Wednesday, May 22, 2013

Guest Post: China-Africa Development Fund in South Africa

This guest post is by Yuan Li, a master's degree student at Johns Hopkins University/School of Advanced International Studies. It is based on interviews she conducted in Johannesburg, South Africa, in January 2013.

China-Africa Development Fund in South Africa

The China-Africa Development Fund (CADFund) is a private equity fund established in June 2007. It was initiated by President Hu Jintao at the Beijing Summit of the Forum on China-Africa Cooperation, as one of the measures to forge a “new type of China-Africa strategic partnership, strengthening bilateral cooperation in more areas and at a higher level” (CAD-Fund, China Development Bank) and to encourage and support Chinese enterprises to invest in Africa. According to its promotional materials:
 “CADFund aims to promote economic cooperation between China and Africa and to advance Africa's economic development. CADFund works differently from economic aid to Africa in that it is not allocated by nation but independently operated and based on market economy principles, the Fund invests in projects and requires investment benefits. CADFund is also different from credits, it invests together with enterprises in projects and takes the risk, by that the CADFund not increases enterprises' burden but increases enterprises financial resources.  For the African countries, CADFund will not increase their debt. CADFund assumes sole responsibility for its profits or losses and at its own risk. Under a standardized corporate governance structure, CADFund will appoint a specialized team to manage CADFund.” (CAD-Fund, China Development Bank).
 Currently, CADFund manages about 60 projects in over 30 countries in Africa, of which eight are in South Africa. The Fund has five different areas of focus: agriculture, industrial parks, infrastructure, manufacturing, mining and resources. By the end of 2012, CADFund had seven projects in South Africa, the largest number of any country. Of the seven projects, five are manufacturing, two are mining projects. The total investment CADFund has made in South Africa exceeds US$ 400 million;  this is also the largest total CADFund investment in any African countries. Details of these seven projects can be found in the table below:

Table 1: Investment Projects Managed by CADFund in South Africa
US$ mil
CADF Invest.
 US$ mil
CADF Equity
Project Description
mobile assembly
JV—FAW African Investment Co. Ltd. aims to produce annually 20,000 complete cars, 10,000 mini cars, 5,000 trucks. The project will start production in 2013 and will create about 700 local jobs. This is the largest automobile project led by CADFund
First Automobile Works
iness process reengineering of Super Group
JV by CADFund, China North Vehicle Co. Ltd., Beiben Heavy Duty Truck Co. Ltd., and Super Group Trading (Proprietary) Ltd. The company imports parts in SKD from Beiben and assembles locally.
China North Vehicle Co. Ltd., Beiben Heavy Duty Truck Co. Ltd., Super Group Trading Ltd.
First Tractor Co. Ltd. Assembly Factory

The factory will build assembling and sales center in Durban, and produce agricultural and engineering machinery
First Tractor Co. Ltd.
Cement factory
The project is aiming to build a production line that produces 2,500 ton of cement a day with a 5 MW power generating system. The funding of the project comes from both China and South Africa, and Chinese investment accounts for 51% of the equity. The project is expected to create 300 local jobs.
Tangshan Jidong Cement Co. Ltd., Continental Cement, WIPHOLD
Hisense Africa platform project
This platform company will be the only one that manages all Hisense’s business in Africa and the Middle East. The project will include building fridge production base in South Africa, Egypt and Algeria.
Gold One gold mining project
This is an M&A deal of Gold One International Ltd., a double listed mining company in Johannesburg and Australia. The Chinese investors formed a JV and bought 89.17% of the equity
Baiyin Nonferrous Group, Changsanyue Capital Co. Ltd.
Acquisition of Wesizwe Platinum
CADFund and Jinchuan Group Co. Ltd formed a JV and bought 51% of Wesizwe Platinum. It then applied for US$ 650 million loan from the China Development Bank. The project has 5 years of construction and 35 years permit to develop the mines.
Jinchuan Group Co. Ltd.
Source: CADFund
All the projects that CADFund has invested in in South Africa have at least one major partner that is  a Chinese state-owned enterprise (SOE). This is because most private enterprises from China operate on small scale in Africa, and their markets are usually limited at local consumption. CADFund looks for projects that are promising in return, and the minimum investment can be no less than US$ 5 million. Another strategy to control risk and maximize profit is to develop long-term partnerships with some major investors. For example, CADFund has decided to take Jidong Cement Co. Ltd. as its only partner for investment in cement projects, and will cooperate with Jidong in opening up more cement production lines across Africa[1].

