The Importance of China to South Africa

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The Importance of China to South Africa

This year China Inc. is likely to become the largest foreign investors in the South Africa economy. Chinese investors have so far announced close to US$3bn investment into our economy over the course of 2011 alone. Whilst western economies battle with sluggish growth, sovereign debt crises and government inertia, China Inc. is becoming an increasingly assertive commercial actor in South Africa. Beijing views South Africa as its foremost strategic partner in Africa as well as a major player in multilateral global politics.

I wrote over a year ago that China and South Africa’s “strategic partnership” was underperforming on the commercial front. I said that South Africa needs to “do more to leverage its political relations with Beijing for greater investment return”. This is no longer the case. Politics has enabled China’s strong pipeline of investment into South Africa. Since August last year, there have been four high level political engagements between Pretoria and Beijing – President Zuma’s state visit (August 2010), Chinese Vice President Xi Jinping visit to South Africa (November 2010), the BRICS summit which Zuma attended in Sanya, China (March 2011) and most recently Deputy President Kglame Motlanthe’s trip to Shanghai and Beijing last week. Pretoria’s political efforts toward building close ties with Beijing – far more than under former president Thabo Mbeki – is now paying commercial dividends. Most of the investment is in mining resources and manufacturing.

In May this year, the China-Africa Development Fund, state-owned mining firm Jinchuan and China Development Bank providing debt finance invested US$877m into the listed junior platinum firm Wesizwe Platinum. The investment is creating 3,500 permanent jobs in Northwest Province. Other announced investments are into JSE-listed mining firms Metorex (US$1.335bn), Gold One (US$158.7m), FAW into an automotive manufacturing plant in the Eastern Cape (US$100m), and another automotive factory in Harrismith to the value of US$1bn. These projects reflect the confidence that Chinese business has in South Africa and the continent as an emerging market.

Martyn Davies Frontier Advisory CEO

Dr. Martyn Davies is CEO of Frontier Advisory

South Africa Inc. in China

In contrast, the relatively few South African corporations that have invested in China have been extremely successful in penetrating its often challenging market. A handful of firms have been “industry shapers” in the Chinese economy – after entering the market in 1994, SABMiller is the largest brewer by volume in China; Sasol could become the single largest investor in China if it goes ahead with a coal-to-liquid project in China’s Ningxia province; and Naspers is the leading foreign media player in what is China’s most closed sector for foreign firms having adopted an apolitical approach to investment (in contrast to that of Google). South Africa possesses the only private sector in Africa that is able to effectively engage the China market and this comparative political advantage needs to be further leveraged going forward.


Competitive pressures

The pace of China’s industrial rise and integration into the global economy through trade continues to force other economies to adapt. Its rapidity is exposing competitive weaknesses in industrial sectors in our economy at a speed that has taken government by surprise. One could argue that government’s recent Industrial Policy Action Plan (IPAP) is a strategic response to competition from China – our single largest trading partner.

South Africa – both public and private sectors – needs to get a handle on China’s drivers of competitiveness in order to better compete. Protectionism and insular policies designed to discriminate against Chinese competition is not sustainable and only satisfies a domestic political constituency. Ultimately however, the structural issues of improving competitiveness need to be addressed.


Aligning our interests in Africa

As China expands its presence in Africa, the interests of China and South Africa will increasingly intersect. For South African business, China’s move into the continent poses a major strategic consideration. As “China Inc.” builds its presence in Africa, its interests will increasingly intersect with those of “SA Inc.” in the region. Chinese firms have rapidly established themselves in markets which South African firms have been slow to expand into – Angola for instance. Perhaps the question of the previous Government in Pretoria is “who lost Angola to China”?

Do we seek to compete or collaborate with Chinese business in the sub Saharan region which has – at least Anglophone Africa – become South Africa’s commercial sphere of interest? To better engage China’s “state capitalist” approach, it is imperative that we reduce the disconnect between the state and the private sector in South Africa in order to enhance our ability to project a more coordinated and focused economic diplomacy in Africa – a region in which China is now the most influential trader, provider of capital and commercial actor. South Africa Inc. too needs to make a conscious decision to strategically position itself and couple our economy with the Chinese long term growth train.


The Company


Frontier Advisory

A research, strategy and investment advisory firm that assists clients to improve their competitiveness in emerging market economies

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