Chinese Investment Chinese Investment in Africa: in Africa:

Opportunities and Opportunities and ChallengesChallenges

William SoWilliam SoJuly, 2011July, 2011

ckwso@hotmail.comckwso@hotmail.com

Why Invest in AfricaWhy Invest in Africa One of the few unsaturated markets One of the few unsaturated markets Sustainable economic growthSustainable economic growth Large population/market sizeLarge population/market size Less strong competitionLess strong competition Generally ‘China friendly’Generally ‘China friendly’ Politically importantPolitically important Rich in untapped natural resourcesRich in untapped natural resources

Chinese Companies in Chinese Companies in AfricaAfrica

State-Owned Enterprises (SOE)State-Owned Enterprises (SOE) Non State-Owned CorporationsNon State-Owned Corporations Private BusinessesPrivate Businesses

SOESOE Typically large operationsTypically large operations Projects funded by Chinese government, Projects funded by Chinese government,

usually through G to G loan (well funded)usually through G to G loan (well funded) Infrastructure, resourcesInfrastructure, resources Skilled labour, low percentage of local labourSkilled labour, low percentage of local labour PrioritiesPriorities

– China’s interestsChina’s interests– Company’s InterestsCompany’s Interests– ProfitProfit

Non State Owned Non State Owned CorporationsCorporations

Typically medium sizeTypically medium size Projects funded by Chinese investors Projects funded by Chinese investors

(sufficiently funded)(sufficiently funded) Manufacturing, technologyManufacturing, technology Skilled labour at senior level, higher percentage Skilled labour at senior level, higher percentage

of local labourof local labour PrioritiesPriorities

– ProfitProfit– Company’s InterestsCompany’s Interests– China’s InterestsChina’s Interests

Private BusinessesPrivate Businesses Typically small size, mostly individually Typically small size, mostly individually

ownedowned Projects funded by individuals (poorly funded)Projects funded by individuals (poorly funded) Trading, shops and restaurantsTrading, shops and restaurants Low skill labour, small labour forceLow skill labour, small labour force PrioritiesPriorities

– ProfitProfit– Profit Profit – ProfitProfit

ChallengesChallenges POLITICALPOLITICAL

– Unstable governmentsUnstable governments– Civil WarsCivil Wars– Growing anti-Chinese sentimentGrowing anti-Chinese sentiment– Political issues with non-African Political issues with non-African

countries countries

ChallengesChallenges SAFETY AND SECURITYSAFETY AND SECURITY

– Frequent kidnapping of foreign workersFrequent kidnapping of foreign workers– High crime rate in many citiesHigh crime rate in many cities

Difficult to attract employees to take African Difficult to attract employees to take African assignmentsassignments

Usually employees have to be confined to a Usually employees have to be confined to a secured compound with limited outside secured compound with limited outside contactscontacts

ChallengesChallenges CULTURAL ISSUESCULTURAL ISSUES

– Language barrierLanguage barrier– Way of doing businessWay of doing business– Food Food – ReligionReligion

Most Chinese employees are there for a short Most Chinese employees are there for a short period of time, so they have no intention to period of time, so they have no intention to ‘mix’ with locals, therefore locals don’t see ‘mix’ with locals, therefore locals don’t see them as ‘friends’.them as ‘friends’.

ChallengesChallenges FINANCIAL RISKSFINANCIAL RISKS

– DebtsDebts– FraudFraud– Change of governmentChange of government

SOEs and large corporates are protected by SOEs and large corporates are protected by government loans and fundsgovernment loans and funds

Barter deals are commonBarter deals are common

The FutureThe Future The growth of Chinese investment in The growth of Chinese investment in

Africa will increaseAfrica will increase More local presence from Chinese More local presence from Chinese

non state-owned corporations and non state-owned corporations and private businessesprivate businesses

More African presence in ChinaMore African presence in China