Africa: A prime mining investment for China
Africa is a resource-rich economy as is reflected in its trade relationship with China, a region which is not as rich in natural resources. With almost 80% of Africa’s exports to China coming from just 4 natural resource commodities, a large portion of the continent’s GDP growth has been driven by demand from Chinese investors. This has resulted in the growth of the African consumer class and made obvious in the rapid growth in retail, mobile telecommunications, and banking sectors across the continent.
Along with expanded opportunities for accelerated economic diversification in Africa, Chinese investment in the continent also provides potential opportunities for African companies to extend their activities towards new foreign markets, a move supported by the membership principles of BRICS stakeholders.
China, mining, and investment
Despite current challenges in the African mining industry, including labour concerns and rising costs, Africa offers huge potential to foreign investors looking to explore the continent’s vast mineral reserves. These make up around 30 percent of the world’s total mineral reserves (including 42% of the world’s bauxite, 38% uranium, 42% gold, 88% diamonds, and 73% platinum). At the same time, the continent itself consumes a very small amount of these resources, instead exporting then as raw materials.
In 2009, this situation led to AU Heads of State adopting The Africa Mining Vision, a practical and strategic response to tackling the paradox of great mineral wealth existing side by side with pervasive poverty on the continent. This is also a way to meet the continent’s Millennium Development Goals by ensuring that mineral resource wealth genuinely serves as an engine for broad-based growth and socio-economic development.
This plan recognises that sectors such as mining have the capability, strength, and appetite required to mobilise the necessary investment for the infrastructure needed to access inland resources. The resulting roads, railways, power and water infrastructures benefit not only the individual mining projects, but also local communities. To do so properly, investment must be encouraged through strategic partnerships with local and foreign investors. And this is where China comes into the picture.
South Africa – China relationship
South African-based mining companies are the largest investors in the domestic mining market, albeit with considerable equity participation from international investors, such as is the case with WeSizwe Platinum, which has a flagship project, Bakubung Platinum Mine in the North West Province, one of the first examples of a South African/Chinese strategic investment partnership. According to Jianke Gao, WeSizwe Platinum’s CEO,
“Sino-African partnerships have the potential to play an important role in fostering the future growth and development of African economies. Economic diversification based on high competitiveness, supported by specialist expertise, skills and technology transfer would be the main catalyst of China’s contribution to Africa’s economic transformation in the global marketplace”.
A word of caution
While the future of such investment partnerships looks bright, recent difficulties in the mining sector and the slowdown in China‘s economy does not at present bode well for Africa‘s growth outlook in this sector. In 2009, the IMF downgraded it for the second time – to 5.1%, still a robust figure but not the original 7%. With rising commodity prices, declining export orders from abroad and China‘s manufacturing capacity slowing, the pace of Africa‘s export growth to China is set to slide a little in the coming months and should be carefully monitored.