Tba on sino africa relationship - picc&hollard - 5 dec 2012 - final ho

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  • 1. Page 1 www.thebeijingaxis.com Opportunity, Risk and Risk Management in Africa (PICC and Hollard Insurance) Beijing, 05 December 2012 The Sino-Africa Relationship and Its Future Evolution Haiwei Huang AssociateDirector The BeijingAxis China-focused InternationalAdvisoryand Procurement The Beijing Axis 1 Disclaimer This document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of this document, no responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed herein. Opinions, projections and estimates are subject to change without notice. This document is for information purposes only, and solely for private circulation. The information contained here has been compiled from sources believed to be reliable. While every effort has been made to ensure that the information is correct and that the views are accurate, The Beijing Axis cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute any prediction of likely future movements or events in any form. Some investments discussed here may not be suitable for all investors. Past performance is not necessarily indicative of future performance; the value, price or income from investments may fall as well as rise. The Beijing Axis, and/or a connected company may have a position in any of the investments mentioned in this document. All concerned are advised to form their own independent judgement with respect to any matter contained in this document. The Beijing Axis 2 The Beijing Axis’ Knowledge & Network Synergies BeijingAxis Commodities • Commodity Marketing • Commodity Procurement BeijingAxis Capital • Transaction Origination • Corporate Finance Advisory BeijingAxis Procurement • Comprehensive Procurement Solutions BeijingAxis Strategy • Strategy Formulation • Strategy Implementation • Founded in 2002; has successfully worked with many international and Chinese MNCs • Operates in four synergistic cross-border China businesses • Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIALENGINEERING and OTHER SERVICES sectors • Provides solutions to international firms as they act in unfamiliar territory in China/Asia • Provides solutions to Chinese/Asian firms as they venture out and ‗go global‘ The Beijing Axis - China-focused International Advisory and Procurement The Beijing Axis 3 Africa Axis - Africa-focused International Advisory and Procurement • Founded in 2010; has successfully worked with many international and African MNCs • Operates in four synergistic cross-border African businesses • Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL, ENGINEERINGand OTHER SERVICES sectors • Provides solutions to international/African firms as they go global • Provides solutions toAsian/International firms as they venture into Africa Africa Axis’ Knowledge & Network Synergies AfricaAxis Commodities • Commodity Marketing • Commodity Procurement AfricaAxis Capital • Transaction Origination • Corporate Finance Advisory AfricaAxis Procurement • Comprehensive Procurement Solutions AfricaAxis Strategy • Strategy Formulation • Strategy Implementation The Beijing Axis 4 Key global factors Source:The Beijing Axis Analysis The backdrop • China‘s rise … labour market and supply shock as a producer … engine as a consumer … investor • New competitivelines and forces, winners/losers – the rise of Asia, BRICS, etc. • A two-speed global economy over the medium and long term • A lasting GDP trajectory in Asia, Africa and Latin America – governance, growth, stability, infrastructure, confidence, etc. The issues now • Europe broken … fragile developed markets – and knock-on effects? • China‘s landing – soft or hard? Implications for growth and resource demand? • Tapping into the China story vs. over-reliance on China and need to diversify economic ties • Strategic intelligence – to make decisions in boardrooms around the world in order to reposition The Beijing Axis 5 Africa‘s economic fundamentals and current global position reflect its potential for long term economic growth and development Source: IMF; UNCTAD; The Beijing Axis Analysis 0% 20% 40% 60% 80% 100% World GDP 2010World GDP 2010 Developing Countries GDP 2010 Africa GDP 2010 Africa GDP 2010 Africa GDP 2010 Africa GDP 2010 Africa GDP 2010 USD 63 tn USD 63 tn USD 22 tn USD 1.6 tn Europe North America Asia Africa Mid-East Africa Developing Countries (excl. Africa) Developed Countries Africa Developing Countries (excl. Africa) Africa South Africa Egypt Nigeria Algeria Angola Kenya Others Ghana Tanzania Northern Africa Southern Africa Western Africa Central Africa Eastern Africa Primary Industry Secondary Industry Tertiary Industry Private Consumption/ Expenditure Gross Capital Formation Government Consumption/Expenditure Net Exports USD 1.6 tn USD 1.6 tn USD 1.6 tnUSD 1.6 tn Breakdown of Africa’s Share in the Global Economy (USD tn, 2010) Lat Am
