Investment, a Contribution to a Closer China-Africa Community of Common Destiny
By Yang Baohua, Chairperson of China-Africa Development Fund
During the visit to Tanzania in 2013, President Xi Jinping made a point that China and Africa were always a community of common destiny. Now, building an even closer China-Africa community has become the goal and cornerstone of China-Africa cooperation in the new era, and an indispensable part of constructing a community of common destiny for all mankind. The widely anticipated Beijing Summit of Forum on China-Africa Cooperation (“FOCAC”) will be held this September, when China and Africa will focus on "win-win cooperation for a closer China-Africa community of common destiny" and jointly build the roadmap, so as to open a new chapter for China-Africa cooperation.
As an important achievement of the last Beijing Summit of FOCAC, China Africa Development Fund (“CADFund”) has just marked its 11th birthday. From the birth to growing-up, the fund has served China-Africa cooperation through investment, witnessed the flourishing development of the cooperation, and grown to the main platform for China’s investment in Africa which supported Chinese enterprises to “go global”. The 2018 Beijing Summit of FOCAC is expected to bring new impetus in building China-Africa community of common destiny, and CADFund will get involved by undertaking new historic missions and roles.
Investment is a major component and effective means of constructing China-Africa community of common destiny
Since the beginning of 21st century, the FOCAC mechanism has powered the deepening interest convergence of both sides and the expanding of bilateral economic and trade cooperation; in the meantime, new opportunities for cooperation and growth have sprung up. China has been Africa's largest trade partner for nine consecutive years since 2009, with trade worth US$170 taking place in 2017. In terms of contracting projects, the turnover of Chinese contractors in Africa reached US$51.2 billion in 2017, making Africa the second largest contracting market of China. On the other hand, China’s investment in Africa has grown from scratch. Its direct investment in Africa has increased 15 times in ten years and exceeded US$40 billion in 2017. Now, China-Africa economic cooperation is undergoing critical transformation and upgrading from traditional cooperation dominated by trade and contracting to a new type of cooperation including investment and stereoscopic capacity cooperation.
Africa is endowed with abundant natural and demographic resources, and hopes to turn the resources into advantages that fuel its development. However it has long been hindered by lack of capital and technology, underdeveloped market and unsuitable policies. As most African countries cannot stand rising burden debts, investments in enterprises or projects with growth potential could generate profits; promote local employment, exports, tax revenue and industrial upgrading; and therefore effectively support the self-reliance and sustainable economic development of host countries. China has experience of rapid development throughout 30 years and comparative advantages of production factors. Without rising local financial burden, investment in Africa not only supported Africa’s industrialization with China’s capital, technology, equipment, and management expertise, but also promoted industrial capacity cooperation between China and Africa. Such engagement will undoubtedly accelerate Africa’s industrialization, foster supply side reform of China, and contribute to constructing a closer China-Africa community of common destiny.
CADFund’s investment in Africa
At the Beijing Summit of FOCAC in 2006, the Chinese government announced the establishment of CADFund, aiming to encourage and support more Chinese companies to invest in Africa. The birth and development of CADFund meet the needs of China and Africa to jointly build a community of common destiny, and strongly facilitate the process. Operated by China Development Bank, CADFund was launched in June 2007 with capital of US$5 billion. To implement the China-Africa “Ten Cooperation Plans”, President Xi Jinping announced an additional US$5 billion to CADFund at the Johannesburg Summit of FOCAC in December 2015, which makes the fund reach a designed total capital of US$10 billion.
As China's first equity investment fund focusing on Africa, CADFund operates in a market-oriented approach, connecting Chinese companies willing to invest in Africa with African projects, and becomes a bridge and link for China-Africa investment cooperation. It acts as a pioneer in China and Africa’s joint construction of “Belt and Road”, and also an explorer of building China-Africa community of common destiny. In 11 years, CADFund has invested US$4.6 billion in 92 projects in 36 African countries, covering areas including agriculture and livelihood, infrastructure, capacity cooperation and resource development. The fund’s investment has leveraged Chinese enterprises’ investment of US$23 billion, increased exports of US$5.8 billion and tax revenues of US$1 billion, and benefited more than 8.7 million people in Africa. A number of projects jointly invested by CADFund and Chinese enterprises have become copybook examples of pragmatic cooperation between China and Africa, giving full expression to the idea of "win-win cooperation and common prosperity" in constructing China-Africa community of common destiny.
