Tba on sino africa relationship - picc&hollard - 5 dec 2012 - final ho

www.thebeijingaxis.com

Opportunity, Risk and Risk Management in Africa

(PICC and Hollard Insurance)

Beijing, 05 December 2012

The Sino-Africa Relationship and Its Future Evolution

Haiwei Huang

Associate Director

The Beijing Axis

China-focused

International Advisory and Procurement

The Beijing Axis 1

Disclaimer

This document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of this document, no responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed

herein. Opinions, projections and estimates are subject to change without notice. This document is for information purposes only, and solely for private circulation. The information contained here has been compiled

from sources believed to be reliable. While every effort has been made to ensure that the information is correct and that the views are accurate, The Beijing Axis cannot be held responsible for any loss, irrespective of how it

may arise. In addition, this document does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute any prediction of likely

future movements or events in any form. Some investments discussed here may not be suitable for all investors. Past performance is not necessarily indicative of future performance; the value, price or income from

investments may fall as well as rise. The Beijing Axis, and/or a connected company may have a position in any of the investments mentioned in this document. All concerned are advised to form their own independent

judgement with respect to any matter contained in this document.

The Beijing Axis 2

The Beijing Axis’ Knowledge & Network Synergies

Beijing Axis

Commodities

• Commodity Marketing

• Commodity Procurement

Beijing Axis

Capital

• Transaction Origination

• Corporate Finance

Advisory

Beijing Axis

Procurement

• Comprehensive

Procurement Solutions

Beijing Axis

Strategy

• Strategy Formulation

• Strategy Implementation

• Founded in 2002; has successfully worked with many international and Chinese MNCs

• Operates in four synergistic cross-border China businesses

• Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL ENGINEERING and OTHER SERVICES sectors

• Provides solutions to international firms as they act in unfamiliar territory in China/Asia

• Provides solutions to Chinese/Asian firms as they venture out and ‗go global‘

The Beijing Axis - China-focused International Advisory and Procurement

The Beijing Axis 3

Africa Axis - Africa-focused International Advisory and Procurement

• Founded in 2010; has successfully worked with many international and African MNCs

• Operates in four synergistic cross-border African businesses

• Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL, ENGINEERING and OTHER SERVICES sectors

• Provides solutions to international/African firms as they go global

• Provides solutions to Asian/International firms as they venture into Africa

Africa Axis’ Knowledge & Network Synergies

Africa Axis

Commodities

• Commodity Marketing

• Commodity Procurement

Africa Axis

Capital

• Transaction Origination

• Corporate Finance Advisory

Africa Axis

Procurement

• Comprehensive

Procurement Solutions

Africa Axis

Strategy

• Strategy Formulation

• Strategy Implementation

The Beijing Axis 4

Key global factors

Source: The Beijing Axis Analysis

The backdrop

• China‘s rise … labour market and supply shock as a producer … engine as a consumer … investor

• New competitive lines and forces, winners/losers – the rise of Asia, BRICS, etc.

• A two-speed global economy over the medium and long term

• A lasting GDP trajectory in Asia, Africa and Latin America – governance, growth, stability, infrastructure, confidence,

etc.

The issues now

• Europe broken … fragile developed markets – and knock-on effects?

• China‘s landing – soft or hard? Implications for growth and resource demand?

• Tapping into the China story vs. over-reliance on China and need to diversify economic ties

• Strategic intelligence – to make decisions in boardrooms around the world in order to reposition

The Beijing Axis 5

Africa‘s economic fundamentals and current global position reflect its potential for long term economic growth and development

Source: IMF; UNCTAD; The Beijing Axis Analysis

0%

20%

40%

60%

80%

100%

World GDP 2010World GDP 2010 Developing

Countries GDP2010

Africa GDP

2010

Africa GDP

2010

Africa GDP

2010

Africa GDP

2010

Africa GDP 2010

USD 63 tn USD 63 tn USD 22 tn USD 1.6 tn

Europe

North

America

Asia

Africa

Mid-East

Africa

Developing

Countries

(excl. Africa)

Developed

Countries

Africa

Developing

Countries

(excl. Africa) Africa

South

Africa

Egypt

Nigeria

Algeria

Angola Kenya

Others

Ghana Tanzania

Northern

Africa

Southern

Africa

Western

Africa

Central

Africa

Eastern

Africa

Primary

Industry

Secondary

Industry

Tertiary

Industry

Private

Consumption/

Expenditure

Gross Capital

Formation

Government

Consumption/Expenditure

Net Exports

USD 1.6 tn USD 1.6 tn USD 1.6 tn USD 1.6 tn

Breakdown of Africa’s Share in the Global Economy (USD tn, 2010)