  • 2. Page 2 The Beijing Axis 6 Top 30 Countries Ranked by Average GDP Growth (%, 2007-2011) Source:IMF; The Beijing Axis Analysis Africa is home to some of the fastest growing economies in the world 16.6 11.8 11.2 10.5 10.5 10.0 9.7 9.2 9.1 8.9 8.8 8.7 8.3 8.1 8.0 7.9 7.8 7.4 7.4 7.3 7.1 7.0 6.9 6.9 6.8 6.8 6.7 6.6 6.5 6.5 0 5 10 15 20 Qatar Timor-Leste Turkmenistan China Afghanistan Azerbaijan Ethiopia Bhutan Angola Panama Equatorial Guinea Uzbekistan Mongolia India Ghana Laos Malawi Rwanda Uganda Papua New Guinea Peru Nigeria Argentina Mozambique Tanzania Lebanon Tajikistan Vietnam Sri Lanka Zambia African Countries Other Countries Of the 30 fastest growing economies over the past five years, 11 are in Africa 18.8 17.3 14.7 13.6 10.6 10.6 9.9 9.3 9.3 9.2 8.9 8.9 8.8 8.7 8.5 8.3 8.3 8.2 8.2 7.8 7.6 7.5 7.5 7.4 7.4 7.2 7.2 7.1 7.1 7.0 0 5 10 15 20 Qatar Mongolia Turkmenistan Ghana Timor-Leste Panama Iraq Solomon Islands Zimbabwe China Papua New Guinea Argentina Rwanda Eritrea Turkey Uzbekistan Laos Sri Lanka Kuwait Ecuador Estonia Ethiopia Kazakhstan Tajikistan Maldives India Nigeria Equatorial Guinea Mozambique Georgia African Countries Other Countries Top 30 Countries Ranked by GDP Growth (%, 2011) 2011 saw a similar picture, with some countries (Ghana and Rwanda) accelerating their growth, and others (Zimbabwe and Eritrea) joining the top 30 The Beijing Axis 7 Agenda 1. Political and Economic Aspects of the Sino-Africa Relationship 2. China‘s Outbound Investments into Africa‘s Resource Sector 3. The Future Trajectory of Sino-Africa Relations 4. Final Word The Beijing Axis 8 China-Africa relations have steadily progressed through three distinct phases. The current phase is mainly driven by China's increasing need for resources and Africa's need to modernise Phases of Sino-African Relations Source: Variuos;The Beijing Axis Analysis Political Phase (1950s – mid-1970s) Dormant Phase (mid 1970s – late 1990s) Commercial Phase (2000s – present) • Non-Aligned Movement • African post-colonialism • PRC vs. Taiwan recognition • Recognition by China of newly independent African states • Foreign aid by China in return for PRC (vs. Taiwan) recognition • Mutually-beneficial UN voting support Phase Drivers Examples • China occupied with post-1978 ―Open- Door Policy‖ and economic reforms • Heavy competition for African influence from US and USSR • Slowly rising Chinese exports of light industry production (garments, textiles, toys) • Small, trade driven deals mainly with private Chinese firms • China‘s demand for raw materials and other resources • China‘s quest for new markets for its goods and services • China‘s quest for international influence via OFDI, aid, mediation / UN votes • FOCAC, CAD Fund • Government-to-government resource deals • Resources for infrastructure • Long term financing with no strings attached • Chinese EPCs in Africa‘s infrastructure build-up The Beijing Axis 9 China-Africa relations have accelerated in the last decade, with Chinese high-level diplomatic visits to Africa often preceding heightened trade, investment, loans and aid Key Phases of China-Africa Relations Source:Various;The Beijing Axis Analysis 1999:China initiates its ‗going out‘ policy 1999:Chinese presidentsends letter to African presidentsand Organization forAfrican Unity to establish ministerial conference 2000:First Forum on China- Africa Cooperation(FOCAC) held in Beijing 2002:Ethiopia hosts China- Africa meeting of senior officials 2003:FOCAC meeting held 2004:China-SouthAfrica Bi- National Commission (BNC) held to strengthenties 2005:China and the United Nations Development Programmelaunch the China-AfricaBusiness Council 2001:China admitted to World TradeOrganization 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2006:First China- Africa Business Council held 2007:China-AfricaDevelopment Fund (CAD Fund)established to assist Chinese investment in Africa 2007:Chinese bank ICBC takes 20% equity stake in Africa‘s largestbank,Standard Bank 2008:CAD fund makes its first deal 2008:Banneryear for Chinese investment in Africa,with total trade topping USD 100 billion 2009:CAD Fund opens