The relationship between Africa and China concerning Africa’s mineral resources is growing; however, mutually beneficial development and cooperation are required to ensure further successful partnerships between China and the countries of Africa, says The Beijing Axis (TBA) GM for strategic projects Dirk Kotze.

Chinese investors and mining companies are playing a positive role in the development of African resources, particularly in South Africa, Zambia, Nigeria, Sudan, the Democratic Republic of Congo (DRC) and Zimbabwe.

“As long as China has a resource demand, [it has] to engage in African mining because, globally, the best mining resources are already occupied, under development and being mined, while Africa’s resources remain mostly unexplored,” says Kotze.

Chinese contracting companies are also increasingly investing in infrastructure around the mines, which helps to alleviate supply bottlenecks and improves competitive- ness. However, these infrastructural investments are often secured against resources and further opportunities for Chinese firms.

A China-Africa economic and trade coope- ration report published by the Information Office of the State Council, in China, points out that Africa’s exports of minerals play an active role in promoting China’s economic development.

China will not establish infrastructure in Africa for the export of the mined commo- dities only. The infrastructure will also be used for secondary industries, such as manufacturing and exporting goods from China into Africa, says TBA director and GM for Africa Nitesh Dullabh.

It is also hoped that this infrastructure will help boost inter-African regional trade.

There are significant costs associated with China’s investments, resources and time in developing Africa’s infrastructure and there is a need for incentives for Chinese companies to undertake such projects.

Meanwhile, the report states that, as the African economy develops and China’s market grows, African countries, such as Mauritius, South Africa, the Seychelles, Nigeria and Tunisia, are increasingly investing in China.

Further, regulatory stability and pre- dictability are other challenges that can discourage investments into Africa. Establishing a mining operation can take many years and cost billions of dollars, while the return on investment is long-term.

Mining companies cannot be expected to successfully operate in regions where there are expectations that laws or royalty regimes will be changed. Security of tenure is perceived to be unstable in many parts of Africa with continued debates surrounding increased royalties and nationalisation, says Kotze.

However, many of the regulatory laws passed and policies developed are increasingly better drafted than previous laws, while many African countries are revising their mining codes for greater clarity.

“As the Chinese become more involved in African mining, a new emphasis is placed on the growth and development of Africa and how this can be sustained. African countries need to examine what they aim to gain from Chinese investors and develop agendas to meet those aims,” says Dullabh.

Certain African countries, including Angola and the DRC, are developing operating conditions for potential mining companies. Should they wish to invest in African mining, that specific country will benefit through taxes, rebates, development and technology and skills transfer.

Further, policies, such as indigenisation of the workforce and the use of local services and construction materials, have been implemented to increase the local benefits of foreign investment.

In a report titled ‘China and Africa: An Emerging Partnership for Development?’ economist Richard Schiere says: “To improve the mutual gains from African-Chinese cooperation, coordination should be improved between aid and investments from China by enhancing technology transfer and maximising positive spillover effects from foreign investment through the use of local labour and content requirements, as is done in several African countries.”

Dullabh says that the ability of African economies to translate the opportunities offered by China into sustainable development and poverty reduction depends on strengthening African governance and the business environment.

To ensure that the China-Africa relationship contributes to sustainable growth and poverty reduction, leadership is required from African governments, particularly to strengthen domestic policies and governance to improve the continent’s bargaining position with China, Schiere says.

Progress will also require participation and oversight by the African private sector and civil society organisations, as the policy framework that would maximise the benefits from foreign investment will differ, depend- ing on the individual circumstances and institutions of each African country.

Further, advancements can be made by identifying niche markets for African manufacturing products in China, and by expanding preferential trade access to Chinese markets for greater export diversification.

Local Element
Meanwhile, Chinese enterprises operating in Africa should develop good relations with the local people, by operating within the rule of law, and enhancing resource conservation and environment protection.

Chinese companies are increasingly hiring local labour for their operations. However, it would further benefit a Chinese enterprise seeking to establish itself successfully to employ local managers that have basic knowledge of the country in which the mine operates, the relevant legislation and regulations, and are well versed in its culture and able to act as interpreters between the local workers and the company, says Dullabh.

Further engagement between the management of Chinese-owned enterprises and African civil society organisations, including labour unions, would also assist in easing these challenges.

“Often, tensions reflect different traditions between how African and Chinese individuals regard engagement with civil society organisations and cultural and language differences. One way to improve the African understanding of Chinese policies is to expand scholarship opportunities for Africans to study in China,” the report further notes.

Schiere also recommends that China prioritise the development challenges of Africa within the established Forum on China-Africa Cooperation framework, including addressing issues such as food insecurity, climate change and adaptation technology.

Meanwhile, Kotze says that there is a gradual diversification in the nature of Chinese investments in African mining, which is changing from investments that aim to control deposits to investments in equity and offtake, as well as joint ventures and other types of partnerships.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.