The construction of transportation and power infrastructure across Africa could provide the next big opportunity for Chinese firms aiming to invest in the continent, a senior executive with South Africa’s Standard Bank said.
Speaking on the sidelines of a mining conference, Andrew King, the bank’s Asia chief executive, said the big advantage Chinese developers have over their Western counterparts is the Chinese firms’ access to financing from government policy banks.
“If big mining is going to take place in Africa, it’s going to require significant investment in infrastructure, in ports, railways, roads and power,” he said.
“For many of the contractors in China, it is going to be a great opportunity, a lot of companies from Europe or Brazil could do it, but (Chinese firms) have the ability to provide funding through the policy banks.”
The World Bank said in a report earlier this year that Africa had to fill an investment gap of $31 billion per year if it was to build the infrastructure it required.
Companies like the China Railway Construction Corp and China Harbour Engineering are already looking at opportunities across Africa, King noted.
China Railway signed a memorandum of understanding earlier this year with Standard Bank to cooperate on funding rail and infrastructure projects in Africa.
The bank also has an agreement with the China Guangdong Nuclear Power Corp to cooperate on nuclear projects in South Africa.
China has come under increasing scrutiny as it strengthens its presence in Africa, with many concerned that Chinese enterprises are only interested in shipping the continent’s raw materials back to China, but King said the worries are exaggerated.
“One of the things that has struck me is that there have been a lot of MOUs signed about securing resources, but if you had to do an analysis of MOUs signed versus execution, deals done, projects built, I think the correlation is very low. I don’t think it is nearly as big an issue as people make it out to be.”
Many of the problems arise from misunderstandings, he added.
“The challenges for mining companies is they are not used to going offshore. It’s new for them. In China they know what needs to be done, what the rules are, but if they go into these new jurisdictions they need a lot of time understanding local rules and what these countries are looking for.”
The Industrial and Commercial Bank of China sought “a window into Africa” by buying a 20% stake in Standard Bank, and the agreement has already given the South African lender a bigger profile in China itself, King said.
But Standard Bank chief executive Jacko Maree said in September that he was “disappointed” by the failure to convert the partnership into concrete deals.
King agreed that progress has been slow so far.
“Building relationships in China is a long-term endeavour, it doesn’t happen overnight,” he said.
“Our focus is cross-border transactions, we are not trying to compete in China. And cross-border opportunities, if you like, are some of the most difficult types of transactions to do.
“A lot of hard work is needed to make (Chinese companies) comfortable with the risk.”