ASIAN INVESTMENT IN AFRICA: A SNAPSHOT
| Jurisdiction | Derecho Internacional |
(Apr 2013)
ASIAN INVESTMENT IN AFRICA: A SNAPSHOT
Partner, Fasken Martineau
Johannesburg
TANNEKE HEERSCHE is a Partner in the Johannesburg office of Fasken Martineau and heads up the firm's Africa practice group. She is highly regarded for her expertise and experience in the mining industry where she is recognised as a leading legal advisor. Tanneke's extensive experience includes advising on all aspects of the development and financing of mining and other natural resource projects in emerging markets. She regularly advises major international mining companies, international financial institutions as well as governments in numerous countries around the world.
Introduction
This article will offer a glance at what has been broadly entitled 'Asian Investment in Africa' - a glance only as the scope of the investments and opportunities, the identity of the actors on the continent as well as the breadth and diversity of the continent itself are immense. Recent years have seen an explosion of interest in the continent and much has been written on, among other things, increasing investment in the continent and the role of the continent's external trade and business relations with countries like China, India, Russia and Brazil. The subject matter inevitably gives rise to intense debate - whether geopolitical, economic or social in nature. Phrases and terminology used in the media and the many publications of interest serve to intensify the debate.2
Stating the obvious, "Africa" is a continent. There are fifty-five countries, over twenty four official languages (with over 1500 African languages also being considered official languages of the African Union), a wide range of traditional tribal governance structures and a diversity of legal systems that reflect either or both of common law and civil law principles. The geography is as diverse as its cultures.
Similarly, there is not a uniform "Asian" investor in Africa. Asian investment is represented by a wide range of actors from countries as diverse as India, China, Korea and Japan, among others. Although few would argue with the concept that increased industrialisation of India and China is fuelling the drive for access to natural resources, and that it is such investments in Africa that are garnering much of the interest, investments from Asia into Africa extend across a wide variety of sectors including agriculture, banking and communications and textiles and are often coupled with substantial aid packages. Investments are also differentially driven by a variety of underlying principles, whether economic, political or developmental.
The 'scramble' for Africa by Asian investors is accordingly is a multi-faceted and complex phenomenon - one which this article cannot purport to do justice to. This article will therefore endeavour to provide a general description of the environment in Africa within which these investments are occurring, a description of the nature of the investors and the investments and a short discussion of the most visible of such investors, China in Africa. This is done in the hopes that the article will pique interest and contribute to and generate debate around the development of Africa and the use of her resources.
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'Africa's Time'3
The Economist recently reported Africa as "[t]he world's fastest-growing continent"4 Together with the obvious economic growth and rise in consumerism - the African Development Bank now considers one in three Africans to be 'middleclass' - there is widely help optimism that a combination of increased trade and investment, a reduction in the severity of internal conflicts and increased life expectancies will lead to steady growth and ever increasing political stability on the continent. The World Bank is expecting that by 2015, a significant number of African countries will have become "middle income".5
Foreign direct investment into Africa has increased substantially over the past ten years The chart below demonstrates foreign direct investment flows into Africa between 2002 and 2012. Notwithstanding the dip in investment during the years immediately following the 2008 financial crisis, one notes that investment remains steady and significantly above earlier levels.
A few selected examples demonstrate that Africa's growth, although currently being powered by the drive for its natural resources (up to one-third of GDP growth is attributed to commodities), is not restricted to such area. Kenya's horticultural sub-sector grew by 52.5% in production in the year 2010 - 2011; South Africa's consumer electronics market is projected to be worth $13.6 billion by 2016 and computerisation of Senegal's customs framework resulted in an increase of $1 billion in customs revenue.6 The Financial Times reports on investor interest in emerging market economies, highlighting impressive performances of the Ghanaian, Namibian and Nigerian stock exchanges,7 Eric Schmidt, executive chairman and former CEO of
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Google, was recently reported to state that "Africa is the most innovative" and that "[o]ptimism is appropriate for Africa".8
The exuberance is dampened and caution remains. The reliance on commodity linked revenues and incomes is a dangerous one for economies not widely diversified and within a sector subject to cyclical patterns. Resource wealth is widely touted and generates expectations of widely shared benefits, the delivery of which can be hampered by issues of government capacity and ongoing governance and general corruption issues. Infrastructure development across sectors remains poor and notwithstanding some improvements, continued regulatory burdens and 'red tape' make doing business difficult. Peace remains fragile and conflicts continue to persist (e.g., the Democratic Republic of Congo) or erupt in countries formerly at peace (e.g., the recent developments in Mali).
An ongoing trend of resource nationalism in many African countries demonstrates the continued dissatisfaction with the distribution of wealth arising from resource development to those members of the countries within which such resources are found. The rise in resource nationalism reflects ongoing fears that the real benefit of the continent's resources will continue to flow out of the continent - albeit this time to a different set of actors Interestingly, governments are looking to many of the same tools adopted by post-independence governments in exercising some form of control and sovereignty over mineral resources that they looked to following the colonial period. Policy debates abound.
Asian Investment in Africa
Foreign investment, including significant Asian investment, in Africa and her resources is not new. China both financed and executed the construction of the TAZARA (or Tanzam) railway which was built between 1970 and 1975 in order to link the Tanzanian port of Dar es Salaam with the town of Kapiri Mposhi in Zambia's Central Province and which, upon completion provided landlocked Zambia with an alternative route for the export of its copper. India, too, has been an early Asian contributor to African development, with key investments in rehabilitating damaged and/or deficient infrastructure. Such investments have been complimented with diplomatic efforts and various bilateral and multi-lateral initiatives on the part of numerous Asian investors, among them also Japan and Korea.
Two Asian investors in Africa that are frequently discussed, India and China, have long had diplomatic and policy frameworks within which each has developed their long term engagement with the continent. In the case of India, this includes relations founded upon and grounded in the significant Indian diaspora living in Africa. Efforts to improve cooperation continue, with the Indian Technical and Economic Initiative (ITEC) continuing to play a key role in India's engagement with the continent while China, in 2000, established the Forum on China-Africa Cooperation (FOCAC) to further facilitate China's interaction with the continent.
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Notwithstanding the existing historical relations between Africa and Asia generally, it is the rapid growth and global presence of China that has sparked new debate - not only in relation to the significant and 'newsworthy' investments China has made in Africa and the impact thereof but also in relation to both global and Asian regional policy. Dr Chris Alden of the London School of Economics is quoted as writing, back in 2008: "It is the rise of China that has introduced new dimensions into relations between the two regions [Asia and Africa] and is itself indicative of a fundamental change in the pattern of international relations."9
As mentioned earlier in the article, there is no uniform Asian investor nor has there historically been an 'Asian' investment model. Indian investment in the continent has tended to be private sector led -- with names such as the Tata Group, Arcelor Mittal, the Jindal Group and JWSteel coming readily to mind. China's high profile investments, on the other hand, have historically been led by state owned enterprises ("SOEs"). Similarly, contrasting investment philosophies exist, with certain...
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