Lat Am

The Beijing Axis 6

Top 30 Countries Ranked by Average GDP Growth (%, 2007-2011)

Source: IMF; The Beijing Axis Analysis

Africa is home to some of the fastest growing economies in the world

16.6 11.8

11.2 10.5 10.5

10.0 9.7

9.2 9.1

8.9 8.8 8.7

8.3 8.1 8.0 7.9 7.8

7.4 7.4 7.3

7.1 7.0 6.9 6.9 6.8 6.8 6.7 6.6 6.5 6.5

0 5 10 15 20

QatarTimor-Leste

TurkmenistanChina

AfghanistanAzerbaijan

EthiopiaBhutanAngola

PanamaEquatorial Guinea

UzbekistanMongolia

IndiaGhana

LaosMalawi

RwandaUganda

Papua New GuineaPeru

NigeriaArgentina

MozambiqueTanzaniaLebanon

TajikistanVietnam

Sri LankaZambia

African Countries

Other Countries

Of the 30 fastest

growing economies

over the past five

years, 11 are in Africa

18.8 17.3

14.7 13.6

10.6 10.6

9.9 9.3 9.3 9.2

8.9 8.9 8.8 8.7 8.5 8.3 8.3 8.2 8.2

7.8 7.6 7.5 7.5 7.4 7.4 7.2 7.2 7.1 7.1 7.0

0 5 10 15 20

QatarMongolia

TurkmenistanGhana

Timor-LestePanama

IraqSolomon Islands

ZimbabweChina

Papua New GuineaArgentina

RwandaEritreaTurkey

UzbekistanLaos

Sri LankaKuwait

EcuadorEstonia

EthiopiaKazakhstan

TajikistanMaldives

IndiaNigeria

Equatorial GuineaMozambique

Georgia

African Countries

Other Countries

Top 30 Countries Ranked by GDP Growth (%, 2011)

2011 saw a similar

picture, with some

countries (Ghana and

Rwanda) accelerating

their growth, and others

(Zimbabwe and Eritrea)

joining the top 30

The Beijing Axis 7

Agenda

1. Political and Economic Aspects of the Sino-Africa Relationship

2. China‘s Outbound Investments into Africa‘s Resource Sector

3. The Future Trajectory of Sino-Africa Relations

4. Final Word

The Beijing Axis 8

China-Africa relations have steadily progressed through three distinct phases. The current phase is mainly driven by China's increasing need for resources and Africa's need to modernise

Phases of Sino-African Relations

Source: Variuos; The Beijing Axis Analysis

Political Phase

(1950s – mid-1970s)

Dormant Phase

(mid 1970s – late 1990s)

Commercial Phase

(2000s – present)

• Non-Aligned Movement

• African post-colonialism

• PRC vs. Taiwan recognition

• Recognition by China of newly

independent African states

• Foreign aid by China in return for PRC

(vs. Taiwan) recognition

• Mutually-beneficial UN voting support

Phase

Drivers

Examples

• China occupied with post-1978 ―Open-

Door Policy‖ and economic reforms

• Heavy competition for African influence

from US and USSR

• Slowly rising Chinese exports of light

industry production (garments, textiles,

toys)

• Small, trade driven deals mainly with

private Chinese firms

• China‘s demand for raw materials and

other resources

• China‘s quest for new markets for its

goods and services

• China‘s quest for international influence

via OFDI, aid, mediation / UN votes

• FOCAC, CAD Fund

• Government-to-government resource

deals

• Resources for infrastructure

• Long term financing with no strings

attached

• Chinese EPCs in Africa‘s infrastructure

build-up

The Beijing Axis 9

China-Africa relations have accelerated in the last decade, with Chinese high-level diplomatic visits to Africa often preceding heightened trade, investment, loans and aid

Key Phases of China-Africa Relations

Source: Various; The Beijing Axis Analysis

1999: China initiates its ‗going out‘ policy

1999: Chinese president sends letter to African presidents and

Organization for African Unity to establish ministerial conference

2000: First Forum on China-Africa Cooperation (FOCAC)

held in Beijing 2002: Ethiopia hosts China-Africa meeting of senior officials

2003: FOCAC meeting held

2004: China-South Africa Bi-National Commission (BNC) held

to strengthen ties

2005: China and the United Nations Development Programme launch the China-Africa Business