1. Support Africa in improving its infrastructure and breaking the bottleneck of development
Focusing on infrastructure interconnection in Africa and China’s commitment to assist Africa in developing "three networks and industrialization", CADFund has invested in a dozen of representative projects in infrastructure such as port, airlines, power plant, etc. and encouraged China's equipment and manufacturing industry to “go global”. Among the projects, the Ghana-based African World Airlines (AWA) is the first African passenger airline invested by Chinese enterprises. With three domestic air routes in Ghana and four international routes, the project effectively promoted the interconnection of West Africa. The Ghana power plant is another example. With installed capacity accounting for more than 20% of the whole country’s power generation, the power plant effectively alleviated the power shortage in Ghana. Moreover, the fund, jointly with six Chinese construction companies, established China Overseas Infrastructure Development and Investment Company, focusing on the early stage development of infrastructure projects in Africa, so as to make the projects more feasible and bankable.
2. Take proactive measures to promote the China-Africa production capacity cooperation and help Africa enhance self-reliant development
Focusing on the needs of industrialization in Africa, CADFund drives Chinese competitive production capacities, such as automobile, electric appliances, machinery, cement and glass, to invest in Africa. The projects with annual capacity of 68,500 heavy trucks, 300,000 air-conditioners, 450,000 refrigerators, 560,000 televisions and 1.6 million tons of cement consistently fuel manufacturing development and economic growth in Africa, which is valuable experience for China-Africa production capacity cooperation. Take South Africa Home Appliances Industrial Park for example, with a staff localization of 90%, the project boosts the development of local supporting industries and improves the management of upstream and downstream industries, logistics and after-sales service through "made in Africa ".
3. Support poverty reduction in Africa by investment
With a strong emphasis on the improvement of weak areas such as agriculture and healthcare, CADFund has made great efforts to increase employment and improve people’s livelihood through investment.
Our cotton plantation and processing projects in Malawi, Mozambique, and Zambia operate in a “company + farm household” approach and benefit 200,000 farm households in the three countries. Another example is the Suez Economic and Trade Cooperation Zone in Egypt, which provided nearly 2000 jobs for local people and attracted investment of US$950 million. Moreover, Mozambique Agricultural Park, operating along the entire value chain ranging from scientific planning to large-scale cultivation, food processing and warehousing, is expected to yield 7500kg of rice per hectare in 2018. The project benefits 450 farm households and makes great contribution to local food supply. Furthermore, the Gold and Copper Mining Project in D. R. Congo not only contributes to the local community with substantial tax revenue, but has invested supporting agricultural project, which was named as modern agricultural demonstration park by the Food and Agriculture Organization of United Nations. In Mali, our pharmaceutical factory with annual capacity of 40 million bottles of infusion and 30 million bottles of syrup has become the most modernized pharmaceutical facility in western Africa.
Seize opportunities, rise to challenges and contribute to a closer China-Africa community of common destiny
The development of China has been closely tied with that of Africa, and China has been putting more and more attention and support to Africa, not only because of the deep friendship established over the past half century, but also from the increasingly closer China-Africa community of common destiny. At present, as the global trade protectionism and unilateralism are rising and downward pressure is placed on world economy, both China and Africa are facing complicating external environment. Therefore, the cooperation of China and Africa is of great significance for both sides and even the whole world to meet the challenges and seek new growth momentums.
There are also challenges in investment cooperation between China and Africa. For China, policy support and financial services need to be improved, as some Chinese companies are unfamiliar with international rules and lack of understanding of legal systems, cultural concepts and conventions in African countries. For Africa, improvement of soft and hard environment for investment cooperation is pressing, since investment projects generally face problems such as inconsistent local policies, exchange rate fluctuation and market risks. On the one hand, Chinese companies need to further lift their capacities in internationalization and overseas investment risk control. On the other hand, we hope that African governments will further improve their investment environment and policies, continue to support foreign investment, and maintain policy consistency.
This year, the African economy has bounced off bottom, showing strong resilience and favorable prospects. According to the latest forecast by the International Monetary Fund (IMF), the GDP growth of sub Saharan Africa will rise from 2.8% in 2017 to 3.4% in 2018, and 29 out of 45 African countries will witness economic growth, which is Africa’s best performance since 2010. As per the latest McKinsey report, Africa will be the fastest urbanizing region in the world with yearly 24 million people moving to cities in the following 30 years; industrial development in Africa also shows great potential as manufacturing output is expected to increase from $643 billion to $930 billion over the next 10 year. We can see that African economy remains vigorous and promising.
China’s transformation towards high-quality development in the new era will be more closely connected with the demands of industrialization and independent development in Africa, and China-Africa cooperation will enter into a new period of opportunities. The upcoming Beijing Summit of FOCAC will gather the leaders of China and African countries together again in Beijing this September, expected to create a new vision of "belt and road" and a new chapter for China and Africa to work together in building a community of common destiny for all mankind. CADFund will seize these opportunities and make full use of its accumulated investment experience and professional skills, to support Chinese enterprises to invest in Africa and serve China’s reforms on economic structure, as well as to support African countries to improve their infrastructure, promote industrial upgrading and enhance their capacity of independent development. CADFund will also make new greater contributions to the common prosperity of China and Africa and the construction of China-Africa community of common destiny.