’s no harm in allowing farmers to leave the country to become farm owners,” he said during a speech in Chong-qing that was picked up by major media from around the world.
There are already a handful of programs in place that provide funds to unemployed Chinese farmers to buy land in Africa. A number of local and provincial-level organizations also help workers - farmers, traders, cooks and so on - relocate to Africa where they can earn enough money to live and save.
This begs the question as to what will be the impact of Chinese migration on Africa’s economy and society, particularly considering that farming and landowning can be sensitive topics in Africa.
Speaking to Reuters last year, Xing Houyan, director of multinational business at the Chinese Academy of International Trade and Economic Cooperation, noted that the potential for a backlash against China grows alongside trade.
“In a broad sense, as Chinese companies flood into Africa, there is a big risk of disorderliness,” he said. “There’s a big risk that unfavourable incidents could turn hearts and minds against China.”
While the Chinese government may be looking towards Africa to build goodwill and find new political allies in the global arena, these small entrepreneurs are simply looking to earn a living. But their actions could have wider repercussions, as seen in Zambia.
“All of this happens under the radar and it’s growing and introducing new dynamics,” said Alden. “Chinese communities are growing cheek-to-jowl with African communities. We don’t know the social dynamics that produces.
“We have examples from the past where it produced friction; in other cases they’ve lived happily. But it is definitely changing Africa.”
Tough terrain: The rise of Standard Bank
Through its investment in Standard Bank, Industrial and Commercial Bank of China (ICBC) may be able to tap into a rare mix of developed-world financial savvy and developing-country smarts.
ICBC’s new partner was once part of Standard Chartered bank, but when the UK lender sold off its remaining interest in 1987, Standard Bank made a home for itself in South Africa, a small country with less than 1% of the world’s GDP.
“We couldn’t aspire to grow in Europe or America. We had to focus on more challenging markets, where our skill-set might be able to add value,” said Jacko Maree, Standard’s CEO. “That’s what got us into Africa.”
In the late 1980s, apartheid was still a hot topic and it was during these times of sanctions and barriers - It wasn’t easy to operate where “we weren’t particularly welcome,” Maree recalls - that Standard Bank learned to rough it.
“We started dealing in challenging environments - that became a bit of our hallmark,” Maree said. “And I guess that was a bit of the attraction that ICBC saw in us.”
Although large, ICBC lacks the sophistication and global footprint to compete with more diversified global banks.
A tie-up with Standard Bank, with its strong focus on developing markets like countries in Africa, Brazil (it owns a metals trading venture), Russia (a commodities trading practice) and Argentina (it bought the local operations of BankBoston) among others, makes sense.
Announcing the acquisition of an 80% stake in Macau’s Seng Heng Bank in January, ICBC chairman Jiang Jianqing stressed that overseas activities must fit in with the bank’s overall development strategy, of which expansion in developing markets is a key part.
“We’re not so concerned about whether a bank is just cheap,” Jiang said.
Smoke and mirrors
The number of Chinese incentives to encourage African business grows every year. Beijing provides billions in infrastructure grants and the list of products that can be imported tariff-free from Africa’s poorest nations has grown to 540.
However, despite the positive spin, there are questions about whether African countries are seeing benefits.
Grants often go directly from a Chinese bank to a Chinese contractor, while most loans are just that - interest-bearing cash in exchange for access. Most African firms don’t really have the ability, savvy or size to produce goods that can compete in China. As such, bilateral trade is driven by investments in energy and natural resources that China needs and exports of Chinese manufactured goods that African consumers crave.
Despite talk of Beijing’s new way of engaging Africa with no strings attached, the Chinese may be just as near-sighted as their Western counterparts.
“There is an element of short-term thinking: ‘I need the copper now, and will do whatever needs to be done to get it’,” said Dirk Kotze, a Beijing-based South African consultant who focuses on China-Africa trade. “This may lead to a situation in 30 years where you have a lot of resentment against Chinese investors.”
The situation isn’t helped by a growing disconnect between stated government goals of building goodwill and the practices of private entrepreneurs looking to make their fortunes.
However, it may be impossible to categorize China’s growing commercial interests in Africa as “good” or “bad.” The question is fundamentally unfair: Africa is too varied, the contexts too diverse and the players far too numerous for a single, overarching answer.
It is a point Chris Alden, a lecturer in international relations at the London School of Economics, often struggles to get across to people.
“You introduce the finer points and then the question in the audience [is] ‘Okay, so are they good or are they bad?’” he said. “Perhaps 10 years ago you could have given a simple answer: Limited investment in a few countries, pariah states, that sort of thing. Now, with the diversity … there is no single picture.”
Document QEDCER0020080303e43100005
Nigerian president ends China tour after visiting financial hub in E.China
318 words

1 March 2008

Xinhua News Agency

XNEWS

English

(c) Copyright 2008 Xinhua News Agency
SHANGHAI, March 1 (Xinhua) -- Nigerian President Umaru Yar'Adua left China's financial hub of Shanghai Saturday evening, concluding a four-day state visit to China, the first since he assumed office last May.
Yar'Adua said before leaving that he hoped Nigeria could become China's utmost trade partner in Africa in near future.