Council 2001: China admitted to World Trade Organization

1999 2000 2001 2002 2003 2004 2005

2006 2007 2008 2010 2011

2006: First China-Africa Business

Council held

2007: China-Africa Development Fund (CAD Fund) established to

assist Chinese investment in Africa

2007: Chinese bank ICBC takes 20% equity stake in

Africa‘s largest bank, Standard Bank

2008: CAD fund makes its first deal

2008: Banner year for Chinese investment in Africa, with total

trade topping USD 100 billion

2009: CAD Fund opens first office in Africa, in

South Africa

2009: Chinese President Hu Jintao

makes 6th diplomatic visit to Africa

2010: China extends zero-tariff policy to 454 goods for 30 African countries

deemed ‗least developed‘

2009: Fourth FOCAC Ministerial Conference held in Egypt

2011: Chinese Foreign Minister, Yang Jiechi, visits five African countries

2011: Press reports that China‘s policy banks—China Development Bank and China Exim Bank—loaned more to

the developing world than the World Bank since 2008

2009

5th FOCAC

in 2012

The Beijing Axis 10

Africa’s Top 20 Trade Partners (USD bn, 2010)

Source: UN Comtrade; The Beijing Axis Analysis

A number of Africa's most important trade partners are from Asia, with China being the largest one

67 87 31 41 31 22 29 16 15 12 6 11 9 6 8 10 5 2 1 3

60 28

35 23

18 27

14 15

15 12

16 9

10 9

6 3

5 7 7 5

0 20 40 60 80 100 120 140

ChinaUS

FranceItaly

IndiaGermany

SpainUK

NetherlandsJapan

S. KoreaBrazil

BelgiumTurkey

UAECanadaPortugalThailand

SingaporeMalaysia

Import from Africa

Export to Africa

In 2011, the total trade value

between China and Africa

reached USD 166 bn, with

imports and exports accounted

for 56% and 44% respectively

In 2011, the total trade

value between the US and

Africa was USD 127 bn,

with imports and exports

accounting for 75% and

25%, respectively

Asian Countries

India is second-

largest among

Asian countries

The Beijing Axis 11

5.6

67.1

5.0

59.8

0

10

20

30

40

50

60

70

80

2000 2010 2000 2010

China Trade with Africa (USD bn, 2000, 2010)

Source: UN Comtrade; The Beijing Axis Analysis

India Trade with Africa (USD bn, 2000, 2010)

While both Chinese and Indian trade with African countries has risen dramatically in the last decade, China significantly outperforms India in terms of Africa trade volumes

3.5

31.4

2.2

17.9

0

5

10

15

20

25

30

35

2000 2010 2000 2010

Imports Exports Imports Exports

In 2011, the

imports value was

USD 93.2 bn

In 2011, the

exports value was

USD 72.9 bn

The Beijing Axis 12

0 5,000 10,000 15,000 20,000 25,000

Resources

Electrical Equipment & Machinery

Textiles and Footwear

Metal & Products

Others

15,000 10,000 5,000 0

South Africa

Angola

Sudan

Nigeria

Egypt

Morocco

Algeria

Libya

Congo

Benin

China’s Trade with Its Top 10 African Trading Partners (USD mn, 2011)

Note: The top ten countries comprise more than 76% of China‘s total trade with Africa Source: UN Comtrade; The Beijing Axis Analysis

China‘s trade relationship with Africa is characterised by importing raw materials from Africa in return for Chinese manufactured goods

Chinese Imports

2011 USD mn

Chinese Exports

2011 USD mn

The Beijing Axis 13

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Cob

alt O

re('0

00 to

ns)

Alu

min

ium

(mn

tons

)

Nic

kel

('000

tons

)

Iron

Ore

(mn

tons

)

Pla

tinum

('000

oz)

Chr

ome

Ore

('000

tons

)

Cop

per

Ore

('000

tons

)

Zin

c O

re('0

00 to

ns)

Man

gane

seO

re…

Demand Production

China’s Implied Demand and Domestic Production of Commodities (2010)

0

50,000

100,000

150,000

200,000

250,000

300,000

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Exports Imports

Source: USGS; BP; WGC; USDA; Various; The Beijing Axis Analysis

China’s Mineral Product Imports and Exports (USD

mn, 1992-2010)

China‘s demand outstrips domestic supply across a number of commodities. As a result, imports are needed to compensate for the deficit

The Beijing Axis 14

Raw material producers around the world are benefiting from this trend - Africa is a key supplier of these raw materials to China

Note: The number inside the dot represents the importer‘s world rank Source: UN Comtrade database; The Beijing Axis Analysis

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

3

2

1

4

5

1 2

3

4

5

China

1

2

3 4

5

1

2

3

4

5

Copper Ore

Zink Ore

Nickel Ore

Bauxite

Lead Ore

Chrome Ore

Platinum

Manganese

Crude Oil

Iron Ore

Coal

1 2

3

4

5

1

2

3

4

5

1

2

3

4

4

The Beijing Axis 15

Africa is a key supplier of cobalt, manganese, chromium, platinum and crude oil to China

