1

1

2 Key Observations

3 Gearing up

4 Old news: Securing raw materials

6The emerging story: Reshaping Africa’s economic landscape

12 Globalisation with Chinese characteristics

14 All roads lead to—and from—China

2

3

4

5

In contrast, the mining sector engages both Chinese SOEs and privately owned firms. In 2010, the two largest Chinese investments in Africa’s mining sector involved both a SOE and a privately owned firm. The largest mining investment was a US$1.35bn deal by Chinalco, a Chinese SOE, in Guinea’s iron ore mining industry. The second largest was a US$1.2bn investment by Bosai Minerals, a Chinese privately owned firm, in Ghana’s Bauxite industry.

Largest Chinese investment in afriCa in 2010

investor value (Us$bn) sector/subsector Country

China State Construction Engineering

8 Energy/Oil Nigeria

CNPC and Rongsheng Holding 2 Energy/Oil Egypt

Chinalco 1.35 Metals/Iron Guinea

Bosai Minerals 1.2 Metals/ Aluminum

Ghana

Sinohydro 0.8 Power/Hydro CameroonSource: “China Global Investment Tracker: 2011”, Washington, DC: The Heritage Foundation, January 10, 2011, http://www.heritage.org/Research/Reports/2011/01/China-Global-Investment-Tracker-2011.

Chinese investment in Africa’s resource sector is significant, but not a game-changer. The economic structure of many African economies is based on trading raw materials instead of manufactured goods. However, this is changing. Chinese investment in Africa is becoming increasingly diversified as Chinese businesses seek investment opportunities in large new markets.

6

7

8

The Chinese firms have broken the monopoly of Western telecom firms in Africa through competitive prices, better ‘on the ground’ services and advanced technologies. However, Huawei and ZTE are also competing with each other in Africa. Consequently, Huawei has positioned itself as a low-cost yet high-quality telecom company. Huawei’s pricing strategy is to price itself not more than 15% lower than major international competitors to avoid to be seen as another low-cost Chinese provider. ZTE, on the other hand, prices up to 40% below international competitors and its products are therefore perceived as being of inferior quality. Huawei’s strategy has so far been the most successful. Despite increased competition from Indian and Brazilian telecom firms, Chinese enterprises are set to continue expanding their telecom businesses across the continent.

exampLes of Chinese teLeCom investments in afriCa

Year Country Company Description value (Us$)

2010 South Africa ZTE GSM/3G expansion 378m

2010 Nigeria Huawei NGN Mobile Softswitch n/a

2010 Libya Huawei Submarine cable n/a

2008 Angola ZTE Optic fibre backbone 1.2bn

2008 South Africa Huawei W-CDMA expansion 211m

2006 Ethiopia ZTE/Huawei/CITCC Fibre optic transmission/GSM network expansion

1.5bn

Source: JM International Journal of Service Marketing, http://jmacademy.com/wp-content/uploads/2011/01/jmijsm.pdf

Chinese investor profiLes

Chinese investors in Africa are not a homogenous group, but diverse actors ranging from SOEs, private enterprises and individuals. Chinese SOEs are mainly involved in resource extraction, infrastructure, and finance. The private enterprises include both large privately owned firms and small and medium-sized enterprises (SMEs) that operate across a wide-range of sectors. There are no exact figures on the total number of Chinese enterprises in Africa. Official Chinese estimates suggest that there are around 2,000 Chinese companies. However, this figure is likely to be underestimated as the vast majority of Chinese firms in Africa are privately owned and many are SMEs that are not officially registered.

There are several reasons for why Chinese enterprises are increasingly investing in Africa. Many Chinese businesses are escaping fierce competition at home by seeking new commercial opportunities in Africa. Some Chinese corporations that have strong trade-links with Africa engage in greenfield investments by setting up factories on the continent to circumvent Africa’s weak supply chains. Other Chinese companies invest in Africa as the first stop to test the waters in their overseas ventures. Since most Chinese firms’ strictly focus on new market opportunities, and not risks, they often invest in places that many other foreign firms would avoid. In general, Chinese companies have long-term strategies in Africa. Africa provides low labour costs, rich raw materials and huge market potential.

9

10

11

China’s speCiaL eConomiC Zones in afriCa

Country name

total investment (Us$m) sector focus

Zambia Zambia-China Economic and Trade Cooperation Zone

410 Copper and cobalt processing

Zambia (subzone) (subzone) Garments, food, appliances, tobacco, electronics

Egypt Egypt Suez Economic and Trade Cooperation Zone

80 Textile & garments, petroleum equipment, automobile assembly, electronics assembly

Nigeria Nigeria Lekki Free Trade Zone 369 Transportation equipment, textile & light industries, home appliances & telecommunication

Nigeria Nigeria Ogun-Guangdong Free Trade Zone

500 Construction materials & ceramics, ironware, furniture, wood processing, medicine, computers, lighting, and possible high-tech agricultural demonstration park

Mauritius Mauritius JinFei Economic and Trade Cooperation Zone

720 Manufacturing (textile, garment, machinery, hi-tech), trade, services (tourism, finance, education, healthcare, real estate), solar energy

Ethiopia Ethiopia Oriental Industrial Park

101 Electric machinery, steel & metallurgy, construction materials

Source: Brautigam & Tang, “African Shenzhen: China’s special economic zones in Africa”, J. of Modern African Studies, 49, 1 (2011), pp. 27–54

The SEZs are also intended to function as centers for Chinese economic activity in Africa, and Chinese enterprises are being given various incentives to invest in the zones. However, steps have also been made to attract other foreign as well as local investors to the zones. For instance, a new US$1bn fund for small and medium-sized African enterprises is directed towards helping African entrepreneurs set up businesses in the zones. Moreover, the Chinese developers of the Zambian zone have stated that they aim to attract forty Chinese companies and at least ten from other countries (including Zambia).

Further, the SEZs require large investments in infrastructure, both within the zones and to connect them to ports and regional markets. China has so far invested US$250m in infrastructure construction of the SEZs. China’s commercial strategy is to link the SEZs by building infrastructure corridors across scattered African markets. As a result, Africa will receive a much needed transnational infrastructure network that will reduce transport costs and benefit regional economic integration as well as African trade with the rest of the world. If the SEZs succeed in attracting foreign and local investment, and advance African countries’ industrial competitiveness, the zones have the potential to expand Africa’s export capacity from raw materials to finished products. And this will turn Africa into the next manufacturing hub.

12

13

14

Tel Fax E-mail

Beijing +86 10 8571 2188 +86 10 8571 2002 beijing_customerservice@economist.com

Dubai +971 (0) 4 433 4202 +971 (0) 4 438 0224 ecninfo@economist.com

geneva +41 22 566 24 70 +41 22 346 93 ecninfo@economist.com

hong Kong +852 2585 3888 +852 2802 7660 hk_customerservice@economist.com

Kuala Lumpur +65 6534 5177 +65 6534 5077 sea_customerservice@economist.com

shanghai +86 21 6473 7128 +86 21 6473 9268 shanghai_customerservice@economist.com

singapore +65 6534 5177 +65 6534 5077 sea_customerservice@economist.com

tokyo +81 3 5223 2181 +81 3 5223 8104 japan_customerservice@economist.com