South Africa is very different in terms of its investment environment in the African context. Unlike many other African states, South Africa has a stable government, well-established legal system, and the necessary infrastructure to produce and transport goods. At the same time, South Africa has already seen massive investment from all over the world, and has long been experienced in dealing with foreign investment, which makes it much more standardized and systematic to conduct international deals. While as these features of South Africa are appealing to Chinese investors, they receive much less preference or favorable offers on the other hand. As Mr. Li Shenglin, the Executive Director of CADFund pointed out, in countries where there is not vibrant interest of foreign investment, the government usually approaches Chinese investors quite actively and pledges with a lot of preferential conditions, such as lower tax. “We never receive such treatment in South Africa.” Mr. Li said. 

Another attractive fact about South Africa is its rich mineral resources. South Africa is one of the largest mineral resource-rich countries in the world. It ranks first in the reserves of gold, platinum group metals, manganese, vanadium, chromium and aluminosilicate; second in vermiculite, zirconium, titanium and fluorspar; fourth in phosphate and antimony; fifth in uranium and lead; eighth in coal and zinc; ninth in iron ore; fourteenth in copper. China has a strong demand in these minerals. This drives capital to flow into resource-rich areas. 

Besides the mining projects supported by CADFund, some central SOEs from China also have mining projects in South Africa. Sinosteel entered South Africa in 1996 and formed a joint-venture, ASA Metals Pty., Ltd with Limpopo Economic Development Enterprise of South Africa. Its wholly owned subsidiary, Dilokong Chrome Mine (Pty) Ltd, manages and develops the Dilokong Chrome Mine. Minmetals First Chrome Mining Co., established in 2009, is a wholly-owned subsidiary of China Minmetals Corporation in South Africa. The company’s major business focused on developing two chromite projects it acquired in South Africa. Earlier in 2013, CADFund together with Hebei Iron&Steel Group (the biggest steelmaker in China) invested over US$ 600 million and acquired Palabora Mining Co. from Rio Tinto and Anglo-American, making it the eighth project of CADFund in South Africa[2].

[1] Information obtained through interview with official, CADFund SA Rep Office
[2] Ibid.

Thursday, May 16, 2013

Rubbery AidData Numbers Surface in Beijing

As I feared, the rubbery AidData number of $75 billion in Chinese "aid" to Africa, 2000 to 2011, is now being circulated as conventional wisdom. A couple of days ago, China Daily repeated the number in a story on Chinese aid.

The subtle difference between "aid" and "finance" was lost in the launch of the database (one can hardly blame the media for this, as AidData began their report on the database by asking "How much aid does China give to Africa?" Their own name suggests that they are focusing on official aid, not commercial loans and export credits...).

I also learned that the figure of $75 billion was quoted by another Chinese official at an event at Brookings this week. (h/t to Winslow Robertson). So it will go as this rubbery figure takes on a life of its own (despite any corrections to the data produced by cloud-sourcing). And corrections are badly needed. By my estimates, even including all types of official government-to-government finance from China, the total should be well under $50 billion for the period covered by AidData. The errors are almost certainly not evenly spread across the dataset, which renders it rubbish for cross-country regressions.

If the Chinese published their aid data to Africa, we would have somewhere to go for the official figures. Yet who would listen? The Chinese actually did publish their global aid figures in 2011. They said that over the course of decades, China had committed approximately $37.7 billion in official development aid globally. Likely, about half of this would have gone to Africa. But this figure is now lost in the hoopla surrounding the $75 billion. Why isn't anyone asking the question: is it plausible that the Chinese government would have committed $37.7 billion in aid globally by the end of 2009, and $75 billion just to Africa, by the end of 2011?

Monday, May 6, 2013

Links I Liked

(1) The relatively liberal Chinese magazine Caixin did an interview with me on April 7, 2013.  (Sorry, it's all in Chinese but if you use Google Chrome, it will translate for you).

(2) The stirring video, complete with "Exodus" soundtrack, of the China Eximbank-financed Kribi Deep Sea Port in Cameroon, Phase I. More on Kribi: here. This one notes the problems with compensation, disruption, pollution, and also that the construction is being overseen by Louis Berger, a US company. Interesting.

(3) Chinese companies are increasingly cognizant of the risks they face overseas. That's why it was so interesting to me to see that in December 2012, huge Chinese construction company CCECC joined with British partners to improve its risk-assessment capacities: "With the support of China Commerce Ministry and China International Contractors Association, CRCC, CREC, Shanghai Construction Group, CCECC, CHEC, Sino-hydro and Shanghai Jiaotong University as Chinese sponsors together with ICE, British Imperial College, Mott McDonald Consulting Company and SIP as British sponsors initiated the mission of Sino-British Overseas Projects Risk Management Task."

(4) China's appetite for illegal timber, in a report by the Environmental Investigation Agency.

(5) Good data from the US Government Geological Service on Chinese and Western mining in Africa. Would be useful for comparison studies. 

(6) An interesting commentary on the blog "Africa is a Country" : the micropolitics and sociology of Chinese shopkeepers and Basotho media in Lesotho. A hat tip to Winslow Robertson.