The current disarray in the Western financial system will probably benefit Chinese banks seeking to finance projects in Africa.

“We are indeed most likely to see increased Chinese financing in Africa, as there will be more opportunities to do deals,” says South African Institute of International Affairs China and Africa project associate researcher Riaan Meyer.

“Also, Chinese banks have a greater appetite for risk in Africa. But the Chinese won’t have free rein. While a number of Western banks are reducing their presence in Africa because of the financial crisis, others will maintain their strong presence – for example, Standard Chartered and BNP Paribas.”

Most Chinese banks are owned by the State, and they include the country’s Big Three – the Bank of China, the Industrial and Commercial Bank of China (ICBC) and the China Construction Bank. These three are also the Chinese banks with the biggest presence in Africa. Because of its 20% share in South Africa’s Standard Bank (not to be confused with the UK’s Standard Chartered), the ICBC is the number one Chinese bank in Africa.

“Chinese banks currently focus on financing energy, resources and infrastructure projects in Africa, but I predict they will move into other areas. These banks, especially the Bank of China, are already involved in trade finance,” he adds. “Given the growing Chinese investment and associated presence in Africa, it is the logical next step that they move into other areas of commercial banking.”

In many parts of Africa, the reaction to increased Chinese investment and a growing Chinese presence has been very positive. The Chinese are seen as providing concrete investments, such as roads and railways, while Western aid can be invisible, unobserved behind such developments as improved health-care or more efficient administration.

But this view is not universal. Chinese investment has been accompanied by the creation of Chinese communities across the continent, and the establishment of small Chinese businesses which are competing with local small enterprises

“In Angola, I found that government and the business community were very pro- China, but the labour unions were far less enthusiastic about the Chinese investment model,” reports Meyer. “In Zambia, which is a democracy, criticism of the Chinese is very open. In some African countries, there is a real possibility of a popular backlash against Chinese communities settling in their midst. The Chinese presence could be used in domestic politics – making the Chinese bogeymen or scapegoats.”

Chinese involvement and investment in Africa are being led and, currently, dominated, by State-owned enterprises (SoEs) such as the China National Offshore Oil Company (CNOOC), Sinopec, China Minmetals and China Non-Ferrous Metals Company. In addition to financing from State-owned banks, they are also being supported by other, service sector, SoEs, such as the China Overseas Shipping Company. It is estimated that some 800 Chinese SoEs are active in Africa today, covering every country, although this figure includes provincially owned as well as nationally owned com- panies and companies that are trading, not investing, and companies whose activities have nothing to do with natural resources or China’s strategy for obtaining these resources. And Chinese private-sector companies are now also beginning to invest in Africa.

The Chinese are, of course, seeking oil but equally important is the range of metals and minerals which are needed as inputs into Chinese industry, such as cobalt, bauxite, copper, zinc, nickel, iron-ore and precious metals

“The Chinese are tough negotiators and they expect their African counterparts to be equally tough,” reports Meyer. “The Angolan government is probably setting the African benchmark for negotiating with the Chinese, requiring Chinese com- panies to give some work to Angolan business and labour. But Angola has oil, which China needs. Other African countries are not in such a strong position.”

Angola has negotiated a deal in which 70% of China Export-Import Bank loans will go to Chinese companies, and 30% will go to Angolan companies. Previously, 100% of Chinese financing for African development projects usually went to Chinese companies, which are very competitive in terms of their supply chains, in terms of their labour (they sometimes bring labour to Africa) and in terms of their engineering services.

In the middle of last year, a World Bank report – ‘Building Bridges: China’s Growing Role As Infrastructure Financier For Sub-Saharan Africa’ – revealed that China had funded, or was discussing funding, infrastructure projects in at least 35 countries in sub-Saharan Africa. About half of the confirmed projects involved Chinese funding of less than $50-million, but in about half-a-dozen cases, the Chinese had invested more than $1-billion in individual projects.

To subscribe to Engineering News's print magazine email subscriptions@creamermedia.co.za or buy now.