beyondbrics

China’s new investment in South Africa pales alongside the landmark $5.5bn stake that the Industrial and Commercial Bank of China acquired in Standard Bank two and a half years ago. Nevertheless, the investment by Jidong Development Group and the China Africa Development Fund  is a highly significant one for two reasons. First, it reflects growing Chinese commercial interest in South African – and more broadly African – domestic markets. Second, it provides another illustration of how South African companies themselves are reorienting their own business towards Africa, China, India, Brazil and other big emerging markets, in line with a broader shift in the country’s trade patterns.

The Standard Bank deal apart, the bulk of China’s $20bn plus investment in Africa until now has been in roads and other infrastructure, with Chinese construction companies using Chinese finance to win contracts. Analysts, however, argue that more and more Chinese companies are increasingly interested in sourcing the materials and services used in these projects locally. And Africa’s strong expansion means its own markets in sectors as diverse as housing, energy and cars are also much more attractive than they once were.

For companies like Jidong – China’s second largest cement company – factors like these outweigh short term economic worries. Jidong, which is getting involved in cement production for the first time outside China, made its decision at a time when bigger international players – some of them carrying heavy debts – were unenthusiastic at best about Africa. Moreover, Jidong chose to commit with a downturn in South African economic activity and falls in demand for cement dampening immediate prospects.

As Chen Ying, vice-president of Jidong, told the Financial Times:  “We are not worried. Africa is like China was ten years ago. But maybe in ten years this will be growing faster than China is now.” Cement consumption per capita is less than a quarter per capita of that of China’s own, Chen told the FT. And he reckoned that continued post-World Cup public investment and a revival of the housing market, particularly for less expensive homes, means demand will increase strongly. 55 per cent of the cement being produced by Jidong in South Africa will go the local housing market.

There is some evidence that Chinese companies in other sectors share that kind of optimism. Martyn Davies, the chief executive of Johannesburg-based Frontier Advisory Services, told the FT this week that companies “have a high level of confidence in the continent and see South Africa as a springboard for expansion elsewhere.” Davies says that the China Africa Development Fund, set up by the China Development Bank in 2007, has a number of other projects in its pipeline.

Meanwhile, Continental Cement, one of the two South African equity partners in the cement project, is already finding a growing market for its chemical products (used to change the quality of cement) in emerging markets and boasts growing sales elsewhere in Africa as well as in China. When it looked for a partner to help it exploit a limestone deposit in 2008, it found “no interest” from European or American companies, Anton Weavind, the group’s chief executive told the FT. “Everyone was very stressed. All the players that would have invested had big debt problems,” he said.