first officein Africa, in South Africa 2009:Chinese President Hu Jintao makes 6th diplomatic visit to Africa 2010:China extendszero-tariffpolicy to 454 goods for 30 African countries deemed ‗least developed‘ 2009:Fourth FOCAC Ministerial Conferenceheld in Egypt 2011:Chinese Foreign Minister,Yang Jiechi, visits five African countries 2011:Press reportsthat China‘s policy banks—China Development Bank and China Exim Bank—loanedmore to the developing world than the World Bank since 2008 2009 5th FOCAC in 2012 The Beijing Axis 10 Africa’s Top 20 Trade Partners (USD bn, 2010) Source: UN Comtrade;The Beijing Axis Analysis A number of Africa's most important trade partners are from Asia, with China being the largest one 67 87 31 41 31 22 29 16 15 12 6 11 9 6 8 10 5 2 1 3 60 28 35 23 18 27 14 15 15 12 16 9 10 9 6 3 5 7 7 5 0 20 40 60 80 100 120 140 China US France Italy India Germany Spain UK Netherlands Japan S. Korea Brazil Belgium Turkey UAE Canada Portugal Thailand Singapore Malaysia Import from Africa Export to Africa In 2011, the total trade value between China and Africa reached USD 166 bn, with imports and exports accounted for 56% and 44% respectively In 2011, the total trade value between the US and Africa was USD 127 bn, with imports and exports accounting for 75% and 25%, respectively Asian Countries India is second- largest among Asian countries The Beijing Axis 11 5.6 67.1 5.0 59.8 0 10 20 30 40 50 60 70 80 2000 2010 2000 2010 China Trade with Africa (USD bn, 2000, 2010) Source: UN Comtrade;The Beijing Axis Analysis India Trade with Africa (USD bn, 2000, 2010) While both Chinese and Indian trade with African countries has risen dramatically in the last decade, China significantly outperforms India in terms of Africa trade volumes 3.5 31.4 2.2 17.9 0 5 10 15 20 25 30 35 2000 2010 2000 2010 Imports Exports Imports Exports In 2011, the imports value was USD 93.2 bn In 2011, the exports value was USD 72.9 bn
  • 3. Page 3 The Beijing Axis 12 0 5,000 10,000 15,000 20,000 25,000 Resources Electrical Equipment & Machinery Textiles and Footwear Metal & Products Others 15,000 10,000 5,000 0 South Africa Angola Sudan Nigeria Egypt Morocco Algeria Libya Congo Benin China’s Trade with Its Top 10 African Trading Partners (USD mn, 2011) Note: The top ten countries comprise more than 76% of China‘s total tradewith Africa Source:UN Comtrade;The Beijing Axis Analysis China‘s trade relationship with Africa is characterised by importing raw materials from Africa in return for Chinese manufactured goods Chinese Imports 2011 USD mn Chinese Exports 2011 USD mn The Beijing Axis 13 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 CobaltOre ('000tons) Aluminium (mntons) Nickel ('000tons) IronOre (mntons) Platinum ('000oz) ChromeOre ('000tons) CopperOre ('000tons) ZincOre ('000tons) Manganese Ore… Demand Production China’s Implied Demand and Domestic Production of Commodities (2010) 0 50,000 100,000 150,000 200,000 250,000 300,000 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Exports Imports Source:USGS; BP; WGC; USDA; Various;The Beijing Axis Analysis China’s Mineral Product Imports and Exports (USD mn, 1992-2010) China‘s demand outstrips domestic supply across a number of commodities. As a result, imports are needed to compensate for the deficit The Beijing Axis 14 Raw material producers around the world are benefiting from this trend - Africa is a key supplier of these raw materials to China Note: The number inside the dotrepresentsthe importer‘s worldrank Source:UN Comtradedatabase;The Beijing Axis Analysis 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 3 2 1 4 5 1 2 3 4 5 China 1 2 3 4 5 1 2 3 4 5 Copper Ore Zink Ore Nickel Ore Bauxite Lead Ore Chrome Ore Platinum Manganese Crude Oil Iron Ore Coal 12 3 4 5 1 2 3 4 5 1 2 3 4 4 The Beijing Axis 15 Africa is a key supplier of cobalt, manganese, chromium, platinum and crude oil to China China’s Imports of Selected Commodities from Africa (USD bn, 2001-2011) Note: Bubble size is basedon the commodity‘s shareof China total commodity imports from Africa in 2011 Source:UN Statistical Database;The Beijing Axis Analysis CAGR 2001-2011 -20% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% China’s imports from Africa as a % of total world imports in 2011 Cobalt Ore Ferroalloys Nickel Ore Petroleum Gases ElectronicsStainless Steel PlatinumCrude Oil Copper Ore Chromium OreManganese Ore Diamonds Iron Ore Wood Tobacco Cotton - High growth rate - High volume - Highest growth - High volume - Most strategic - 95% of China‘s