South-to-south trade is becoming increasingly imperative, especially since Western economies are struggling with high debt levels and economic stagnation. China is already South Africa’s biggest trading partner. Because of its strategic role in facilitating market access on the African continent for China, South Africa was invited to join the prestigious club of BRIC nations (Brazil, Russia, India and China) at the beginning of 2011.
KPMG convened the Africa Conversation series to discuss China’s role in Africa and possible responses by African countries in dealing with prevailing challenges. The panel discussion titled ‘Africa-China Trade and Investment’ was broadcast live across the continent by CNBC Africa.
Glenn Ho, Head of the KPMG China Desk in South Africa, highlighted at the beginning of the discussion, that China’s Foreign Direct Investment (FDI) into Africa is still about twice the global average and continues to target natural resources on the African continent. The biggest single investment occurred in 2007, when the Industrial and Commercial Bank of China bought a 20% stake in South Africa’s Standard Bank. But, there is a trend of increasingly smaller companies undertaking investment: “A fair amount of the investment has been directed towards infrastructure development, generating businesses in the vicinity of the locations, to the benefit of the African people,” says Ho.
However, it is misleading to speak of an investment model when it comes to Chinese investment in Africa, says Dr Greg Mills, Director of the Brenthurst Foundation. While at the top level, the Chinese government is clearly interested in natural resources and opening new markets for Chinese goods, lower-level business activities and exchanges are not following any clear strategy. “The traders are very much self-starters and are looking after themselves.”
The biggest challenge in the relationship between China and Africa is that China is coming from a completely different political background that sets the government at the centre stage of foreign economic relations. China seems to believe that working with government is sufficient to progress with business relations. This mindset requires adjustment.
Gloria Serobe, CEO of WIPCapital, notes: “In South Africa, the relationship between business and government is not very strong. Businesses work in silos. Furthermore, unlike South Africa, provinces in China are strong and act relatively independently from central government. When you are dealing with Chinese businesses, you are dealing in fact with all layers of the Chinese government.”
According to Dr Mills, “China’s relationship with Africa needs to factor in the African people and not only governments. Beneficiation, of course, is the responsibility of the recipient government and not the investor.” For that reason, voicing of discontent with activities of Chinese companies in Africa is rather an expression of African people suffering from poverty than criticism of the Chinese. The discontent relates less to China than to the living conditions in Africa.
Mr Kithinji Kiragu, Director of African Development Professionals Group, says that Kenyans are clear about the development they want to see, and China happens to be just one investor among many. Widespread complaints about the poor quality of Chinese products and a lack of consideration for the social context in Africa are, according to him, not valid. “I would say that this is an exaggeration. Kenya is receiving a lot of low-quality consumer goods from all over the world. The Chinese, like everyone else, is coming to make money and Kenyans need to manage the relationship responsibly. We need to receive value for money. Again, this is not unique to China, it’s the same regarding any other foreign investment.”
In fact, both parties are interested in flourishing relationships. Gloria Serobe maintains that “even Chinese investors are looking for consistency, rule of law and strong institutions to deal with. I think that any investor coming into any country is essentially looking after his own interest. But Africans and South Africans are not fully applying their minds to it.”
Referring to the recent visit of a high level South African government delegation to China, Dr Mills stressed that South Africa should take advantage of its strong governance institutions to form a robust relationship with China. “An enduring relationship needs to be built on trust and communication. We have to build that, not only between governments but also between businesses. China is often seen as a threat but there is more than enough space for everybody to grow. We need to thank the Chinese for helping to put Africa back on the global agenda. Now we are competitive rivals and that’s in the interest of Africa.”
Ho concludes: “In the next five to 10 years, China’s population will be aging, which creates a huge opportunity for Africa. We have choice in Africa whom to do business with. China is looking for a long-term relationship and investment. We need to build our own policies according to what we want from the relationship.”