China’s Imports of Selected Commodities from Africa (USD bn, 2001-2011)

Note: Bubble size is based on the commodity‘s share of China total commodity imports from Africa in 2011 Source: UN Statistical Database; The Beijing Axis Analysis

CAGR 2001-2011

-20%

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

China’s imports from Africa as a % of total world imports in 2011

Cobalt Ore

Ferroalloys

Nickel Ore Petroleum Gases

Electronics Stainless Steel

Platinum Crude Oil

Copper Ore

Chromium Ore Manganese Ore

Diamonds

Iron Ore

Wood

Tobacco

Cotton

- High growth rate

- High volume

- Highest growth

- High volume

- Most strategic

- 95% of China‘s imports

come from Africa

The Beijing Axis 16

A more in-depth view of China‘s import structure from Africa is attainable after excluding oil

China’s Imports of Selected Commodities from Africa, excl. Crude Oil (USD bn, 2001-2011)

Note: Bubble size is based on the commodity‘s share of China total commodity imports from Africa in 2011 Source: UN Statistical Database; The Beijing Axis Analysis

CAGR 2001-2011

-20%

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

China’s imports from Africa as a % of total world imports in 2011

Cobalt Ore

Ferroalloys

Nickel Ore Petroleum Gases

Electronics Stainless Steel

Platinum

Copper Ore

Chromium Ore Manganese Ore

Diamonds

Iron Ore

Wood

Tobacco

Cotton

- Most strategic

- 95% of China‘s imports

come from Africa

- High growth rate

- High volume

- Highest growth

- High volume

The Beijing Axis 17

The upshot

• China‘s engagement with Africa is partially responsible for Africa‘s dynamic growth over the past

decade

• Sino-Africa relations have strengthened in the last decade, with high-level Chinese diplomatic visits

to Africa often preceding heightened trade, investment, loans and aid

• While China‘s role in Africa trade outperforms those of other Asian nations, it still mostly focuses on

the resource sector

• Continuous and robust domestic consumption will drive growth moving forward – China will retain

its influence in resource demand even as its growth rate slows

The Beijing Axis 18

Agenda


2. China’s Outbound Investments into Africa’s Resource Sector


4. Final Word

The Beijing Axis 19

0 50 100 150 200 250 300 350

USJapan

UKFrance

Hong KongBelgium

SwitzerlndRussiaChina

Virgin Is.Germany

CanadaItaly

SpainNetherlands

AustriaSweden

SingaporeDenmarkS. Korea

World’s Top 20 Outward FDI Originators, Flows (USD bn, 2011)

29.9 33.2 44.8 57.2 90.6

117.8

184.0

245.8

317.2

383.4

560.0

0

100

200

300

400

500

600

02 03 04 05 06 07 08 09 10 11 15F

Flows Stock

*Note: China OFDI flows for 2011 do not include financial investments from September-December 2011 Source: WIR 2011; The Beijing Axis Analysis

China OFDI Stock and Flows (USD bn, 2002-2015F)

China was the world‘s ninth-largest investor in 2011, ahead of other Asian countries, except for Japan. China‘s OFDI stock is expected to reach USD 560 billion by 2015

China ranked 6th in 2009


and 2007



In 2011 alone, China invested in

1,392 overseas projects in 132

countries

In 2011, China‘s ranking

slipped to 9th overall, as the

Euro debt crisis discouraged

investment in the region

The Beijing Axis 20

0

20

40

60

80

2004 2005 2006 2007 2008 2009 2010 2011E

OthersLeasing & Commercial Service*Banking and InsuranceWholesale & Retail TradeTransport, Storage and Postal ServiceManufacturingMining

Breakdown of Overseas Investments by Sector (USD bn, 2004-2011E)

31%

28%

17%

10%

5%

9% Iron Ore

Copper

Aluminium

Platinum

Exploration

Others

*Note: Commercial services include investments in holding companies, regional headquarters or SPVs that are often established in offshore centres to invest in other countries and sectors Source: MOFCOM; The Beijing Axis Analysis

Value of China’s Mining and Metals Investments by Commodity (2011E)

China’s investments in chrome, nickel, and manganese are still very

small compared to other commodities

Resources occupy a key position in China‘s OFDI story – Taking into account the SPVs, the mining industry ranks high in overall investments

The Beijing Axis 21

OFDI Stock in Africa by Source (USD bn, 2009)

Source: UNCTAD; The Beijing Axis Analysis

China already has a major role in Africa. It has invested much more in Africa compared to Japan, although China still trails behind some of the traditional colonial powers