imports come from Africa The Beijing Axis 16 A more in-depth view of China‘s import structure from Africa is attainable after excluding oil China’s Imports of Selected Commodities from Africa, excl. Crude Oil (USD bn, 2001-2011) Note: Bubble size is basedon the commodity‘s shareof China total commodity imports from Africa in 2011 Source:UN Statistical Database;The Beijing Axis Analysis CAGR 2001-2011 -20% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% China’s imports from Africa as a % of total world imports in 2011 Cobalt Ore Ferroalloys Nickel Ore Petroleum Gases ElectronicsStainless Steel Platinum Copper Ore Chromium OreManganese Ore Diamonds Iron Ore Wood Tobacco Cotton - Most strategic - 95% of China‘s imports come from Africa - High growth rate - High volume - Highest growth - High volume The Beijing Axis 17 The upshot • China‘s engagement withAfrica is partiallyresponsiblefor Africa‘sdynamic growth over the past decade • Sino-Africarelationshave strengthened in the last decade,with high-levelChinese diplomatic visits to Africa often precedingheightenedtrade, investment,loans and aid • While China‘s role in Africa trade outperformsthose of otherAsian nations,it still mostly focuseson the resourcesector • Continuous and robust domesticconsumption will drive growth moving forward – China will retain its influencein resource demand even as its growth rate slows
  • 4. Page 4 The Beijing Axis 18 Agenda 1. Political and Economic Aspects of the Sino-Africa Relationship 2. China’s Outbound Investments into Africa’s Resource Sector 3. The Future Trajectory of Sino-Africa Relations 4. Final Word The Beijing Axis 19 0 50 100 150 200 250 300 350 US Japan UK France Hong Kong Belgium Switzerlnd Russia China Virgin Is. Germany Canada Italy Spain Netherlands Austria Sweden Singapore Denmark S. Korea World’s Top 20 Outward FDI Originators, Flows (USD bn, 2011) 29.9 33.2 44.8 57.2 90.6 117.8 184.0 245.8 317.2 383.4 560.0 0 100 200 300 400 500 600 02 03 04 05 06 07 08 09 10 11 15F Flows Stock *Note: China OFDI flowsfor 2011do not include financial investments from September-December2011 Source:WIR 2011;The Beijing Axis Analysis China OFDI Stock and Flows (USD bn, 2002-2015F) China was the world‘s ninth-largest investor in 2011, ahead of other Asian countries, except for Japan. China‘s OFDI stock is expected to reach USD 560 billion by 2015 China ranked 6th in 2009 China ranked 13th in 2008 and 2007 China ranked 5th in 2010 China ranked 18th in 2006 In 2011 alone, China invested in 1,392 overseas projects in 132 countries In 2011, China‘s ranking slipped to 9th overall, as the Euro debt crisis discouraged investment in the region The Beijing Axis 20 0 20 40 60 80 2004 2005 2006 2007 2008 2009 2010 2011E Others Leasing & Commercial Service* Banking and Insurance Wholesale & Retail Trade Transport, Storage and Postal Service Manufacturing Mining Breakdown of Overseas Investments by Sector (USD bn, 2004-2011E) 31% 28% 17% 10% 5% 9% Iron Ore Copper Aluminium Platinum Exploration Others *Note: Commercial services include investments in holding companies,regional headquartersor SPVs that are often establishedin offshorecentresto invest in other countries and sectors Source:MOFCOM;The Beijing Axis Analysis Value of China’s Mining and Metals Investments by Commodity (2011E) China’s investments in chrome, nickel, and manganese are still very small compared to other commodities Resources occupy a key position in China‘s OFDI story – Taking into account the SPVs, the mining industry ranks high in overall investments The Beijing Axis 21 OFDI Stock in Africa by Source (USD bn, 2009) Source:UNCTAD; The Beijing Axis Analysis China already has a major role in Africa. It has invested much more in Africa compared to Japan, although China still trails behind some of the traditional colonial powers 0 10 20 30 40 50 60 70 UK France US Netherlands Switzerland China Italy Spain Japan Canada Denmark Turkey Ireland Other OECD Official Japanese OFDI stock in Africa: USD 5.7 bn Official Chinese OFDI stock in Africa: USD 9.3 bn Asian Countries Other Countries The Beijing Axis 22 Major Chinese Loans, Grants, and Development Aid in Africa (2002-2010) Source:Overseas DevelopmentInstitute; CongressionalResearch Service; The Beijing Axis Analysis Apart from equity investments, China funds a significant number of key projects in Africa via grants, loans and export credit lines Country Project Type Value (USD mn) Financing Aid Type Angola Extensive infrastructure in energy and railways 7,400 Interest-free