Time for SA to lure even more investment from China
Opinion / 14 November 2019, 08:24am / FELIX NKUNJANA
South Africa is looking to China, the world’s second biggest economy, as it seeks to reignite Africa’s most developed economy projected to grow only 0.6% in 2019.
Diplomatic relations between China and South Africa date back 20 years. Both are part of the BRICS bloc of countries which have a combined GDP of $15trillion (R222trillion).
The country is regarded as the top destination of Chinese investment in Africa, with a bilateral trade value of $39.17billion in 2017, which subsequently grew 11.18% to more than $43bn last year.
Chinese ambassador to South Africa Lin Songtian stated last year that the combined existing and planned direct Chinese investment in South Africa reached more than $25bn in accumulative terms by June 2017. This was spread across the manufacturing, processing, mining, finance, energy, tourism, commerce, and trade and services sectors.
This was a much-needed shot in the arm for the economy, which grew 0.8% last year, spurring President Cyril Ramaphosa to appoint investment envoys in his ambitious quest to raise $100bn in new investments over the next five years.
The investments were expected to address the country’s staggering unemployment rate of 29%, the dehumanising poverty scourge and entrenched inequality. South Africa continues to carry the embarrassing badge of being one of the most unequal societies in the world.
The local economy fell 3.2% or R56bn in the first quarter of this year, but rebounded 3.1% in the second quarter after the key mining, manufacturing and trade sectors picked up and helped the country avert slipping into a recession.
Slow economic and infrastructure development has been largely blamed on mismanagement.
The Zondo Commission into State Capture has heard evidence of how the Gupta family, who were former president Jacob Zuma’s personal friends, used their proximity to him to raid the public purse and set up a parallel government aimed at advancing their business interests.
Ramaphosa told international investors at the Financial Times Africa Summit in London recently that state capture may have cost the country more than R500bn. Others estimate the figure to be well over R1trillion.
In June, following Ramaphosa’s State of the Nation address, South African and Chinese businesses signed a record 93 economic and trade pacts valued at more than R27bn. The president said the co-operation agreements would help “boost production, growth and jobs in the local economy”.
Chinese companies with notable investments in South Africa include appliance and electronics manufacturer Hisense and vehicle manufacturers FAW and BAIC, which both have production plants at the Coega special economic zone in Nelson Mandela Bay in Eastern Cape.
In 2007, the Industrial and Commercial Bank of China acquired a 20% stake of Standard Bank, Africa’s biggest lender by assets, for about $5.5bn. These investments have helped to stimulate the economy and create much-needed jobs.
On the mining front, Chinese investors agreed to build a $10bn metallurgical complex in the country this year. The complex would be a stainless-steel plant, a ferrochrome plant, and a silicomanganese plant, according to the Mining Indaba.
Despite these investments, South Africa still has a long way to go in terms of attracting more foreign direct investment (FDI) from China.
Economist Mike Schussler said that South Africa was definitely not doing enough work in attracting more Chinese businesses to invest in the country. He also bemoaned the fact that South Africa has fallen two places to rank 84th on the World Bank’s Doing Business report for 2020, released on October 23.
South Africa, however, was ranked fifth among African countries.
“The fact that we are ranked 84 does not bode well. We’ve got to make business confidence go up,” said Schussler.
The RMB/BER Business Confidence Index slipped from 28 to 21 in the third quarter, reaching its lowest since 1999. The government needed to cut bureaucratic red tape and relax Black Economic Empowerment regulations which scare investors, added Schussler.
Nelson Mandela University political analyst Ongama Mtimka said there was a “very strong and clear agenda” by China to strengthen relations with Africa. “There has been a lot of strong investments into the continent, driven both by private and state-owned businesses in China,” said Mtimka.
“The turnaround times of Chinese investments from decision-making to breaking ground are faster. Their investment is not only in the capital alone they’re also investing in specific projects like factories. They are also interested in mining ”
However, there is a quid pro quo. China needs access to resources and South Africa and other African countries need Chinese investment.
* Nkunjana is a freelance writer based in Joburg.
** The views expressed here are not necessarily those of Independent Media.