20 October 2014
China’s growth and appetite for foreign direct investment (FDI) has made Africa its largest investment destination, according to a new report written by the Economist Intelligence Unit (EIU) for leading global law firm, Mayer Brown. The report, “Playing the Long Game: China’s Investment in Africa”, finds that whilst energy and mineral resources have attracted the most Chinese FDI, investments and activities that support Africa’s physical infrastructure is underestimated.
Exploring the opportunities and challenges facing Chinese investors in Africa, the report highlights increased African trade, more direct investment and a surge in export credit financing as the primary drivers of China’s current economic policy towards Africa and looks at the diversity and success of projects that have been financed. It also documents the perception of Chinese investment in Africa and the unique political, cultural and legal challenges of realising projects across such a diverse range of countries.
Providing detailed analysis and interpretation of the data presented in the report are Mayer Brown partners Xiangyang Ge, based in Beijing and head of Projects at Mayer Brown JSM, and Ian Coles, based in London and head of the Africa and Mining practice.
“Chinese companies have a deep understanding of how to operate in fast-growing economies – and that experience has proved invaluable to their operations in Africa. To that end, the China-Africa partnership is evolving rapidly,” says Xiangyang Ge. “Chinese companies need to carefully consider and absorb local rules and regulations before investing. They also need to conduct more thorough due diligence that fully accounts for the unique costs and challenges presented by the target market in Africa. Doing so would go a long way to resolving a number of negative perceptions of Chinese investment, and would help convince Africans that Chinese investors are there as partners.”
Ian Coles adds, “In the past, China’s aggressiveness and relentless pursuit of efficiency has backfired and damaged the reputation of Chinese investors on the continent … But given the increased competition for assets unleashed by buyers from other jurisdictions, China’s investors are increasingly engaging local employees and sourcing local materials, and in turn, are leaving behind valuable skills in the community.”
Chinese policymakers have announced plans for significantly increasing FDI into Africa although there are indications that the appetite for riskier projects is subsiding partly due to problems in project execution. However despite the many challenges and difficulties facing Chinese investors in Africa, the report shows that the trajectory remains positive due to the potential of Africa’s untapped resources and its growing markets.
To read the full report, please click here