0 10 20 30 40 50 60 70

UK

France

US

Netherlands

Switzerland

China

Italy

Spain

Japan

Canada

Denmark

Turkey

Ireland

Other OECD

Official Japanese OFDI

stock in Africa: USD 5.7 bn

Official Chinese OFDI

stock in Africa: USD 9.3 bn

Asian Countries

Other Countries

The Beijing Axis 22

Major Chinese Loans, Grants, and Development Aid in Africa (2002-2010)

Source: Overseas Development Institute; Congressional Research Service; The Beijing Axis Analysis

Apart from equity investments, China funds a significant number of key projects in Africa via grants, loans and export credit lines

Country Project Type Value (USD mn) Financing Aid Type

Angola

Extensive infrastructure in

energy and railways 7,400

Interest-free loans and

repayment in oil

Housing and related

infrastructure 3,500

Government-sponsored

investment

Safe drinking water 230 Concessional Loan, EXIM

DRC

Telecommunications 9.66 Concessional Loan, EXIM

Extensive infrastructure

from mining, roads,

railways, housing, medical

centres and universities

6,000

Concessional Loan,

repayment in future copper

and cobalt extraction

Mining infrastructure and

logistics 3,000


investment

Fiber optic 33.6 Preferential loan, EXIM

Mozambique Dam & plant infrastructure 2,300 Concessional loans

Uganda Government offices 20 Grants, donations

Tanzania ICT infrastructure 160 Concessional loan, EXIM

Ethiopia Infrastructure, hydropower,

public buildings 2,000 Loans, grants

Equatorial

Guinea Not specified 2,000

Concessional loans, credit

lines

Country Project Type Value (USD mn) Financing Aid Type

Nigeria

Offshore oil development,

railways, medical training 1,600

Debt cancellation,

investments and grants

Power plants and road

reconstruction 3,400


investment

Communications &

education program 100 Loan, EXIM

Kenya

Road construction 120 Concessional loan, EXIM

Electricity 20.17 Concessional loan, EXIM

Telecommunications 29.94 Concessional loan, EXIM

Zambia

Dam infrastructure and

power station expansion 1,000 Concessional loan, EXIM

Sports stadium 65 Grants, donations

Commerce 1,000 Concessional loan, EXIM

Ghana Infrastructure, education

and health programs 13,000

Concessional loan, EXIM

and CDB

Gabon Port, railway,

infrastructure, mining 3,000 Investments, grants

Sudan Oil production 4,200 Investments, loans, grants

During 2002-2007, China‘s economic assistance to

Africa amounted to USD 33bn. Of this, USD 17.8bn

went to infrastructure projects and USD 9.4bn to the

natural resource sector

The Beijing Axis 23 Source: MOFCOM; The Beijing Axis Analysis

China‘s outward FDI into Africa is concentrated in a few countries. In 2010, South Africa, DRC, Niger, Algeria, and Nigeria collectively accounted for nearly 60% of Chinese OFDI in the continent

China’s OFDI Flows to Africa (USD mn, 2010)

0 50 100 150 200 250 300 350 400 450

South AfricaDRCNiger

AlgeriaNigeriaKenyaAngolaZambia

EthiopiaGhanaEgypt

BotswanaCongo

MadagascarSudanLiberia

UgandaCAR

TanzaniaGabonOthers

Account for 60% of

total OFDI

The Beijing Axis 24

Africa’s Share of China’s OFDI Flows (USD mn, 2003-2010)

Source: Chinese Statistical Bulletin of OFDI; Xinhua; The Beijing Axis Analysis

Top 10 Sectors of China’s OFDI Stock in Africa (%, 2010)

China‘s total OFDI flow to Africa has risen dramatically since 2003, with investments well diversified across a number of sectors

75 317 392 520

1,574

5,491

1,439

2,112

0

1,000

2,000

3,000

4,000

5,000

6,000

2003 2004 2005 2006 2007 2008 2009 2010

29%

22% 16%

14%

6%

4%

3% 3% 3%

Mining

Manufacturing

Construction

Finance

Business Services

Wholesale & Retailing

Science, Technology andGeological Exploration

Agriculture, Forestry, AnimalHusbandry and Fisheries

Others

2.6% 5.8% 3.2% 2.5% 5.9% 9.8% 2.6% 3%

The Beijing Axis 25

Note: Includes oil and gas Note: The dots do not represent a particular investment, only focus countries for mining-related investments

Source: Various; The Beijing Axis Analysis

China is Asia‘s leading investor in Africa‘s mining sector. Recently, India has been increasing its presence in the region

Focus Countries for Mining-related Investments in Africa (2011)

Selected Major Chinese and Indian Players in Africa

China USD 2 bn

(2010 Investments in Africa)

India USD 1.5 bn

(2010 Investments in Africa)