loans and repayment in oil Housing and related infrastructure 3,500 Government-sponsored investment Safe drinking water 230 ConcessionalLoan, EXIM DRC Telecommunications 9.66 ConcessionalLoan, EXIM Extensive infrastructure from mining, roads, railways, housing, medical centres and universities 6,000 ConcessionalLoan, repayment in future copper and cobalt extraction Mining infrastructure and logistics 3,000 Government-sponsored investment Fiber optic 33.6 Preferential loan, EXIM Mozambique Dam & plant infrastructure 2,300 Concessional loans Uganda Government offices 20 Grants, donations Tanzania ICT infrastructure 160 Concessionalloan, EXIM Ethiopia Infrastructure, hydropower, public buildings 2,000 Loans, grants Equatorial Guinea Not specified 2,000 Concessionalloans, credit lines Country Project Type Value (USD mn) Financing Aid Type Nigeria Offshore oil development, railways, medical training 1,600 Debt cancellation, investments and grants Power plants and road reconstruction 3,400 Government-sponsored investment Communications & education program 100 Loan, EXIM Kenya Road construction 120 Concessionalloan, EXIM Electricity 20.17 Concessionalloan, EXIM Telecommunications 29.94 Concessionalloan, EXIM Zambia Dam infrastructure and power station expansion 1,000 Concessionalloan, EXIM Sports stadium 65 Grants, donations Commerce 1,000 Concessionalloan, EXIM Ghana Infrastructure, education and health programs 13,000 Concessionalloan, EXIM and CDB Gabon Port, railway, infrastructure, mining 3,000 Investments, grants Sudan Oil production 4,200 Investments, loans, grants During 2002-2007, China‘s economic assistance to Africa amounted to USD 33bn. Of this, USD 17.8bn went to infrastructure projects and USD 9.4bn to the natural resource sector The Beijing Axis 23Source: MOFCOM;The Beijing Axis Analysis China‘s outward FDI into Africa is concentrated in a few countries. In 2010, South Africa, DRC, Niger, Algeria, and Nigeria collectively accounted for nearly 60% of Chinese OFDI in the continent China’s OFDI Flows to Africa (USD mn, 2010) 0 50 100 150 200 250 300 350 400 450 South Africa DRC Niger Algeria Nigeria Kenya Angola Zambia Ethiopia Ghana Egypt Botswana Congo Madagascar Sudan Liberia Uganda CAR Tanzania Gabon Others Account for 60% of total OFDI
  • 5. Page 5 The Beijing Axis 24 Africa’s Share of China’s OFDI Flows (USD mn, 2003-2010) Source:Chinese Statistical Bulletin of OFDI; Xinhua; The Beijing Axis Analysis Top 10 Sectors of China’s OFDI Stock in Africa (%, 2010) China‘s total OFDI flow to Africa has risen dramatically since 2003, with investments well diversified across a number of sectors 75 317 392 520 1,574 5,491 1,439 2,112 0 1,000 2,000 3,000 4,000 5,000 6,000 2003 2004 2005 2006 2007 2008 2009 2010 29% 22%16% 14% 6% 4% 3% 3% 3% Mining Manufacturing Construction Finance Business Services Wholesale & Retailing Science, Technology and Geological Exploration Agriculture, Forestry, Animal Husbandry and Fisheries Others 2.6% 5.8% 3.2% 2.5% 5.9% 9.8% 2.6% 3% The Beijing Axis 25 Note: Includes oil and gas Note: The dots do notrepresenta particular investment, only focus countriesfor mining-relatedinvestments Source:Various;The Beijing Axis Analysis China is Asia‘s leading investor in Africa‘s mining sector. Recently, India has been increasing its presence in the region Focus Countries for Mining-related Investments in Africa (2011) Selected Major Chinese and Indian Players in Africa China USD 2 bn (2010Investments inAfrica) India USD 1.5 bn (2010Investments inAfrica) China National Petroleum Corporation (CNPC) –Algeria, Chad, EquatorialGuinea,Libya,Mauritania, Niger, Nigeria, Sudan, andTunisia (oil andgas) Sinosteel Corporation –South Africa, Zimbabweand Cameroon(iron ore and steel) JinchunanGroup (JNMC) – Zambia, Tanzania (nickel), South Africa (platinum) China NonferrousMetal Mining Corporation –Zambia (copper) Nava BharatVenturesLimited – Zambia (coal) National MineralDevelopment Corporation – Senegal(iron ore) Essar Steel– Zimbabwe(iron ore andsteel) VedantaResources –Namibia, SouthAfrica(zinc) China Minmetals –South Africa(chromite, ferrochrome), DRC (copper) The Beijing Axis 26 Company Africa Role Africa Presence China Communications Construction CCCC‘s specialty is in transportation projects, yet in Africa it also participates in more engineering-oriented tasks, particularly those related to mineral extraction. It is active in more African countries (24) than any other Chinese firm China State Construction Although a majority of its internationally