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Emerging powers in Africa Watch

Another way to build a foothold

Stephen Marks

2009-04-23, Issue 429

http://pambazuka.org/en/category/africa_china/55802

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The nature of China's investment in Africa is changing, as the global economic crisis opens up new opportunities, writes Stephen Marks. Broad packages bundle infrastructure investment with aid and commodity purchase help Chinese firms enter African markets and gain a foothold. A US$5 billion China-Africa Development Fund will focus on infrastructure and mining, and target industrial parks and commercial agriculture. The Chinese government has said however that it has ruled out outsourcing of food production by investing in overseas farmland.

How will the global economic crisis impact on China’s African involvement? Till now discussion has focussed on whether the impact will be positive or negative. Claims that China’s involvement will continue or even grow have been countered with signs of a scaling down of previous commitments in a number of countries, especially DRC and Guinea.

But some pundits have been going beyond this debate to argue that the crisis is seeing a change in the nature of China’s involvement, in line with the more adventurous perspectives that the crisis is opening up for China globally.

Dr Martyn Davies of the Centre for Chinese Studies at Stellenbosch argues that the crisis will speed up China’s African investment . ‘Chinese financial institutions are now investing capital on the continent in a counter-cyclical manner, financing Chinese companies that, in most cases, are venturing abroad for the first time’ he claims. ‘As Western capital is now leaving emerging markets, including Africa, it is being supplanted by Chinese investment in hard infrastructure’.

Broad packages which bundle up infrastructure investment with aid and commodity purchases help Chinese firms enter African markets and gain a foothold. This is helped by what Davies calls ‘a new risk model’ which differs from that of Western investors thanks to the state-owned structure of Chinese banks. This enables investments which, Davies argues, are ‘arguably invested in a manner that is more suited to the needs of developing economies’.

A major actor here is the recently-launched US$5 billion China-Africa Development Fund [CADF], set up to fund Chinese firms investing in Africa. As well as traditional sectors for Chinese investment such as infrastructure and mining, it is also targeting commercial agriculture and industrial parks.

‘There are now four “official” zones that have been endorsed by the PRC government – in Mauritius, Egypt, Nigeria and Zambia. There are many more examples of the emergence of Chinese commercial clusters on the continent in at least eight other African economies. All of these zones are focused on beneficiation and local assembly manufacturing.’ Davies reports.

Riaan Meyer of the China and Africa project at the South African Institute of International Affairs also sees an expanding role for Chinese finance in Africa. ‘Chinese banks currently focus on financing energy, resources and infrastructure projects in Africa, but I predict they will move into other areas. These banks, especially the Bank of China, are already involved in trade finance,’ he adds. ‘Given the growing Chinese investment and associated presence in Africa, it is the logical next step that they move into other areas of commercial banking.’

Bright Simons, from the Accra-based think-tank IMANI, also sees a
shift in the focus of Chinese financing. ‘Rather than focus on the infrastructure behemoths that earlier Chinese inflows helped to put up, the CADF will emphasise entrepreneurial opportunities in a wide range of sectors where private-sector African operators could engage with their Chinese counterparts under the eagle eye of the state-appointed fund managers’ he predicts.

A shift by the fund to a more hands-on strategy was predicted this week by the CADF’s general counsel Mark Fung. ‘ We want to be less passive and more active’ he told a hedge fund conference in Hong Kong.

As he explained, most of the fund’s current investments, which range in size from US$5 million to US$25 million, are so-called ‘passive investments’ as the fund does not currently have the resources or expertise to take an active part in the management of its projects. The fund typically seeks 8-10 year-long investments, and is prohibited from taking majority stakes.

Significantly, Fung also claimed, in response to well-known concerns about the record of Chinese firms on environmental standards, that the CADF was one of the first Chinese funds to insist on an environmental assessment of the projects it invests in.

But how is the inclusion of farmland among the CADF’s investment areas to be squared with this week’s statement by China’s deputy agriculture minister Niu Dun, that China has ruled out joining the growing trend of outsourcing food production by investing in overseas farmland?

‘We cannot rely on [investments in] other countries for our own food security,’ Mr Niu told the Financial Times in an interview at the Group of Eight’s first meeting on agriculture. ‘We have to depend on ourselves,’ he said in the first comments on the subject by a senior Chinese policy maker.

The Chinese statement certainly seemed at odds with the consensus of the G8 meeting. Two of the UN’s leading food agencies - the Food and Agricultural Organisation [FAO] and the International Fund for Agricultural Development [IFAD] were
quoted as approving the potential of cross-border farmland deals in boosting global food supplies and food security – though the conference also approved the idea of a code of conduct for such deals.

The Minister’s statement also appears to be at odds with the finding by the Barcelona-based NGO GRAIN that ‘the Blackstone Group, one of the world’s largest private equity firms in which China has recently bought a stake, ‘’has already invested several hundred million dollars in the agricultural sector, mainly in buying farmland in areas like south of the Sahara’’.’

This may be another example of the well-known tendency for Chinese firms and investors on the ground to pay little heed to their government’s official policy statements. But there is not necessarily any contradiction. While the Chinese state might well not see land purchase overseas as a solution to China’s need for national food security, that does not mean that Chinese investors along with their other partners, might not see farmland as a sound commercial investment for the future as food prices continue to rise.

The difference is certainly meaningful for China. But it need not make much difference for those in Africa concerned for issues of food sovereignty.

* Stephen Marks is research associate and project coordinator with Fahamu's China in Africa Project.
* Please send comments to editor@pambazuka.org or comment online at http://www.pambazuka.org/.


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