China National Petroleum Corporation (CNPC) – Algeria,

Chad, Equatorial Guinea, Libya, Mauritania, Niger, Nigeria,

Sudan, and Tunisia (oil and gas)

Sinosteel Corporation – South Africa, Zimbabwe and

Cameroon (iron ore and steel)

Jinchunan Group (JNMC) – Zambia, Tanzania (nickel), South

Africa (platinum)

China Nonferrous Metal Mining Corporation –Zambia

(copper)

Nava Bharat Ventures Limited – Zambia (coal)

National Mineral Development Corporation – Senegal (iron

ore)

Essar Steel – Zimbabwe (iron ore and steel)

Vedanta Resources – Namibia, South Africa (zinc)

China Minmetals – South Africa (chromite, ferrochrome),

DRC (copper)

The Beijing Axis 26

Company Africa Role Africa Presence

China

Communications

Construction

CCCC‘s specialty is in transportation projects, yet in

Africa it also participates in more engineering-oriented

tasks, particularly those related to mineral extraction.

It is active in more African countries

(24) than any other Chinese firm

China State

Construction

Although a majority of its internationally earned

revenue originates in Asia, its 28.5 billion oil

refinery/petrochemical plant project in Nigeria awarded in 2010 shows its tremendous potential in Africa.

Active in Algeria, Benin, Botswana,

DR Congo, Egypt, Ethiopia, Guinea,

Libya, Nigeria, Republic of Congo, and Tanzania.

China Railway

Construction

Although its involved in a wide range of construction

projects on the continent (housing, railway, electrical

lines), its focus countries remain primarily in North Africa.

Active in Algeria, Angola, Benin,

Ethiopia, Libya, Niger, Nigeria, and

Sudan

Metallurgical

Corporation of China

MCC ranks highly in international contracting, although

most of its attention has focused on Asia and Australia.

Recently, the company has been diverting more of its attention toward Africa, particularly within the realm of

mineral extraction and beneficiation.

Active in Algeria, Angola, Egypt,

Ethiopia, Libya, Nigeria, and

Zimbabwe

Sinohydro

Although known for hydropower and irrigation projects,

Sinohydro has also constructed many road projects in

Africa.

Active in Algeria Angola, Botswana,

DR Congo, Ethiopia, Gabon, Ghana,

Kenya, Libya, Mali, Mozambique, Niger, Republic of Congo, Sudan,

Tanzania, Uganda, and Zambia

China National

Machinery Industry

It is one of the top international contractors for power

projects. Although most of its international revenues

are generated in Asia, the company is very active in many Africa countries, spanning various project types

(housing, water plants, power plants, sugar plants).

Active in Angola, Botswana,

Cameroon, DR Congo, Gabon,

Ghana, Guinea, Ivory Coast, Kenya, Liberia, Libya, Nigeria, Republic of

Congo, Senegal, Sierra Leone,

Sudan, Zambia, and Zimbabwe

Mapping of Chinese Contractors with Large Presence in Africa

Note: CITIC Construction is not featured here because its scope is limited to only two countries in Africa, Algeria and Angola, and seemingly through only two projects. Source: ENR; The Beijing Axis Analysis

Highlights of Chinese Contractors with Large Presence in Africa

As China often secures access to mineral resources and oil in exchange for infrastructure development, Chinese EPC companies have become dominant in Africa

China Communications Construction

China State Construction

China Railway Construction

Metallurgical Corporation of China

Sinohydro

China National Machinery Industry

Some of China's EPC span their scope across the

entire continent and various sectors

The Beijing Axis 27 Source: Various; The Beijing Axis Analysis

Apart from resources, China is setting up free economic zones across Africa in order to supply various products to both local and international markets

China-sponsored Free Economic Zones in Africa Highlights

• Ogun Free Trade Zone (Nigeria)

Focus: construction materials, furniture and wood processing, ceramics, ironware and electronic machinery

• Lekki Free Trade Zone (Nigeria)

Focus: light manufacturing, transport, telecommunication and home

appliances

• Dukem Industrial Park (Ethiopia)

Focus: light manufacturing

• Chambishi Economic and Trade Cooperation Zone (Zambia)

Focus: mining industry (processing)

• Lusaka Economic and Trade Cooperation Zone (Zambia)

Focus: electronic component assembly and manufacturing

• Jinfei Economic and Trade Cooperation Zone (Mauritius)

Focus: light manufacturing

• More zones are planned in in the main financial and business hubs of

Sub-Saharan Africa, such as Johannesburg, Nairobi and Accra

Ogun Free Trade Zone (2014-2015)

Nigeria

Ethiopia

Zambia

Mauritius

Lekki Free Trade Zone (2014-2015)

Dukem Industrial Park (2013)

Chambishi Economic and Trade Cooperation Zone (2014)

Lusaka Economic and Trade Cooperation Zone (2012)

Jinfei Economic and Trade Cooperation Zone (2012)

• China‘s outbound capital will continue to hit the headlines - Africa has not yet seen the full impact of

this

• Overseas investment is moving beyond trade facilitation and natural resources, driven by an

increasing need to reach high-growth markets and to pursue advanced technologies. Link and align

these trends to the existing strategy

• Chinese investors proceeding more cautiously and are becoming more selective about asset quality.

