FOCAC: “Forum for China-Africa Cooperation”

Africa still solidly in the crosshairs of China growth

• This paper offers insights into China’s commercial footprint in Africa – especially the investments and projects by Chinese-owned firms – state-owned, and, increasingly, privately owned. This topic is the least understood part of the China-Africa story but, arguably, these investments are the lifeblood of China-Africa ties. The ultimate objective of FOCAC is fostering closer China-Africa connections. 
• When FOCAC was established in 2000, the rest of the world was perhaps bemused. Indeed, bilateral trade and investment between China and Africa then was minimal and African economic prospects not promising.
• China’s political embrace of Africa – as framed by FOCAC – has ushered in exponential growth in commercial ties. Now, just 18 years later, China is Africa’s largest trade partner, gaining large swaths of Africa’s market share. China is also a significant source of capital for Africa – loans to be sure, but also direct investment. Cities across Africa are virtually unrecognisable now from just a decade ago, largely due to partnership with China.
• Notwithstanding that many African economies remain overly reliant on raw material exports – as has been laid bare in recent years – since 2000 African governments have acquired institutional credibility, invested in both physical and social infrastructure, and African financial markets have matured.  
• The leading edge of China-Africa relations is trade. In particular, China’s exports to Africa have more than doubled since 2009. In fact, 10 of China’s 15 fastest-growing export markets since 2009 are in Africa. As a result, African trade balances have deteriorated materially. This trade deficit only started in 2015, and complicates China’s geopolitical approach to Africa.  
• Chinese banks offer loans to African countries building infrastructure projects such as roads, dams, railways or industrial plants. At previous FOCACs, China has typically announced pledges. At FOCAC in 2015, China committed USD60bn and cancelled debts for some. Then, at the recent BRICS Summit in July, South Africa’s power utility Eskom secured a USD2.5bn long-term loan facility from China Development Bank, and port and freight rail operator Transnet agreed to a long-term loan with ICBC.
• Chinese foreign direct investment (FDI) in Africa remains small – at just USD40bn. In reality, Chinese foreign direct investment (FDI) into Africa is understated by as much as USD10bn-USD20bn. Most of Chinese firms in Africa are smaller privately owned firms, and are very poorly understood. When looking at data on greenfield investments announced, around 60% of the projects (measured by estimated capital to be deployed) is by private firms, and as much as USD19bn has been earmarked for manufacturing.
• The 7th FOCAC will again focus on industrialization, job creation and technology transfer through investment in manufacturing industries. Africa has advantages. First, labour cost. Second, an abundance of natural resources. Third, Africa’s already substantial, and fast-growing, domestic market. Fourth, favourable demographics.
• Another focal point will be OBOR (One Belt One Road): how Africa aligns itself to this grand plan will shape the next 10 years of engagement with China’s SOEs.
• As for RMB internationalization, the 13th Five Year Plan for a Modern Financial System – a key policy document overseeing the financial space through 2020 – has two goals: first, the development of direct finance; second, RMB internalization. We foresee one-third of China’s cross-border payments denominated in RMB by 2020.