Making inroads into SA’s economy

2011-10-08 17:30

This year China Inc is likely to become the largest foreign investor in the South African economy. Chinese investors have so far announced investment of close to $3 billion in our economy over the course of this year.

While 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 this country as its foremost strategic partner in Africa, as well as a major player in multilateral global politics. Politics has enabled China’s strong pipeline of investment into South Africa.

Since late last year, there have been four high-level political engagements between Pretoria and Beijing – President Jacob Zuma’s state visit in August last year; Chinese vice-president Xi Jinping’s visit to South Africa in November last year; the Brics summit, which Zuma attended in Sanya, China, in March this year; and most recently Deputy President Kgalema Motlanthe’s trip to Shanghai and Beijing last week.

Pretoria’s political efforts towards building close ties with Beijing – far more than under former president Thabo Mbeki – are 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 invested $877 million in listed junior platinum firm Wesizwe Platinum.

The investment is creating 3500 permanent jobs in North West. Other announced investments are in JSE-listed mining firms Metorex ($1.3 billion) and Gold One ($158.7 million), FAW in an automotive manufacturing plant in the Eastern Cape ($100 million), and another automotive factory in Harrismith to the value of $1 biliion.

The projects reflect the confidence Chinese business has in South Africa and the continent as an emerging market.
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.

Ultimately, however, structural issues of improving competitiveness need to be addressed.

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.

» Dr Martyn Davies is CEO of Frontier Advisory

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