Africans feel Chinese investment 'more generous' than West's

PUBLISHED : Monday, 20 June, 2011, 12:00am
UPDATED : Monday, 20 June, 2011, 12:00am


The recent spate of Chinese investment in Africa brings with it its fair share of issues - not least amongst them concern for the rate at which Chinese companies are extracting natural resources - but also a number of tangible benefits according to Pascal Agboyibor partner Global Finance of multi-national law firm Orrick.

And these are benefits which investment from traditionally wealthy countries in Europe and the Americas failed to deliver in the past.

The Chinese projects tend to be much larger than European ones, they are generally government backed (so they can afford to spend more money) and such is China's insatiable need for natural resources they are prepared to build the necessary infrastructure to not only extract the materials but also transport them to market.

Agboyibor advises governments, lenders and guarantors on natural resources projects (as well as infrastructure projects) in Africa. He hails from Togo and has worked for organisations promoting the Ohada - the Organisation for the Harmonisation of Business Law in Africa - of which there are now 16 member states.

The purpose of the Ohada is to attempt to provide foreign investors predictability and stability when investing in African countries.

Agboyibor says he is well aware of the issues his native continent suffers when it comes to perceptions of exploitation, corruption and the difficulty in doing business there but says this latest round of investment from China gives him cause for cautious optimism.

The cynical view, he says, is that if it is not a Chinese or an Indonesian or Malaysian company which is extracting minerals from Africa then it would be a French one or a European one.

'For centuries we have done this (trade) with Europeans and our countries have not changed,' he said. 'The difference I can see (is) that when a Chinese company comes and obtains the extraction rights - (people in Africa) have the feeling the Chinese are more generous with them in other aspects. Sometimes they will build a stadium, sometimes for free.'

He says that in his country after a series of storms destroyed a number of bridges a Chinese company which had investments there offered to re-build them. He points out in the past many western companies which operated there didn't offer anything like that.

'China needs the resources,' he says. 'You can see the difference - in a poor country like Guinea - in the past when you had an investment of $US50 million - it was a great project. Now you have trillions of US dollars (being invested in Africa). They are mega projects - a single project - $US4 billion. And I can guarantee you if you investigate - behind them there will be a Chinese company.'

Part of the reason for the shift is that while Africa is a resource rich continent it has a serious lack of infrastructure. This has meant it could cost billions of dollars to create transport infrastructure to shift resources from the point of extraction to a sea port to be shipped to the country where they will be used in industrial production.

'The traditional investors were not prepared to invest so much money - they had private investors, stockholders behind, who were expecting short-term earnings.

'We are at the beginning of the process - this is a trend I have been seeing for five years. You have to see whether the investment will be made as announced - because sometimes they are not.

'But as a citizen I have a choice to be optimistic and to be candid - this trend is so new that I don't want to be pessimistic. Let's see what happens in 10 years.'

He says the main challenge to this growth is the legal framework and formalities which are thrown into particular contrast when people come from countries which are well organised.

'One thing francophone Africa has (is) they have organised their business law. 16 African countries have decided to create an international organisation that is in charge of organising their laws.

'What people need beyond that improved legal framework is process. You can have the best codes and the best laws but if the people who are expected to enforce them are not doing their job then you still have an inefficiency.'