China will increase investment in Africa, says Standard Bank

Standard Bank estimates China’s investment in Africa will reach $50 billion by 2015.
Seorus Simpson, director of Standard Bank’s debt products group in Asia
Seorus Simpson, director of Standard Bank’s debt products group in Asia

According to South Africa-based Standard Bank, mainland China maintained its position as Africa’s largest trading partner in 2010. Standard Bank, in which Industrial and Commercial Bank of China (ICBC) has a 20% stake, estimates the value of mainland investment into Africa will increase to $50 billion by 2015. It also anticipates China-Africa bilateral trade will reach $300 billion in 2015, more than double that of 2010.

“As the production capacity of Africa’s traditional trading partners of the US and European economies starts declining and they buy more and more Chinese goods, raw material trade from Africa to China will be sustainable,” said Seorus Simpson, director of Standard Bank’s debt products group in Asia.

In Simpson’s view, China’s need for raw materials will continue as long as it sustains its manufacturing sector, and Africa’s appetite for manufactured goods and capital expenditure “is massive because the need is so great.” Trade between China and Africa is a natural fit because Africa has the raw materials and China has the technology and expertise to produce the capital goods.

“Trade and investment routes into Africa are being recalibrated as economic momentum shifts to the East,” said George Fang, China head of mining and metals at Standard Bank. “This has been further intensified by the current turmoil in advanced economies and has been exemplified by sovereign debt challenges across Europe.”

Fang believes China is a critical partner to Africa and that China is broadening its resources supply base with Africa through trade and direct investment.

“China is adding infrastructure capacity to link resources in countries as diverse as Mauretania, Sudan, Nigeria, DRC [Democratic Republic of the Congo], Gabon, Angola and Zambia,” Fang added. “This type of strategy is key to China’s investment on the continent, making the investment viable while also leaving a future economic legacy for the host countries.”

Trade between China and Africa has doubled every three years for the past 15 years according to Standard Bank, while China buys one-tenth of Africa’s total exports. In 1990 there was not a single African country which had trade with China above 5% of its GDP (gross domestic product), but just 18 years later this list of countries numbers more than 20. According to the bank, more than half of countries in Africa list China as a top five trade partner.

Although China stands out as Africa’s largest overall trade partner, the US remains the largest single destination for African exports. Before the global financial crisis in 2008, the US imported products with a total value of $113 billion from Africa, a figure that was double the value of China’s imports from the continent in the same year. Even in 2009, after US imports from Africa declined by 44% to just $62.4 billion, the value was still nearly $20 billion higher than the value of China’s imports from the continent.

Standard Bank is headquartered in Johannesburg, South Africa and focuses on global emerging markets. It has a presence in 17 countries in Africa and 15 internationally, including Brazil, Russia and China. Standard Bank’s global head of cash and trade product management, Jerry Pearce, recently spoke to FinanceAsia about the acceleration of Asia-Africa trade in 2011.

“This two-way street is continuing to grow, but it’s just that the players have changed from north-south orientated to more east-west,” Simpson concluded.

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