What is China up to in Africa?
The latest project to hit the headlines is a $5bn offer from the Chinese government to fund roads, railways, hospitals and clinics in the Congo. Elsewhere, China is already "the biggest investor in the Sudan", says the Seattle Times, while in Freetown, the capital of Sierra Leone, office blocks, the military headquarters and a refurbished stadium are all the work of planners from Beijing. In Uganda, Chinese money built the new State House, while in Zambia an "economic partnership zone" that will attract $800m in investment was promised by the Chinese president on a recent state visit. Even Zimbabwe's international pariah Robert Mugabe has declared, "We have turned east, where the sun rises and given our backs to the West", perhaps grateful for Chinese assistance in cultivating crops on land seized from white farmers. Sino-African trade hit a new high of $55.5bn last year, up 40% from the year before. In short, as Granta magazine puts it, "the Chinese are everywhere".
Why is Beijing so interested in Africa?
Because of oil and mineral rights. China now ranks second only to the US in its consumption of oil and needs huge quantities of other commodities to sustain its ongoing boom, so it's no surprise that President Hu Jintao is anxious to foster relations all over the resource-strewn continent. Oil-rich countries such as Angola which accounts for around 14% of Chinese imports plus Chad, Nigeria and Sudan which exports around 60% of its oil to China have seen investment from Chinese companies for years. Money has poured into a booming copper industry in Zambia and the Congo, while the Chinese are keen buyers of timber from states such as Cameroon, Mozambique and Liberia. As J Stephen Morrison at the Centre for Strategic and International Studies put it, "those places that are energy-rich and mineral-rich are awash in cash".
So what do the Africans get in return?
The reason why China is "winning friends in Africa" is simple, says economist Philip Alves many African states that have struggled to access funds from the likes of the International Monetary Fund and the World Bank, find the Chinese easier to deal with. For the poorest continent on the planet, offers from Beijing such as those made at last November's China-Africa Cooperation Forum for billions of dollars worth of preferential loans, buyer's credits and the training of 15,000 African professionals are very attractive. All the more so when Chinese money rarely comes with any of the political conditions attached to Western funds. As Sudan's energy minister noted recently, "With the Chinese we don't feel any interference in our traditions or politics or beliefs". Meanwhile a flood of cheap Chinese goods from motorcycles to T-shirts and kitchen utensils lead one ambassador to comment, "The Chinese are doing more than the G8 to make poverty history."
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Are there any risks?
Some argue that closer economic and trade ties will lead to "neo-colonialism", where African resources are plundered by Beijing and sent back in the form of Chinese goods. They point out that an influx of affordable Chinese goods doesn't raise the wealth of most impoverished Africans and actually makes life harder for local firms. As a Zimbabwean newspaper owner put it, "If the British were our masters yesterday, the Chinese have come and taken their place." Another concern is that in countries such as Angola, Nigeria and Sudan, China's links to, and implicit support for, controversial regimes will undermine efforts to introduce democracy and improve human rights. For example, data on arms sales produced by the Council on Foreign Relations are worrying: over 10% of Africa's weapons purchases from 1996 to 2003 were from China, with big deals struck with states such as Sudan, Ethiopia and Zimbabwe.
So is this just Africa being exploited yet again?
Not necessarily. As Lindsay Hilsum says in Granta, Africa's greatest and most urgent problem is still poverty. Western countries may rail against Beijing's business practices Sudan is suspected of winning a Chinese veto on sanctions in return for signing deals but the fact is Africa needs trade and, in contrast to Western funds, Chinese cash arrives quickly and "with no colonial hangover and no complex relationship of resentment". Today, many African economies are enjoying their fastest growth rates in 30 years, largely on the back of Chinese demand for raw materials. Chinese investment in African infrastructure has deep roots they sponsored many large projects back in the 1960s and 1970s and significantly, says Hilsom, many Africans look at China and see success rather than threat; World Bank figures suggest that China has lifted 400 million of its own people out of poverty in the last 20 years could Beijing do the same for them, they wonder? Unless Western institutions up their game in the region (one African diplomat observed, "If a G8 country had wanted to rebuild our stadium we'd still be holding meetings"), China could provide opportunities for Africa that Europe and the US have often failed to deliver.
How you can profit from the boom
Africa is still not an easy market for outside investors, so the best bets are the largest companies with well-diversified infrastructure interests. A good example of just such a firm is Aim-listed Lonrho (LSE:LONR), up 58% this year. Alternatively, you could go for a fund run by a manager with a decent emerging markets track record such as Charlemagne Capital's Magna Africa Fund, or the forthcoming New Star Heart of Africa Fund.
Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.
He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.
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