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China to spur Africa's growth

While the global recession has wiped out capital in the West, the Chinese economy is robust, its firms hungry for Africa's resources and its state-backed financial institutions willing to do business on more equitable terms with the continent, writes WANETSHA MOSINYI

The Third Scramble for Africa here and is "absolutely unstoppable", according to a Sino-Africa trade expert. But this time around, the scramble is of mutual benefit. But the big question is: Is Botswana, and indeed the rest of Africa, ready to do business with China?

The worst global recession since World War II will definitely usher in a new economic, trade and investment order. With its massive sovereign-backed capital that the West is reluctant to accept while "strategically open" Africa is eager for investment, such an order will be typified by the emergence of China as the next superpower.

In just ten years, the Sino-Africa trade shot up to US$106.8 billion in 2008, which was two years ahead of target.

The global downturn has brought about a phenomenon known as 'decoupling', which means larger emerging economies are becoming less dependent on American spending.

China, for example, last year registered a GDP growth of 6 percent despite the collapse of the US and European economies.

Leading China-Africa trade expert, Dr Martyn Davies, says the relationship between the Asian giant and the African continent is not decoupling but rather the "New Coupling".

"The high commodity demand from China has spurred African growth in the last decade while China's growth has become dependent on Africa's capability to meet that demand," Davies, who is the Executive Director of the Centre for Chinese Studies at Stellenbosch University, said in Johannesburg recently.

Speaking at a Standard Bank Africa Forum in Johannesburg, Davies, who is also a Director for the Asia Business Centre at the Gordon Institute of Business Science, said China also wants to secure supply chains with commodity-rich Africa.

The Asian country wants energy security for its 1.6 billion people, but the US and its allies will do anything to block it from accessing oil-rich markets where they have vested interests.

However, sub-Saharan Africa's sources of massive oil like Nigeria and Angola offer China an alternative. Davies said the plus is that so far there is no political obstruction for China investing in Africa.

Anglo-Australian miner Rio Tinto last month walked away from a US$19.5 billion cash injection from Chinese state-owned Chinalco, a move observers believe was because of pressure from the West.

"The West's loss in business is Africa's gain," Davies said. "I won't be surprised if part of that US$19.5 billion finds its home in Africa."

Many observers believe African countries are still told how to run their economies by the West through stipulated rules that come with donor funding and subscribed macro policies that conform to the Bretton Woods institutions, the World Bank and the IMF.

However, China has a new risk model towards Africa, which brings a unique capital allocation that is relevant to the continent, especially infrastructure development.

Zambia is rich in copper and nickel and China forged a partnership early on that has resulted in a windfall of investments and infrastructure development. The Botswana government has also warmed up to doing business with China. The country's major infrastructure developments are now either financed or constructed by Chinese firms.

Recently, a consortium of the Industrial and Commercial Bank of China (ICBC) and Standard Bank signed loan agreements to provide $825 million for the expansion of Morupule B power project. The consortium will also provide a $140 million bridge loan for the project covering 85 percent of the project's debt financing. The Morupule B expansion project will be carried out by the China National Electric Equipment Corporation (CNEEC), which has been awarded a US$ 970 million contract to supply and build part of the power station. "The financing of the Morupule B Power Station is just one of 65 projects that the ICBC is currently funding on the African continent and is evidence of China's strong appetite for African investment opportunities," ICBC president, Jiang Jianqing, said in Gaborone recently. Another Chinese company, SinoHydro Corporation, is currently involved in the multi-million pula expansion of Sir Seretse Khama International Airport and is constructing the Dikgatlhong Dam and other major roads in the country. With risk being re-calculated and China Inc. investing in the continent in a counter cyclical fashion, there is renewed interest in Africa, Davies said China's new investment will also correct traditional investment patterns. "China sees Africa as an emerging market while the US and the EU see us as a preferential market," he said.

Since 2003, the annual growth of total Sino-Africa trade has averaged more than 40 percent. While China has become the largest lender to African countries and the second trading partner, there are still huge opportunities that can be harnessed from the "New Coupling", Davies said.

The global recession has wiped out capital in the US and the EU, resulting in bankruptcy in some of the Fortune 500 top companies. This has left Chinese institutions like the ICBC to be the biggest bank by market capitalisation in the world. China aims to have its companies occupy 10 percent of the Fortune 500 top companies by 2012. Davies said this would benefit Africa because some of these companies are trying to conquer the world whilst most of its activities will be in the continent.

(12 August 2009, Mmegi)

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