Confucius schools come to the veld

2007-11-17 00:00

China has rushed into Africa, setting up Confucius schools in the veld, laying out roads and railways, and making deals to buy the bulk of the continent's commodities, especially oil, platinum and gold.

In Western capitals, business and political leaders are watching China's political and economic re-engagement with Africa with trepidation: crisis meetings and conferences are being hurriedly put together, as the United States, European Union countries and Japan scratch their heads over how to respond to the Chinese safari in Africa.

Three weeks ago a new phase in China's African expansion started with its establishment of a foothold in the continent's financial sector. The state-owned Industrial and Commercial Bank of China (ICBC), the country's biggest lender, announced that it had bought sizeable stakes in three African banks. It was a strategic decision: the banks were located in the three pillar economies of the continent: South Africa, the continent's biggest economy, oil-rich Nigeria, its largest population, and Egypt, the continent's bridge to the Middle East. The ICBC bought a fifth of Standard Bank, Africa's biggest banking group, for $5,6 billion in cash. The Standard Bank deal is the biggest foreign buyout by a Chinese financial institution and the largest foreign investment in Africa. With its acquisition of a share in Standard Bank, the Asian dragon has, with one stroke, grabbed a firm stake in the 20 African markets in which Standard Bank operates.

Africa desperately needs China's money and expertise. For that matter, the most successful development efforts, the rebuilding of Western Europe after World War 2 and the rapid industrialisation of the East Asian tiger economies could not have happened without the flood of dollars pumped in their economies by the U.S. To put it into perspective: the U.S., between 1950 and the eighties, poured the equivalent of all the combined aid given to 53 African countries between 1957 and 1990, into just one country, South Korea. This is the kind of lift Africa will need as an equivalent of its own Marshall Plan. Perhaps, China will present that opportunity. But to make it work, African countries and South Africa will have to be more hard-nosed about its deals.

Africans cannot squander their strategic assets, as they did during the post-independence era and again in the immediate aftermath of the end of the Cold War. The deals African countries and companies have so far offered to China are just too soft. The Chinese economy desperately needs to maintain that nine percent growth rate to prevent an internal implosion over ballooning domestic demands for local development, jobs and even democracy. Only such growth rates can keep the internal foes at bay. But to continue to grow at a head-spinning pace, China needs a deluge of commodities. At the moment these can only be found in cheap quantities in Africa.

It's almost as if history may have presented Africans, via China, with its first lift, in the way the Marshall Plan or the U.S.'s post-war support of East Asia had given that region.

China's new investments in Africa lay bare the often peddled fabrication that Africa has nothing to offer in terms of resources. For the past few years, Western investors have made more money for their shareholders when they have invested in Africa. And China's investments are having a positive cascading effective. Other investors, Western (the U.S. and EU) and Asian, India, Japan, South Korea and so on, are following.

What is often forgotten is that the post-1994 investment drive by South African companies into Africa has started off the new scramble for Africa. China has watched this South African surge into Africa in minute detail and followed. It also learnt the lessons of Japan's failed plunge into Africa in the seventies and eighties.

The problem with China's commodity shopping excursion into Africa is that it is buying strategic assets quite cheaply, under easy terms and with few obligations. Most of the deals African countries have signed with China so far are so outrageously skewed in China's favour that it would make sense for all the African countries that have signed bad deals, to renegotiate them.

Reserve Bank governor Tito Mboweni is right when he cautioned that South Africa must proceed carefully with allowing foreign companies, including Chinese companies, to dominate South Africa's domestic financial sector. Allowing Barclays to secure a majority stake, rather than a smaller one, in Absa without any strings attached is a travesty. Barclays and Absa approached the treasury and the presidency directly when it put together the deal. It circumvented the Reserve Bank, which must normally approve such deals. The ceiling of 20,5% on foreign investment in South Africa's banks is crucial and the Reserve Bank must enforce it.

The engines of the phenomenally rapid industrialisation of the East Asian Tiger economies during the post-war period were their banks. It is an important fact that South African policy makers must remember as they contemplate how to copy the East Asian developmental states. The banks were at the heart of China's extraordinary development over the past decades during which, year after year, it logged up economic growth rates averaging nine percent. The ICBC was at the centre of China's determined effort to modernise the country's industrial base. It is now again at the centre of China's new foreign-looking industrial policy to target buyouts not only in Africa, but also in key industrial markets, including the U.S.

Local banks played the same role in Western Europe's post-war development. China and India's recent economic development have depended on their local banks, which finance their economic expansion. This has been one weakness of our (non-existent) industrial policies since 1994. The stakes are very high. The South African economy is the most strategic one in Africa. For Chinese investment to become our equivalent of the U.S. Marshall Plan for Western Europe and the U.S. financial injection into post-war East Asian economies, the South African economy will have to play a similar role of a golden goose, in a way Japan played in Asia and the German-France economic axis played in Western Europe. The combination of Chinese investment in Africa and high growth and rapid industrial expansion in South Africa are the pillars of any African recovery.

South Africa's banks are the foundations on which any South African and Africa-wide recovery rests. Of course, there has to be a continent-wide shift towards prudent economic management and democracy. Nevertheless, to dig out the foundations by allowing the local financial sector to be foreign owned is the height of folly.

• The second edition of William M. Gumede's book, Thabo Mbeki and the Battle for the Soul of the ANC, will be launched on December 3.

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