Wang Yu says most African governments don't have enough money to initiate mega-projects, so they are encouraging private companies to invest in power, energy and mineral resources, and share the financial returns. Provided to China Daily

Consultant urges more Chinese investors to take plunge in Stable and populous countries

From famously being headlined as "hopeless" in the Economist magazine in 2000, to being a continent of "lion economies" in 2014, Africa is economically on the move.

And the efforts of the Southern African Development Community could accurately be described as typifying the very best in what the continent's most progressive countries have to offer Chinese investors.

The inter-governmental organization headquartered in Gaborone, Botswana, was established in 1990 with the goal of further socio-economic cooperation and integration as well as political and security cooperation among 15 southern African countries, mostly in the southeast.

Wang Yu, principal of Roland Berger Strategy Consultants, the global business consultancy, and an expert on investment in Africa, runs one of the organization's two offices in Africa, focused on the area covered by the SADC, and predicts it will become one of the world's most dynamic within five years.

"The region is stable and populous, and most importantly, some countries have recently discovered rich strategic resources, such as oil and natural gas," Wang says, highlighting Mozambique and Tanzania as having the greatest potential.

The former, for instance, has already started developing huge gas reserves in the north of the country, which are estimated to be second only to Qatar.

Tanzania also has good reserves of natural gas.

"Once these reserves are tapped, their revenues will soon lift per capita income," Wang says, justifiably giving Mozambique the reputation as being the next Dubai, he adds.

Its potential is further enhanced by well-developed transport infrastructure and deep-water ports, he says.

Historically, Africa's southeast has enjoyed good diplomatic relations with China.

Mozambique's were first established as it gained independence in 1975, after the country's great TAZARA Railway, linking the port of Dar es Salaam in Tanzania with the town of Kapiri Mposhi in Zambia's Central province, was built from 1970 to 1975, financed and supported by China.

But until now, Wang adds, Chinese investors have only benefited to a small extent from the region's resources.

"For example, China North Railways has already sold more than 1,000 rail carriages to Vale Group to transport its quality grade coal from mines in Mozambique's Tete province to the nearest ports to the east."

BHP Billiton, Vale and other major resources groups all have shares in the mines, but no Chinese company is yet to be awarded any exploration rights.

But Wang says it is now vital that Chinese companies get involved.

"Other emerging powers such as India are giving serious attention to Africa, and over the next 30 years, it and China will become the world's biggest energy consumers."

He concedes that the unpredictable political situation in some countries, and the still-undeveloped infrastructure, may deter potential Chinese investors.

Last year Italian oil major ENI sold 20 percent of its exploration rights in Mozambique to China National Petroleum Corporation for $4.2 billion, which led to a minor influx of supporting Chinese companies, such as those in construction and real estate.

In July 2013, fewer than 30 Chinese companies were registered at the Chinese embassy in Mozambique, but by May this year that number had risen to more than 90.

Another local economic initiative may also help late-coming Chinese investors into the market too, Wang says of public-private-partnership projects.

"As most African governments don't have enough money to initiate mega-projects, they are encouraging private companies to invest in power, energy and mineral resources, and to share the financial returns.

"Many different countries have successfully introduced similar policies and schemes. Private enterprises can earn good money, help raise efficiency, and improve infrastructure.

"It's a golden opportunity for private Chinese organizations that are not allowed to invest in similar areas back in China," Wang says.

Some SADC countries allow foreign companies to build power stations and then buy electricity from them at pre-negotiated prices.

Shenzhen Energy, for instance, is already operating such a power plant in Ghana.

But Chinese companies are failing to keep up with the progress of many Western counterparts, he says.

"Most of the Chinese in this region are contractors, and not real investors.

"They get loans from the Export-Import Bank of China or China Development Bank, underwritten by African sovereign states.

"There is little risk in doing such projects, but there is also little return."

As well as fossil fuel resources and energy, consumer goods are also likely to be business hot-spots in the region, Wang says.

"India is leading investment in this, such as beer, soft drinks and other light manufacturing.

"The region is still unable to absorb advanced manufacturing like auto-making or pharmaceutical industries, but light industry is feasible and products are highly welcomed.

"Food processing is a prime example. Mozambique is the world's largest cashew producer, so nut processing and even food packaging is very profitable there."

Real estate development is also taking off as a result of an influx of international investors.

But Wang warns that no matter what sector Chinese investors are targeting, they have to keep one crucial thing in mind: Governments play a relatively small role in business, and cannot be relied on too much.

Chinese companies have often tended to deal with governments first, then business partners, he says.

"However, they have soon realized top-down tactics are not necessarily workable in these countries."

Wang encourages Chinese investors to change their old mindset that they are guests invited by the local government, and that they just need to sit back.

Some companies don't realize this and turn to bribery, hoping to expedite the investment process, he adds.

"This is bad practice. Sometimes government efficiency here is not very high - but you have to play by the rules, and do things legally."

wangchao@chinadaily.com.cn

(China Daily European Weekly 08/29/2014 page32)