Private companies give a fillip to Chinese business and investment in Africa

Driven by stiff competition at home and the prospects of better opportunities overseas, Chinese private enterprises are now flocking to Africa in ever-greater numbers. So much so that it is not uncommon to hear Africa being referred to as "the last golden land" in the Chinese investment community.

Much of this optimism was on view when in December about 30 Chinese entrepreneurs embarked on a whirlwind tour of Ghana and Cote d'Ivoire to explore business opportunities in the two countries. What made their trip significant was it was that the first group of private business people from China seeking investment opportunities in Africa with their own funds.

Zhou Dewen, chairman of Africa Investment Club, a Beijing-based group of private entrepreneurs, and who was leader of the delegation, says it came across several promising projects in these two countries, particularly in sectors such as real estate, ports, agriculture and manufacturing.

"Our aim was not just to explore business opportunities and grow bilateral trade, but also to use capital for tangible, sustainable, developmental projects," Zhou says.

Explaining his point, Zhou says the Africa Investment Club and the Ghanaian government have inked an agreement for an affordable housing project that envisages the construction of more than 50,000 apartments in the country.

"It was our first attempt to make a meaningful contribution to infrastructure construction in Ghana. We are looking forward to making more trips to other African countries for similar deals," says Zhou, who is also the chairman of the Wenzhou Small and Medium-sized Enterprises Development Association.

Though looking for sustainable deals was the primary purpose of the group, some members also used the trip to check on existing and planned investments, he says.

Cost factor

Gao Jingdong, chairman of Tianjin Kenuode Fareast Global Trading Co Ltd, a chemicals company that has had trade ties with Africa for more than a decade, says he now plans to set up a manufacturing facility on the continent.

"Labor costs and daily expenses in places such as Ghana and Cote d'lvoire are much lower than in rural areas in China. In addition, the demand for our products is steadily growing in Africa," says the Tianjin-based Gao, who was part of the team that went to Africa in December.

Gao says his decision to set up a base in Africa has also been necessitated by rising transport costs.

"More than 70 percent of my customers are from African countries and it makes sense to have a unit in Africa as it will lower transport costs considerably," he says.

"There is no doubt that there is great business potential in the African market. But it is also important to visit the continent personally to understand the business opportunities," Gao says.

The biggest gain from the trip, he says, was his ability to interact more closely with his African partners and also to bond with the other Chinese businesses operating in Africa.

"I am planning to launch a small factory with two to three production lines in Cote d'lvoire in the next two years. We chose Cote d'Ivoire as it has a port and is also home to several of our existing customers," he says.

The company also plans to invest in some government projects in Africa. "The rapid growth in many African countries will throw up several city construction opportunities. It is a good investment option for private companies like mine," Gao says.

The focus of these efforts, he says, will be to utilize the vast labor pool and to improve the productivity of the manufacturing sector in Africa.

"Most of the local enterprises in Africa are small units with low output due to the use of outdated technology. This can be easily improved, and Chinese firms have the best credentials to effect this changeover," Zhou says.

According to statistics provided by Zhou's club, private enterprises account for 10 percent of China's direct investment in Africa.

"More private capital will flow to African countries in the next five years and we're more than happy to be the catalysts in the process," Zhou says.

Market dreams

While Zhou and his team represent one face of Chinese private enterprises in Africa, there are others like Pan Chunlei who have big dreams. Pan, the deputy director of Zhejiang Private Investment Enterprise Association, says he is giving the finishing touches to a larger investment blueprint for Chinese private enterprises.

Pan plans to set up an International Trading Mart in Cote d'lvoire, on the lines of Yiwu, the world's largest market for small commodities in Zhejiang province, in the next five years. He has already formed a company in China to execute the $500 million project, spread over 30 hectares.

"The business model of the mart will be similar to the one in Yiwu, with small wholesale shops stocking goods transported from China for African buyers," says Pan, who is also the chairman of Wenzhou Enchi Electronic Technology Co Ltd, a manufacturer and exporter of motorcycle parts and other electronics appliances.

Members of the association will fund the project, while most of the enterprises will come from Zhejiang province, he says. To prevent excessive competition, Pan's team will also look to attract more China-based companies.

"With more enterprises manufacturing products in Africa, I think it will be better if we can gather some of them under the same platform and offer products at similar prices. This will help attract more demand and reduce internal friction," Pan says.

Pan feels that the mart would be a major gathering place for Zhejiang enterprises or even Chinese companies in 10 years, as it will sell high-quality products made by Chinese brands in Africa.

Also on the cards is Pan's plan to assemble motorcycles in Africa. "I am discussing with local businesses the feasibility of a small factory for assembling motorcycles, which are essential transportation tools in Africa," he says.

Pan adds that he would like to bring mature technologies in motorcycle parts manufacturing and assembling to Africa as he sees it as a market full of promise.

Opportunities aplenty

China has long provided development aid in large amounts to African countries. Unlike a lot of the assistance that Western countries give, China's assistance comes with no strings attached, which is viewed upon very favorably in Africa.

Some China-sponsored projects, including roads, railways, water supply and clean-energy facilities, schools, hospitals and even office buildings have been commissioned in Africa, each one a testimony to the strong ties between China and Africa.

"The relatively robust economic growth in emerging countries like China also creates huge opportunities for other countries. African countries hope to grab this chance," says Jia Xiudong, a senior research fellow at the China Institute of International Studies.

"Since Africa and China have similar histories, China's economic development is a good role model for African nations," Jia says.

The launch of the Forum on China-Africa Cooperation in 2000 has put China-Africa relations on a fast track of all-round development and ushered in a new era for the two sides to explore various strategic partnerships.

Unlike the earlier donor-recipient pattern of cooperation, the two sides are now looking for more sustainable engagements, based on maturity, reciprocity and a focus on building capacity.

Cumulative Chinese direct investment in Africa amounted to $21 billion by the end of last year, with 75 percent going to sectors such as finance, processing and manufacturing, trade-related services, agriculture and transport. More than 2,000 Chinese enterprises have invested in 50 African countries, and a great majority of their employees are local people.

"During the last five years, many Chinese companies have tapped sectors such as finance, agriculture and city planning in Africa. We are confident that there will be a steady flow of private capital from China to Africa," Zhou says.

At the same time, China has also initiated several tailor-made programs to train more than 40,000 African personnel in various fields.

In March last year, President Xi Jinping announced in Durban that China would help train 30,000 talented people for Africa in the next three years and provide 18,000 scholarships for African students to study in China.

Last year, Africa was one of the rare beacons of global growth, even as the investment climate deteriorated in Europe and the US. However, analysts believe that many African countries will face severe challenges in the years to come especially as they strive to translate economic growth into real benefits for the people. Poor infrastructure, insufficient education and lack of skills are major impediments, they say.

But with China-Africa relations growing from strength to strength, it is only a matter of time before these problems can be reduced, analysts say.

"The mutual investments by enterprises from different industries should be expanded as a way to balance the trading cooperation further," says Wang Yuzhu, a researcher from the Institute of International Strategy at the Chinese Academy of Social Sciences.

Wang says that the economic relationship could be particularly fruitful for Chinese enterprises as they could find new business partners in other developing countries.

"Hopefully more supporting policies and guidelines will be released to help and encourage more privately-owned companies from China to make investments in projects in Africa, ones with lower risks and stable returns," Zhou says.

Another delegation led by Zhou will travel to Africa later this month, while visits by other Chinese entrepreneurs will continue.

"We expect to clinch more deals in other sectors," Zhou says.

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