Valuation, cost escalation, operations in unfamiliar jurisdictions, and operational risks are the major

concerns

• During the past decade, Chinese contractors have captured an increasing share of Africa‘s contracted

revenue, from as low as 7% in 2001 to as high as 38.7% in 2010, playing the dominant role on the

continent

• China‘s investments into Africa do not only carry a resource agenda. China is setting up free

economic zones in Africa that span across various industries, including light manufacturing, construction materials, transport and electrical machinery

The upshot

The Beijing Axis 29

Agenda




4. Final Word

The Beijing Axis 30

20,337

19,634

25,807

4,280

4,486

2,259

0

5

10

0% 5% 10% 15% 20% 25% 30% 35% 40%

Asia-Pacific

North America

Europe

Emerging economies are outperforming the developed world in terms of economic growth. Asia is leading this transformation in the global balance

Regional GDP Comparison (USD bn, 2015F)*

*Note: Data based on IMF World Economic Outlook **Note: Other Asia includes Bangladesh, Sri Lanka, Nepal, Pakistan, Bhutan, Burma, North Korea, Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan.

Source: IMF 2012; The Beijing Axis Analysis

South America Africa

Other Asia**

Developed economies are

expected to continue to lose

share in world GDP in the

coming years

Asia-Pacific is expected to

account for the largest share of

world GDP (34%) by 2015F

2011E to 2015F

2011E to 2015F

GDP Average Growth Rate (%, 2011E-2015F)

Forecast world

average GDP

growth until

2015F: 3.95%

% of World GDP (2015F)

Shaded bubbles represent

2011E figures Rising real incomes and

high commodity prices

will drive growth

BRICS 2015F GDP (USD bn)

2011* Growth Rate (%)

2010 GDP Per Capita (USD)

China 10,903.6 9.2% 4,382.1

India 2,359.2 7.4% 1,370.8

Russia 1,926.1 4.1% 10,355.7

Brazil 2,546.7 2.9% 10,816.5

South Africa 425.6 3.1% 7,274.4

Bubble Size: Nominal GDP (USD bn, 2015F)

The Beijing Axis 31

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2010 2015F 2020F 2025F 2030F 2035F

China

IndiaYear

2010-2015F

2016F-2025F

2026F-2035F

GDP Per Capita 2035F

(USD)

China 8.0% 7.0% 6.5% 22,458

India 7.5% 7.0% 6.5% 6,070

2016F: China adds 1 Germany

2025F: China adds 2 Japans

2028F: China adds 1 US

2026F: India adds 1 Germany

2032F: India

adds 1 Japan

2010-2016

2010-2020

2010-2025

2010-2028

2010-2020 2010-2026

2010-2032

2020F: China‘s economy doubles

2020F: India‘s economy

doubles

Sustainable Growth Phase

Continued Acceleration

Drive to Maturity Phase

Growth Moderation Phase

2013F: India adds 1 South Africa

Now

2010-2013

China

India

Moderating Phase China

India Accelerating Growth

Box indicates additional nominal

GDP from now to forecast year

China’s and India’s Forecast Nominal GDP (USD bn, 2010-2035F*)

*Note: Forecast GDP growth rate for each period listed in the graph above Source: IMF; The Beijing Axis Analysis

China and India will add significant nominal GDP over the next 10 years and beyond, yet the type of growth will differ

The Beijing Axis 32

Future developments in Sino-Africa economic relations

• China‘s share of trade with Africa has exploded in the last decade, making it Africa's largest trade

partner

• While China‘s trade and investment growth in Africa will be driven by its own need for resources, the

need to develop consuming markets that will buy Chinese goods and services is equally important

• This will help open Africa‘s huge potential for private consumption, as the need for manufactured goods

will remain strong while Africa continues to develop its own manufacturing capabilities

• China is playing an increasing important role in job creation and supply to the local market, evidenced

by the establish of free economic zones in the main financial and business hubs of Sub-Saharan Africa

• Another area of opportunity is Africa‘s infrastructure sector, as decades of underinvestment and

mismanagement have resulted in underperforming sectors in railways, roads and power. A substantial

amount of work has been done in the last decade with the help of Chinese investment, but much more

needs to be achieved

The Beijing Axis 33

Current and future trends in China‘s development affirm the deepening of ties with Africa

