China’s growing prominence in Africa to be outlined at Zimec

3rd June 2011 By: Jonathan Faurie

The increasingly prominent role that China-based mining companies are playing in Africa will be the focus of the China solutions- focused company, The Beijing Axis (TBA), at the inaugural Zambian Mining and Energy Conference (Zimec), which will be held in Lusaka from June 14 to June 16.

TBA director Nitesh Dullabh reports that Chinese foreign direct investment into Zambia has grown by more than 1 000% since 2001.

“This investment has significantly bolstered Zambia’s economy, creating new local employment opportunities, raising output and providing Zambia with much-needed capital. These investments were even maintained during the 2008 global financial crisis, indicating China’s commitment to maintain a long-term relationship with Zambia,” says Dullabh.

He adds that Zambia plays an important role in Chinese growth as the infrastructure and economic build programme, which was initiated in China in early 2000, is heavily dependent on commodities that Zambia is rich in. Dullabh points out that China will continue to seek copper, uranium and other resources from Zambia and is likely to triple its annual consumption of copper over the next 20 years, prompting Chinese companies to seek control of copper mines in Zambia and elsewhere.

“That said, Zambia’s government will hopefully persuade the Chinese to invest more actively in the broad-based value- added manufacturing sector, or in the mining sector. This can be seen by the development of the Chambishi Special Economic Zone, which is partially operational and focuses on copper and copper-mining-related industries. Also, I think that ser- vices will continue to attract more attention, especially in areas like telecoms, logistics and information technology,” says Dullabh.

Growing Importance
At the 2010 Zimbabwe Mining Indaba, TBA director Matt Pieterse reported that, although Africa is one of the few areas of rich mineral resources which remains underexplored and underdeveloped, it is a small piece of China’s overall global expansion plan.

This seems to have changed in the eight months since the Zimbabwe Indaba.

“Africa has become very prominent in China’s strategy, but it has not yet attracted the high levels of investment China pursues in, say, Australia, because Africa is a complicated and fragmented market. China is still very interested in Africa and TBA is seeing investment and acquisition deals picking up, as China attempts to secure supplies of strategic commodities,” says Dullabh.

He adds that, currently, Africa is attractive, based on expectations of long-term returns, and, as a result, maintaining a stable investment climate becomes a big concern.

“The turmoil in North Africa and the Middle East has highlighted the risks of resources investment in the region and State-owned enterprises have become more thorough in assessments of potential deals with a higher level of due diligence. However, African countries themselves have yet to develop a comprehensive strategy for dealing with China and it is time for Africans to set the agenda,” says Dullabh.

Beyond the mining sector, there has been investment in manufacturing, including automotive assembly lines and textiles. The Chinese have invested across the spectrum, including forestry and services such as banking and logistics.

This is welcome news for Zambia, which is largely depen- dent on its mining industry to build an economy of substance. However, this mining industry almost collapsed after failed nationalisation attempts in the 1970s.

Zambia’s mining industry has seen a major turnaround since the 1970s, predominantly owing to democratisation and free market reforms. The industry has attracted around $5-billion in
investment since 2000, which has resulted in a threefold increase in copper production. This is an important achievement and is attributable to the implementation of prudent economic policies and the creation of a positive investment environment,” says Dullabh.

Warming to China’s Global Role
In the past, western countries were weary of the Chinese as they were unsure of the impact that such large-scale investment from a single country would have in a free market environment that does not look kindly upon monopolies. However, Dullabh points out that this has changed over the past year.

According to Dullabh, China’s overseas investment is clearly dominated by resource extraction, primarily oil, followed by
metals and minerals. Chinese investors are primarily interested in securing supplies of commodities such as iron-ore, thermal coal, bauxite, ferrochrome and copper, along with coking coal, platinum and uranium.

“The importance of China to the future of the global mining and metals industry is indicative of the fact that China has now become the world’s second-largest exporter. Moreover, China is by far outstripping the global growth rate in mining equipment and machinery exports, and that, too, with high international standards. Western companies have realised that having a Chinese partner or investor can provide them with a strong ally in highly competitive markets,” says Dullabh.

Moreover, the success of Zambia’s mining industry has created opportunities in other industries, such as manufacturing. Zambia's growth rates and its abundance of resources confirm that it is poised to continue making progress.

He also warns that the world is still to see the heights that Chinese investment can reach.