Game only patient firms can win

China-Africa investment fund has its eye on long-term results

Chinese companies will play a key role in shaping Africa's economic growth and prove that it is benefiting both sides, says Chi Jianxin, president of the China-Africa Development Fund.

Chi, 53, responsible for China's largest equity investment fund focusing on African investment, believes that the African economy is taking off, and that because of China's similar development experience, its companies feel Africa is on the right track.

The establishment of the CADFund was one of eight measures implemented to strengthen China-Africa cooperation pledged by China at the summit of the Forum on China-Africa Cooperation in Beijing in 2006 to encourage and support Chinese enterprises to invest in Africa.

The fund became operational in 2007, with a target of raising $5 billion, an initial tranche of $1 billion and a second tranche of $2 billion being paid by the China Development Bank last year.

"In comparison with funds managed by Western companies or governments in Africa, we are more inclined to pay attention to medium-term and long-term investment, because African countries are at a different stage of development, industrialization and urbanization," Chi says.

Chinese investment in Africa is for the long term, and only patient investors stand a chance of gaining more share from this emerging market, he says. The fund will treat sectors such as agriculture, manufacturing, resources and industrial zone development as investment priorities because they are effective solutions to help African governments improve people's living standards and promote foreign trade.

As China's first direct equity investment fund solely focusing on investment in Africa, the fund plans to invest $2.4 billion across Africa. It has invested $1.8 billion in 64 projects in more than 30 countries, including cement and glass factories in Ethiopia, a grain production project in Zambia, a food processing plant in Malawi, a container port in Nigeria and a power plant in Ghana.

More than 700,000 people have benefited from CADFund throughout the continent in the past six years. Its investment contribute $1 billion in tax revenues to different African governments and $2 billion in goods for export each year.

With a view to extending its network in Africa, CADFund has set up representative offices in South Africa, Ethiopia, Zambia and Ghana to support Chinese enterprises investing in Africa.

"Unlike China's financial or construction project aid to Africa, the fund doesn't allocate projects by countries," Chi says.

"It operates independently through market-based mechanisms and bears risks on its own. It can also engage in new projects, share-buying, mergers and acquisitions of expanding and mature enterprises, and venture capital."

CADFund provides funding for enterprises with investment opportunities, seeks Chinese investors for African project, and shares risks with companies unwilling to bear risks on their own. It invests as a minority shareholder, with a Chinese company serving as the main investor to build and operate the projects.

"For us there is no difference between state-owned enterprises and companies from the private sector in terms of selecting partners," Chi says.

"We will invest as long as their projects are high-quality and sustainable, which can benefit Chinese companies and the local economy. We are also considering independent private equity investment and developing new consulting businesses and intermediary services, as well as private equity."

In South Africa it has partnered with a Chinese household appliances maker, Hisense Group, and a Chinese cement producer, Tangshan Jidong Cement Co Ltd. A household goods factory and a plant that can produce 1 million tons of cement a year will be operational this month. A cotton spinning industrial park in Tanzania and an iron mine in Liberia that produces 1 million tons a year will open later this year.

For smart Chinese companies, building industrial zones is another way of speeding up localization in Africa, optimizing their resources, saving money and building industrial chains with which they can support one another, Chi says.

"More importantly, they can form a united voice to talk with local authorities to express their needs and ensure their rights."

With the urging of Chinese companies and the backing of African governments, CADFund and Tianjin Economic-Technological Development Area jointly invested $60 million in the Suez Economic and Trade Park in Egypt in 2008. Thirty-five Chinese enterprises now operate in the park and it will be expanded from 1 square kilometer to 7 square kilometers this year.

Nigeria is similarly benefiting as a result of individual Chinese investment in large-scale industrial zones. CADFund, China Railway Construction Corporation and Lagos city council of Nigeria jointly invested in Lekki Free Zone in 2007, the goal being to build an economic and trade base for manufacturing production, warehousing, logistics and services. The total amount invested is $200 million.

"Even though strong growth in Africa can be gauged from its growing demand for resource and agriculture development, its huge potential for agricultural products processing, electronic products, garments, construction materials, tourism, automobile and aviation industries are all offering new market growth points to Chinese investors," Chi says.

Based on Africa's surging purchasing power and manufacturing productivity, continued investment in mining, financial, infrastructure and service sectors, the IMF has forecast that sub-Saharan Africa's economic growth will rise to 6.1 percent next year.

The Economic Report on Africa 2012 by the African Union and the UN Economic Commission for Africa predict that Africa will account for 5 percent of the world economy by 2032 compared with 2 percent now, which indicates that the continent is capable of creating more space to attract foreign investment.

"We have noticed that developed nations' hunger for resources has pushed their companies to expand their presence and keep sending cash to Africa, because the continent can help them fulfil the growth demand for oil, gas, timber and various minerals in their home markets," Chi says.

Many Western companies are incapable of competing with Chinese project contractors or firms handling infrastructure construction and manufacturing projects. Their bid prices, building material costs and construction periods are unattractive compared with those of their Chinese rivals.

But they are keen to offer aid to African countries in gaining contracts against Chinese competition, a report on investment by the China Chamber of International Commerce in Beijing says.

" We must be aware of this and be flexible in competing with companies from all over the world," Chi says. "Improving understanding with local communities and authorities, creating more jobs and buying local products will help Chinese companies build a positive image in places where they have built factories or plan to invest."

One common belief in the West is that Chinese enterprises are flooding into Africa simply to plunder its rich resources. But Chi says "more than 80 percent of Africa's mining resources are in the hands of transnationals from developed nations". China is the target of the worst criticism from Western media because its companies lack the skills in countering the propaganda.

"With a long-term perspective, Africa should not walk on the path of 'grow now and clean up later', the approach that a number of countries have followed," Chi says.

"To further diversify our investment categories, CADFund will help more African countries shift the focus from old ways to the new over the next five years by investing in greener projects such as solar, wind and hydro power, and developing high-yield agriculture."

zhongnan@chinadaily.com.cn

(China Daily Africa Weekly 06/28/2013 page20)