earned revenue originates in Asia, its 28.5 billion oil refinery/petrochemical plant project in Nigeria awarded in 2010 shows its tremendous potential in Africa. Active in Algeria, Benin, Botswana, DR Congo,Egypt, Ethiopia, Guinea, Libya, Nigeria, Republic of Congo, and Tanzania. China Railway Construction Although its involved in a wide range of construction projects on the continent (housing,railway, electrical lines), its focus countries remain primarily in North Africa. Active in Algeria, Angola, Benin, Ethiopia, Libya, Niger, Nigeria, and Sudan Metallurgical Corporation of China MCC ranks highly in international contracting, although most of its attention has focused on Asia and Australia. Recently, the companyhas been diverting more of its attention toward Africa, particularly within the realm of mineral extraction and beneficiation. Active in Algeria, Angola, Egypt, Ethiopia, Libya, Nigeria, and Zimbabwe Sinohydro Although known for hydropowerand irrigation projects, Sinohydro has also constructed many road projects in Africa. Active in Algeria Angola, Botswana, DR Congo,Ethiopia, Gabon,Ghana, Kenya, Libya, Mali, Mozambique, Niger, Republic of Congo,Sudan, Tanzania,Uganda,and Zambia China National Machinery Industry It is one of the top international contractors for power projects. Although most of its international revenues are generated in Asia, the companyis very active in many Africa countries, spanning various projecttypes (housing,water plants, power plants, sugarplants). Active in Angola, Botswana, Cameroon,DR Congo,Gabon, Ghana,Guinea, Ivory Coast, Kenya, Liberia, Libya, Nigeria, Republic of Congo,Senegal, Sierra Leone, Sudan,Zambia, and Zimbabwe Mapping of Chinese Contractors with Large Presence in Africa Note: CITIC Constructionis not featuredherebecauseits scope is limited to only two countriesin Africa, Algeria and Angola,and seemingly throughonly two projects. Source:ENR; The Beijing Axis Analysis Highlights of Chinese Contractors with Large Presence in Africa As China often secures access to mineral resources and oil in exchange for infrastructure development, Chinese EPC companies have become dominant in Africa China Communications Construction China State Construction China Railway Construction MetallurgicalCorporation of China Sinohydro China NationalMachinery Industry Some of China's EPC span their scopeacross the entire continent and various sectors The Beijing Axis 27Source:Various;The Beijing Axis Analysis Apart from resources, China is setting up free economic zones across Africa in order to supply various products to both local and international markets China-sponsored Free Economic Zones in Africa Highlights • Ogun Free Trade Zone (Nigeria) Focus: construction materials, furniture and wood processing, ceramics, ironware and electronic machinery • Lekki Free Trade Zone (Nigeria) Focus: light manufacturing, transport, telecommunicationand home appliances • Dukem Industrial Park (Ethiopia) Focus: light manufacturing • Chambishi Economic and Trade Cooperation Zone (Zambia) Focus: mining industry (processing) • Lusaka Economic and Trade Cooperation Zone (Zambia) Focus: electronic component assembly and manufacturing • Jinfei Economic and Trade Cooperation Zone (Mauritius) Focus: light manufacturing • More zones are planned in in the main financial and business hubs of Sub-Saharan Africa, such as Johannesburg, Nairobi and Accra Ogun Free Trade Zone (2014-2015) Nigeria Ethiopia Zambia Mauritius Lekki Free Trade Zone (2014-2015) Dukem Industrial Park (2013) Chambishi Economic and Trade CooperationZone (2014) LusakaEconomic and Trade CooperationZone (2012) Jinfei Economic and Trade CooperationZone (2012) • China‘s outboundcapital will continueto hit the headlines - Africa has not yet seen the full impact of this • Overseas investment is moving beyondtrade facilitation and natural resources, driven by an increasing need to reach high-growth marketsand to pursueadvanced technologies.Link and align these trends to the existing strategy • Chinese investorsproceedingmore cautiouslyand are becoming more selectiveabout asset quality. Valuation, cost escalation,operationsin unfamiliarjurisdictions, and operationalrisks are the major concerns • During the past decade,Chinese contractorshave captured an increasingshare of Africa‘s contracted revenue, from as low as 7% in 2001 to as high as 38.7% in 2010, playing the dominant role on the continent • China‘s investmentsinto Africado not only carry a resourceagenda. China is setting up free economiczones in Africa that span acrossvariousindustries,includinglight manufacturing, constructionmaterials, transportand electrical machinery The upshot The Beijing Axis 29 Agenda 1. Political and Economic Aspects of the Sino-Africa Relationship 2. China‘s Outbound Investments into Africa‘s Resource Sector 3. The Future Trajectory of Sino-Africa Relations 4. Final Word
