China Favoured Consort for Africa's Fund-Hungry Miners

By Eddyson Lugangwa Posted 02 January 2007 @ 03:45 pm EET     Print     Reprint     E-Mail     Comments

NAIROBI (IBTimes.com) - Resource companies operating in Africa have increasingly been eyeing Chinese investment with mixed feelings. On one hand, they view the Chinese as useful partners because they offer vast markets for commodities, but on the other hand their emergence as investors in African resources presents unwelcome competition.

China's economic growth rate of nearly 9,5% a year reflects a rapid catch-up to the rest of the developed world. Substantial construction and infrastructural projects, as well as increased manufacturing activity and the emergence of a consumer culture, have created demand for a range of natural resources, including iron ore, zinc, copper, coal and oil.

But instead of waiting for western companies to come to China and sell their commodities, China has taken the initiative in securing sources of supply, particularly in Africa.
At the November Forum on Chinese-Africa Co-operation held in Beijing, figures were cited showing that trade between China and Africa rose to $40bn in 2005 from $4bn in 1995 and was expected to be $50bn this year.

The forum saw the signing of 16 contracts between Chinese firms and African governments, including SA's, across a range of sectors, including a copper mine in Zambia and a $230m ferrochrome mine and smelter in SA. The ferrochrome mine and smelter is a joint venture between Samancor Chrome and Sinosteel to form a firm held 50/50 by each called Tubatse Chrome.

But there have been two other significant steps by the Chinese in SA this year. One was the purchase of a 1,13% stake in Anglo American from the Oppenheimer family by Chinese businessman Larry Yung. The other was the purchase of a 29,9% stake in UK-headquartered platinum miner Ridge Mining by Chinese mining firm Zijin Mining.

Ridge Mining is planning to develop two platinum mines on the Bushveld complex in SA. Outside SA there are many examples of Chinese activity in Africa's resources sector. The most prominent this year has been negative reporting about poor working conditions on Chinese-owned copper mines in Zambia and China's grant of a $2bn oil-backed loan to the Angolan government.

In Zimbabwe, the government signed an agreement with China Machine Building International Corporation in June to establish a coal mine and three power stations near Dande. There is also some expectation that China Metallurgical Group could rescue Zimbabwean steel maker Ziscosteel.

Jonathan Leslie, executive chairman of Nikanor, which is rehabilitating a former copper and cobalt mine in the Democratic Republic of Congo, said last week the company was talking to the Chinese about a construction contract for the mine. Nikanor is also looking at funding options which could include China.

The Financial Times reported this month that the International Monetary Fund (IMF) had warned that a number of new creditors were emerging in Africa, including China, India, South Korea, Brazil, Kuwait and Saudi Arabia.

The danger is that this could lead to another round of debt accumulation for African countries. The IMF said China's loans to Africa doubled to $5bn by 2004 from 10 years earlier. According to the Financial Times, Philippe Maystadt, president of the European Investment Bank, a European Union-backed financing institution, said multilateral banks were losing projects in Asia and Africa to Chinese banks because the Chinese lenders "don't bother about social or human rights conditions".