China cementing relationships with South Africa
Willemien Viljoen, tralac Researcher, comments on the growing economic ties between China and South Africa in light of the recently-concluded sixth Forum on China-Africa Cooperation (FOCAC) in Johannesburg
China has a long standing trade and investment footprint in Africa. China is an important trade partner for many countries on the African continent, including South Africa, Nigeria, Egypt, Angola and Ghana. Over the last ten years China’s total trade with Africa increased by 21 percent from approximately US$ 19 billion in 2005 to approximately US$ 106 billion at the end of 2014. Between 2005 and 2014 China’s total exports to and imports from Africa both increased by 21 percent. In terms of China’s world trade, five percent of China’s total global trade in 2014 was trade with African countries. During 2014 exports were mainly driven by exports of transport equipment, machinery, base metals (articles of iron and steel) and miscellaneous manufactured articles (furniture, lighting, signs etc.) to South Africa, Nigeria, Egypt, Algeria and Angola. For the same year imports from African countries were mainly mineral products, precious stones and metals, base metals and wood products from South Africa, Angola, Sudan, Congo and Equatorial Guinea.
More than 2,000 Chinese companies have invested in Africa. Most of the investment has gone into energy, mining, construction and manufacturing. Between 2006 and July 2014; as a percentage of China’s total investment in sub-Saharan Africa (SSA), China’s Foreign Direct Investment (FDI) in SSA was concentrated in metals (41.3%), energy (40.2%), finance (9.2%), real estate (5.7%) and the transport sector (1.89%). Until recently the bulk of China’s FDI was concentrated in few countries, including Nigeria, South Africa, Sudan, Algeria and Zambia. However, FDI into countries like Guinea, Ghana, Democratic Republic of the Conga and Ethiopia has increased over the recent years. These new investments are mainly focused on the establishment of special economic and trade cooperation zones – seven in total – two each in Zambia and Nigeria and one each in Mauritius, Egypt and Ethiopia. However, South Africa is the largest investment destination in Africa for China. During 2014 approximately US$ 13 billion was invested in South Africa by over 120 Chinese companies.
It seems China is determined to cement current and build deeper business relationships with African countries; specifically South Africa. In the build-up to the sixth Forum on China Africa Co-operation (FOCAC) held in Johannesburg on December 4-5 under the theme, ‘Africa-China Progressing Together: Win-Win Cooperation for Common Development’ an in-bound mission led by the Chinese President Xi Jinping to various African countries resulted in the signing of about 26 business agreements with South Africa and 10 agreements with Zimbabwe. The agreements signed with South Africa covered a wide range of topics as well as state-owned enterprises and private sector cooperation agreements. Some of the aspects covered in these agreements include:
the building of the Silk Road Economic Belt and the 21st Century Maritime Silk Road, cooperation in the oceans economy,
the waiver of visa requirements for diplomatic and official passport holders,
cooperation and development on science parks,
the establishment of a China cultural centre in South Africa,
a loan agreement between the China Development Bank Corporation and Eskom to the value of US$ 500 000 000,
the provision of insurance support to Transnet,
report on the statistical discrepancies of merchandise trade between South Africa and China,
funding of infrastructure and industrial development projects,
funding of new projects in the water and sanitation sector, and
cooperation between Investec and the Export-Import Bank of China to establish a long-term cooperation agreement in the financial field.
The business agreements signed with Zimbabwe include US$ 1 billion for the refurbishment of the country’s largest thermal power plant and the construction of new Parliament buildings outside Harare.
At the conclusion of FOCAC Six, the Chinese President announced that funding support to the value of US$ 60 billion (comprising US$ 5 billion of grant and interest-free loans, US$ 35 billion of preferential loans and export credit, US$ 5 billion of additional capital for the China-Africa Development Fund and the Special Loan for the Development of African SMEs each, and a China-Africa production capacity cooperation fund with the initial capital of US$ 10 billion) will be made available to African countries to implement ten projects ranging from poverty alleviation to trade facilitation (infrastructure development). However, the current and increasing foot print China has on the African continent has many critics abuzz with the main points of contention being the true nature of the investments actually being repayable long-term loans, the accusation that China’s involvement in Africa is a new form of colonialization, exploitation, environmental damage, a disproportionate focus of investment in extractive activities and trade being dominated by primary product exports to China and manufactured products flowing back to African countries.
The Economic Intelligence Unit. 2014. Playing the Long Game: China’s Investment in Africa (https://www.mayerbrown.com/Playing-the-Long-Game-Chinas-Investment-in-Africa-10-20-2014/)
ITC Trade Map (2015) (www.trademap.org)
Forum on China-Africa Cooperation (2015) (http://www.focac.org/eng/)
SAIIA. 2015. FOCAC: Background and 2015 Focus Priorities (http://www.saiia.org.za/news/focac-background-and-2015-focus-priorities)