Chinese contractors in Africa turn to investment

Chinese contractors in Africa are now shifting to investment in areas such as infrastructure, agriculture, and mineral and energy products, a move to enhance their presence in the continent while profit margins narrow in the continent's market for contracting.

"It's now a trend for Chinese contractors in Africa to transfer their business to investment and project management. The investment mainly focuses on infrastructure, manufacturing and agriculture," Cao Jiachang, deputy director-general of the Department of West Asian and African Affairs of the Ministry of Commerce, told China Daily on Wednesday.

"Contracting of engineering projects is our traditional business, and now we are tentatively proceeding with rewarding investments in areas such as mineral resources, ports and transportation, and power stations," Ren Hongpeng, vice-president of China Road and Bridge Corp, said at a meeting in Beijing with a media delegation from Tanzania and Uganda.

"It's the company's long-term strategy to shift into investment. And I believe all the established Chinese contractors will unavoidably experience the transformation because the African contracting market is much more open now with global participants and intensified competition.

"Investment in Africa also helps us to strengthen our presence in the market as well as win franchise rights and resources from local governments."

China Road and Bridge Corp invested in a cement plant in the Republic of the Congo in 2004, which has been operating successfully since then.

In addition, the company has more than 50 pieces of land in seven countries, that it plans to use in the future for real estate or agricultural development. Ren did not disclose the investment involved as some deals are still under discussion.

A shortage of construction materials and expertise is challenging Chinese contractors in Africa, along with low government efficiency and social instability, according to Ren.

He added that the process of transferring from contracting to investment may not be easy because it requires talent as well as good judgment of local markets.

"The business of contracting in Africa still has certain potential, but local people's low abilities in managing contracted projects are driving Chinese contractors to engage in project operation," said Cao from the Ministry of Commerce.

Liu Shengyan, director of the overseas research center of the China State Construction Engineering Co Ltd, agreed, saying that "the shift is an inexorable trend because the business of engineering contracting is more and more difficult.

"Supported by huge foreign exchange reserves, the government also encourages domestic enterprises to go abroad. Supportive policies include preferential loans with interest rates that are lower than those on commercial loans." Liu added that Chinese contractors in Africa mainly invest in infrastructure projects backed by African governments to reduce default risks.

The Chinese government promised $20 billion in loans to Africa over the next three years during the Fifth Ministerial Conference of the Forum on China-Africa Cooperation in July. The loans will mainly support African infrastructure and manufacturing, Cao said.

China has been encouraging domestic enterprises to enter overseas markets. Chinese direct investment in Africa increased by 58.9 percent year-on-year in 2011 to $1.7 billion and the nation's cumulative investment in Africa reached $15 billion by the end of 2011, according to the ministry.

"China's cumulative investment in Africa accounts for less than 4 percent of the Chinese enterprises' cumulative investment globally, suggesting very good prospects for Chinese investment in Africa," said Zhang Xingfu, a division director of the ministry's Department of Outward Investment and Economic Cooperation.