  • 6. Page 6 The Beijing Axis 30 20,337 19,634 25,807 4,280 4,486 2,259 0 5 10 0% 5% 10% 15% 20% 25% 30% 35% 40% Asia-Pacific North America Europe Emerging economies are outperforming the developed world in terms of economic growth. Asia is leading this transformation in the global balance Regional GDP Comparison (USD bn, 2015F)* *Note: Data based on IMF World Economic Outlook **Note:Other Asia includes Bangladesh,Sri Lanka,Nepal, Pakistan, Bhutan,Burma, North Korea,Kazakhstan,Tajikistan, Turkmenistanand Uzbekistan. Source:IMF 2012; The Beijing Axis Analysis South America Africa Other Asia** Developed economies are expected to continue to lose share in world GDP in the coming years Asia-Pacific is expected to account for the largest share of world GDP (34%) by 2015F 2011E to 2015F 2011E to 2015F GDP Average Growth Rate (%, 2011E-2015F) Forecast world average GDP growth until 2015F: 3.95% % of World GDP (2015F) Shaded bubbles represent 2011E figuresRising real incomes and high commodity prices will drive growth BRICS 2015F GDP (USD bn) 2011*Growth Rate (%) 2010 GDP Per Capita (USD) China 10,903.6 9.2% 4,382.1 India 2,359.2 7.4% 1,370.8 Russia 1,926.1 4.1% 10,355.7 Brazil 2,546.7 2.9% 10,816.5 South Africa 425.6 3.1% 7,274.4 Bubble Size: Nominal GDP (USD bn, 2015F) The Beijing Axis 31 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2010 2015F 2020F 2025F 2030F 2035F China India Year 2010- 2015F 2016F- 2025F 2026F- 2035F GDP Per Capita 2035F (USD) China 8.0% 7.0% 6.5% 22,458 India 7.5% 7.0% 6.5% 6,070 2016F: China adds 1 Germany 2025F: China adds 2 Japans 2028F: China adds 1 US 2026F: India adds 1 Germany 2032F: India adds 1 Japan 2010-2016 2010-2020 2010-2025 2010-2028 2010-2020 2010-2026 2010-2032 2020F: China‘s economy doubles 2020F: India‘s economy doubles Sustainable Growth Phase Continued Acceleration Drive to Maturity Phase Growth Moderation Phase 2013F: India adds 1 South Africa Now 2010-2013 China India Moderating Phase China India Accelerating Growth Box indicates additional nominal GDP from now to forecast year China’s and India’s Forecast Nominal GDP (USD bn, 2010-2035F*) *Note: ForecastGDP growthrate for each period listed in the graphabove Source:IMF; The Beijing Axis Analysis China and India will add significant nominal GDP over the next 10 years and beyond, yet the type of growth will differ The Beijing Axis 32 Future developments in Sino-Africa economic relations • China‘s share of trade with Africa has explodedin the last decade,making it Africa's largesttrade partner • While China‘s trade and investmentgrowth in Africa will be driven by its own need for resources, the need to developconsumingmarkets that will buy Chinese goods and servicesis equallyimportant • This will help openAfrica‘shuge potentialfor private consumption,as the need for manufacturedgoods will remain strong whileAfrica continuesto develop its own manufacturingcapabilities • China is playingan increasing important role in job creationand supply to the local market, evidenced by the establish of free economic zones in the main financialand businesshubs of Sub-SaharanAfrica • Anotherarea of opportunity isAfrica‘s infrastructuresector, as decadesof underinvestmentand mismanagement have resultedin underperformingsectorsin railways,roads and power.A substantial amount of work has been done in the last decade with the help of Chinese investment, but much more needs to be achieved The Beijing Axis 33 Current and future trends in China‘s development affirm the deepening of ties with Africa Slower economic growth does not mean no growth Its all about strategic policy choices – Beijing ‘gets’ this Moderate GDP growth and sustainable demand for commodities China will remain the global engine for resource demand Understand the variability, volatility and exceptions Increasing China’s outbound investment in the region Implications for Africa Current and Future Trends Description Moderating commodity demand (moving towards sustainability) Exceptions will occur Balance of risks shifting Increased volatility China will reengineer itself towards a more moderate growth phase with a different set of drivers. Commodity demand remains