As China continues to flex its financial muscle, emboldened by the slowdown in foreign investment by traditional powerhouses such as the United States and the European Union, questions remain about its influence in Africa.

Figures from the country’s FDI Statistic Bulletin for the year to September 2013 show that China has increased its global outbound FDI spend to a record US$87,8 billion, up 17% over last year, in stark contrast to global foreign investments which have declined by the same number.

“The rate of Chinese State and private investments into the rest of the world has been a topic of hot debate giventheir ability to make use of their considerable capital and economic growth in a time that Western nations have had to tighten their belts,” comments Lauren Patlansky managing director: Grant Thornton Asia Business Services. “This year-on-year growth is further evidence that China is to be taken very seriously as an investment and trade partner, and it will continue to dominate international finance for the foreseeable future.”

The perceived slowing of the Chinese economy from double-digit growth a few years back should not be misread, says Patlansky, as the 7,8% growth still dwarfs that of other developed and developing nations.

The Chinese activity in Africa has also been a talking point, with fears raised over State and private companies’ motivations.

“These fears are unfounded,” says Patlansky. “Many of these investments which China has been making on the African continent are focused on much-needed basic infrastructure and also in sectors that traditional investors have ignored. The influx of Chinese capital has enabled significant development across the continent and this influence has considerable positive benefits.”

Sentiment around private equity deals very strong in Asia-Pacific region

Research by Grant Thornton into the appetite for cross-border private equity deals reveals strong activity by Asian firms, with Chinese activity increasing by a phenomenal 81% over this time last year. This activity is no longer restricted to large corporations, with mid-market companies now able and willing to source growth internationally.

“Most of our Asian clients have strategic plans to grow their business across a number of countries in Africa, optimising their investment plans,” says Patlansky. “These are not random investments and our Chinese clients are saying that transactions require a lot more detail,with potential investors putting much more effort into interrogating the pipelines.”

Japan, a country often forgotten in all the hype around China, is showing renewed interest in global investments with investors actively testing the waters. Patlansky points out that Hong Kong is also a serious player, particularly in its role as a known entity that is able to bridge Asian and Western markets to facilitate investment deals.

The Asian market research highlights that sentiment around private equity deals is particularly strong in the Asia-Pacific region, where more than half of respondents believe the image of such deals is improving. This figure falls to 20% with regards to deals in Middle East and Africa, although the remainder of respondents believe the appetite will remain the same.

Zero points for Africa for future private equity transactions

This optimism for investment is also reflected in the 74% of respondents that view Asia Pacific as the most attractive region in the next two to three years for private equity deals.

Sadly, Africa (and Russia/CIS) garnered a 0% response rate.

“This muted view of Africa as an attractive private equity market can be ascribed to it being a relatively new destination for private equity deals, although we believe this will increase as the track record and experience of the market grows,” says Patlansky. “However, Asian clients are certainly not afraid to invest in Africa in mining, power/ energy and infrastructure opportunities.”

The maturing of Africa as an investment destination will most likely be driven mainly by infrastructure projects asmore Asian companies are exposed to the market, with State and private sector investments expected to shift to equity stakes in companies rather than being restricted to development projects only.

Patlansky says the optimism for the Asia-Pacific region presents and opportunity for Western companies looking to expand their base of operations. She points to the deal done last year by Discovery Holdings when it took a nearly 25% stake in China’s Ping An Health, and of course the strong growth that Naspers has realised from its stake inChina’s Tencent.

“The opportunities and benefits are mutli-directional. There is no denying China’s strong economic growth and increasing consumer base, while Japan is starting to show some signs of recovery. Companies with the foresight and need for growth would be well advised to consider entering these waters,” she concludes.