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China moves beyond resources in SA

Nov 24 2010 15:19 Reuters

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Beijing - Energy deals took centre stage during a southern African tour by China's leader-in-waiting, but the growing ties between China and Africa are quickly moving beyond the traditional sectors of energy and infrastructure.

Vice-President Xi Jinping this week wrapped up a visit to South Africa, Angola and Botswana.

Xi, who is expected to succeed Hu Jintao as head of the ruling Communist Party in 2012, witnessed the signing of deals worth millions of dollars to build a power plant and solar panel factory and to increase South African exports to China.

Less visible during state visits but increasingly important is trade in sectors besides resources. Chinese consumer goods are making huge inroads in African markets, and more and more Chinese firms are exploring manufacturing deals.

"The key trend going forward here is that we're seeing hundreds of thousands, literally, of micro Chinese entrepreneurs, procuring from China and selling at the grassroots to African consumers," said Martyn Davies, chief executive of Frontier Advisory in Johannesburg.

"At the higher end, in more formalised retail... maybe three-quarters of their procurement, non-food, is from China," he said.

While China sees Africa as a prime source for the oil and minerals its hungry economy needs, the continent is also a promising market for everything from tiny hair decorations to automobiles churned out by China's fiercely competitive manufacturers.

"There are a lot of complementarities between the Chinese and African economies," said Xue Lan, dean of public policy at Tsinghua University in Beijing.

Better infrastructure in Africa can help move ore and oil out, and let more consumer goods in. Textiles already make up 16% of African purchases from China; footwear and clothing account for another 14%.

Craig Bond, China head for Standard Bank, South Africa's biggest bank, said China's prime objective in Africa is obviously to obtain access to natural resources, but there is another longer-term objective.

"The second one is looking at the long game of those markets becoming consumer markets for Chinese goods," Bond said.

Growth ties

China has traditionally encouraged its state-owned companies tendering for African contracts to team up with one of its policy banks, such as ExIm Bank, whose remit is to support government goals.

But as China's engagement with Africa deepens, the financing needs could be a stretch even for deep-pocketed policy lenders: the World Bank has identified a $31bn shortfall in the continent's infrastructure funding requirements.

Industrial and Commercial Bank of China, the world's largest bank, is one of the banks Beijing is coaxing to broaden its footprint in Africa. It owns 20% of Standard.

As living standards rise, other opportunities beckon. Africa in 2008 had about 80 million households with income above $5 000 a year - roughly the population of China's four largest cities.

By 2020, that number could grow to about 130 million.

"There's a lot to be said: the telecoms sector is booming, infrastructure is booming, services are booming," said Ngozi Okonjo-Iweala, the World Bank's managing director.

With a population of 800 million and growing, sub-Saharan Africa will soon approach the size of China or India, two members of the Bric grouping. The others are Brazil and Russia.

"We're talking about Africa now as another Bric," Okonjo-Iweala said. "So this is a vast market for all kinds of goods, both consumer goods as well as industrial goods."

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