For Africa, small can still be beautiful

China's medium-sized firms make good partners, and often have the experience to aid Africa in the early stages of industrialization

China's small and medium-sized enterprises will find many good opportunities among African countries eager to transform their economies because of deficits, falling commodity prices or the need for infrastructure, according to Li Keping, president of China Investment Corp.

The experience of the entrepreneurs behind these companies is likely to be valuable for many African countries, especially given their developmental stage, says Li, who also is vice-chairman and chief investment officer of CIC, a sovereign wealth fund established as a vehicle to diversify China's foreign exchange holdings and seek maximum returns for its shareholder within acceptable risk tolerance.

Industrial parks can be a good choice for locating SMEs, he says. But instead of looking only at that and factors such as natural resources and labor costs, other factors also should be weighed, such as a country's investment environment and its government's administrative efficiency.

Also, investing in industry requires a much longer commitment than building infrastructure, so Chinese companies aiming at industrial sectors need to make sure they hire talented managers with an international mindset, Li says.

"With the development stage Africa is in, planning and strategic orientation" should be given priority when considering investing, he says, adding that only in this way can such investments meet African countries' needs and lead to a win-win situation.

While Chinese companies should carefully analyze potential investments, the economic situation means more alternatives should be opening up.

"Countries with a high economic growth rate in Africa are countries with resource advantages, including energy, forests and mines. They earn their income by exporting resources. But after the price drops in staple commodities, especially petroleum and ore, the fiscal revenue of those countries has been greatly reduced, forcing them to look into economic transitioning and diversification," Li says.

Debts from large infrastructure investments also make those nations' economic transitions a must.

China has contributed a great deal to infrastructure development in Africa, which offers the "foundation and precondition for Africa's economic takeoff". While all sectors of society benefit from this infrastructure, African governments don't profit from them directly, says Li.

"The price drops of staple commodities result in financial stress and even deficits, making it hard for many African countries to float loans to build infrastructure. As their credit is downgraded, they will find it more and more difficult to obtain financing. This makes it a must for African governments to seek a balance between infrastructure construction and economic diversification," he says.

"I found in my talks with some African officials that African countries, at least in their top policymaking, show a strong desire for China to participate more in their industrialization."

However, their stage of industrialization is not the same as that of China, which is now upgrading industrially. Neither is it the same as the restructuring in developed countries. "Many African countries are now at entry-level industrialization, and the same with agriculture," Li says. "Chinese SMEs that have come up in the past several decades are the most experienced in dealing with such a stage.

"Though they have surpassed that stage after several decades' development, these Chinese entrepreneurs have firsthand, personal experience in doing that. For many developed countries, however, it's the entrepreneurs of the previous generation or even earlier generations who had development experience in the stage African countries are in." Li says.

Investments in the early stage of African countries' industrialization may be too small for big Chinese state-owned companies, but they can be well suited to SMEs, Li says. Projects in which the big, state-owned companies are involved usually are far beyond this stage.

While Chinese SMEs have potential advantages in African countries' industrialization, Li says they still face challenges in turning this potential into reality.

"Currently, many enterprises hold that the investment environment in Africa isn't comparable with that of China. It shows in the low efficiency of governments, bureaucracy or failures to perform. This is quite widespread in Africa. For many SMEs, it's not as simple as succeeding as long as there is a need, opportunities and preferential policies from African countries," Li says.

Comparatively speaking, industrial parks or special economic zones can be a better choice for SMEs because they offer package services, though few industrial parks in Africa are successful, says Li.

"As far as I am concerned, a clear target, a workable plan and a clean-handed government team with good execution are key when choosing the investment destination. The countries with rich natural resources and low labor costs aren't necessarily the best investment destinations. What we need to know is the cost of a company's actual effective operation locally."

Participating in African countries' industrialization "is a process of integrating and communicating. We need to do some basic preparation", Li says.

"China should educate a lot of administrative talent to have an international mindset. They should be good at using languages to communicate and know both foreign law and culture well.

"Knowledge in a specific area alone is not enough to work well overseas. This integration can't be accomplished through a single action, but it can get better and better," he says.

houliqiang@chinadaily.com.cn

(China Daily Africa Weekly 09/11/2015 page32)