Slower economic growth

does not mean no growth

Its all about strategic

policy choices – Beijing

‘gets’ this

Moderate GDP

growth and

sustainable demand

for commodities

China will remain the

global engine for

resource demand

Understand the

variability, volatility

and exceptions

Increasing China’s

outbound investment

in the region

Implications for Africa Current and Future

Trends Description

Moderating commodity

demand (moving towards

sustainability)

Exceptions will occur

Balance of risks shifting

Increased volatility

China will reengineer itself towards a more moderate growth phase with a

different set of drivers. Commodity demand remains solid

Rates of growth in resource demand during the super-cycle 2004-2008 were

unsustainable. Chinese policy makers allow a moderation in GDP growth

looking for sustainability

Commodity demand in China will be moderate but China remains the single

biggest global engine of resource demand and will be that for a long time to

come

There will be some (individual commodity) exceptions to high growth

commodity demand. It is necessary not to generalise about ‗China potential‘

but to understand the detailed supply/demand of each individual commodity

The one-way supply/price risk for buyers in a seller‘s market has now begun

to shift towards two-way risk where buyers and sellers will share risk

Volatility could increase as the market grapples with the reality that China

not be a one-way bet. Markets will adapt to the reality of more moderate but

more sustainable demand


1

2

3

4

5

6

Chinese outbound

investment will continue China‘s outbound capital will continue to hit the headlines. Overseas

investment is moving beyond trade facilitation and natural resources

7

The Beijing Axis 34

China‘s significant financing potential and EPC capabilities provide a ‗win-win‘ situation for Africa‘s growing need for infrastructure development


High Economic Growth – Growing Domestic

Demand

Significant Capital and Financing Appetite

What does China have to Offer?

Strong EPC Capabilities Across All Disciplines

Renowned Africa/International Project Experience

Hedge Against Global (Western) Risk

1

2

3

4

5

Need for Infrastructure Development

Limited Domestic EPC Capabilities

How does Africa Benefit?

Need for Foreign Capital Influx

Raw Material Export Market for Africa



Need for Infrastructure Development

Limited Domestic EPC Capabilities

Protection from Fragile Developed Market



The Beijing Axis 35

Agenda




4. Final Word

The Beijing Axis 36

Final word • There are new markets that matter – a new competitive landscape is unfolding. China, India, Asia and Latin

America to be central in this reconfiguration

• China-Africa partnership complex, very important for both sides; but China-Africa story is also relevant to the entire world as these 2 fastest growing areas of the global economy interact

• For China it is clear that Africa is a strategic imperative:

− Resource supply lines

− Markets for products and services, jobs

− Political influence and geostrategic objectives

• Africa increasingly sees China/Asia for its full potential:

− Sell resources into large, high-growth markets

− Seek capital and development partners

− Find new areas for growth and project development

− Access new technology and talent

• Appreciate the ‗outward-looking‘ stance of Asian players – new global leaders are emerging in Asia and they will act in global markets including Africa

• This new world brings about key trends, new realities and strategic issues – all actors are now (re)interpreting this future to understand the drivers of 1) broad trends and 2) exceptions – get close, be informed and strategic


COPYRIGHT© The Beijing Axis Ltd. 2012. No part of this publication may be reproduced or

transmitted in any form or by any means without prior written consent of The Beijing Axis.

THANK YOU!

Haiwei Huang

Associate Director, The Beijing Axis

E-mail: [email protected]


Beijing, China Cheryl Tang

GM, China [email protected]

Shanghai, China Julia Wang

Procurement Specialist [email protected]

Hong Kong TBA Secretary Corporate Office

3806 Central Plaza, 18 Harbour Rd, Wanchai, HK

Singapore Kobus van der Wath, Founder

Penthouse & LV 42, Suntec Tower 3, 8 Temasek Blvd, Singapore 038988

Perth, Australia Kobus van der Wath

Founder & Group MD [email protected]

Johannesburg, South Africa Dirk Kotze

Director; GM, Africa [email protected]

London, UK/Europe Matt Pieterse

MD, Beijing Axis Capital [email protected]

Russia Desk Lilian Luca (Beijing)

MD, Beijing Axis Procurement [email protected]

Latin America Desk Javier Cuñ at (Beijing)

GM, Beijing Axis Strategy [email protected]

Yangon, Myanmar Dr. Wong Yit Fan

Chief Representative +951 503599/374165

COPYRIGHT© The Beijing Axis Ltd. 2012. No part of this publication may be reproduced or

transmitted in any form or by any means without prior written consent of The Beijing Axis.

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