solid Rates of growth in resource demand during the super-cycle 2004-2008 were unsustainable. Chinese policy makers allow a moderation in GDP growth looking for sustainability Commodity demand in China will be moderate but China remains the single biggest global engine of resource demand and will be that for a long time to come There will be some (individual commodity) exceptions to high growth commodity demand. It is necessary not to generalise about ‗China potential‘ but to understand the detailed supply/demand of each individual commodity The one-way supply/price risk for buyers in a seller‘s market has now begun to shift towards two-way risk where buyers and sellers will share risk Volatility could increase as the market grapples with the reality that China not be a one-way bet. Markets will adapt to the reality of more moderate but more sustainable demand Source:The Beijing Axis Analysis 1 2 3 4 5 6 Chinese outbound investment will continue China‘s outbound capital will continue to hit the headlines. Overseas investment is moving beyond trade facilitation and natural resources 7 The Beijing Axis 34 China‘s significant financing potential and EPC capabilities provide a ‗win- win‘ situation for Africa‘s growing need for infrastructure development Source:The Beijing Axis Analysis High Economic Growth – Growing Domestic Demand Significant Capital and Financing Appetite What does China have to Offer? Strong EPC CapabilitiesAcross All Disciplines Renowned Africa/InternationalProject Experience HedgeAgainst Global (Western) Risk 1 2 3 4 5 Need for Infrastructure Development Limited Domestic EPC Capabilities How does Africa Benefit? Need for Foreign Capital Influx Raw Material Export Market for Africa Need for Foreign Capital Influx Raw Material Export Market for Africa Need for Infrastructure Development Limited Domestic EPC Capabilities Protection from Fragile Developed Market Need for Foreign Capital Influx Raw Material Export Market for Africa The Beijing Axis 35 Agenda 1. Political and Economic Aspects of the Sino-Africa Relationship 2. China‘s Outbound Investments into Africa‘s Resource Sector 3. The Future Trajectory of Sino-Africa Relations 4. Final Word
  • 7. Page 7 The Beijing Axis 36 Final word • There are new markets that matter – a new competitivelandscapeis unfolding.China, India,Asia and Latin America to be central in this reconfiguration • China-Africa partnershipcomplex,very importantfor both sides; but China-Africa story is also relevant to the entire world as these 2 fastestgrowing areas of the global economyinteract • For China it is clear thatAfrica is a strategicimperative: − Resourcesupply lines − Markets for productsand services,jobs − Political influenceand geostrategicobjectives • Africa increasinglysees China/Asia for its full potential: − Sell resourcesinto large, high-growth markets − Seek capital and developmentpartners − Find new areas for growth and projectdevelopment − Access new technologyand talent • Appreciatethe ‗outward-looking‘stance of Asian players – new global leadersare emergingin Asia and they will act in global markets includingAfrica • This new world brings about key trends,new realitiesand strategic issues – all actors are now (re)interpretingthis future to understandthe driversof 1) broad trends and 2) exceptions – get close, be informed and strategic www.thebeijingaxis.com COPYRIGHT© The Beijing Axis Ltd. 2012. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of The Beijing Axis. THANK YOU! Haiwei Huang AssociateDirector, The Beijing Axis E-mail: haiweihuang@thebeijingaxis.com www.thebeijingaxis.com Beijing, China Cheryl Tang GM, China cheryl@thebeijingaxis.com Shanghai,China Julia Wang ProcurementSpecialist juliawang@thebeijingaxis.com Hong Kong TBA SecretaryCorporateOffice 3806 Central Plaza, 18 HarbourRd, Wanchai,HK Singapore Kobus van der Wath, Founder Penthouse& LV 42, Suntec Tower3, 8 Temasek Blvd, Singapore038988 Perth,Australia Kobus van der Wath Founder& Group MD kobus@thebeijingaxis.com Johannesburg,South Africa Dirk Kotze Director;GM, Africa dirk@thebeijingaxis.com London,UK/Europe Matt Pieterse MD, Beijing Axis Capital matt@thebeijingaxis.com Russia Desk Lilian Luca (Beijing) MD, Beijing Axis Procurement luca@thebeijingaxis.com Latin America Desk Javier Cuñ at (Beijing) GM, Beijing Axis Strategy javiercunat@thebeijingaxis.com Yangon,Myanmar Dr. WongYit Fan Chief Representative +951503599/374165 COPYRIGHT© The Beijing Axis Ltd. 2012. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of The Beijing Axis.