Investment: The Most Sustainable Model for China-Africa Cooperation

By staff reporter LU RUCAI

Achievements

China Today: What role has the CAD Fund played in promoting Chinas investment in Africa over the five years since its founding?

Chi: Five years of practice have made the CAD Fund an important platform of support for Chinese enterprises investing in Africa and for deepening Sino-African cooperation.

The CAD Fund has so far committed to investing more than US $2 billion in over 60 projects in 30 African countries, in areas ranging from agriculture, infrastructure, manufacturing, and building economic and trade zones for mineral exploitation. Initial statistics show that upon coming into effect these projects will take the total amount of investment in Africa by Chinese enterprises to more than US $10 billion, increasing the annual value of Africas exports by US $2 billion and its tax revenues by around US$1 billion. The projects should also create in excess of 700,000 jobs in Africa.

The CAD Fund has set up four offices respectively in South Africa, Ethiopia, Zambia and Ghana, covering the area south of the Sahara Desert. Local governments in Zambia and Ghana have accredited these offices as international organizations.

After years of practice, the CAD Fund is now well versed in supporting, guiding and expanding Chinese investment in Africa. Chinese enterprises, along with African governments and civil society, have all expressed their appreciation of our efforts.

China Today: Could you please list some of the projects that the CAD Fund has supported so far? Have their operations lived up to expectations?

Chi: The CAD Fund focuses on supporting the expansion of agriculture, manufacturing, infrastructure, economic and trade zones, and resource exploitation. Its aim is to accelerate local economic development. Our efforts have helped to increase employment and tax revenues and to improve African countries balance of international payments.

The CAD Fund teams up with domestic enterprises with the common purpose of investing in various projects in Africa. Those that have been constructed and put into operation play a significant role in promoting local socio-economic development and improving local residentsliving standards.

Cotton growing and processing in countries such as Malawi, Mozambique and Zambia – joint investments by the CAD Fund and certain Chinese enterprises – constitute one of the biggest Sino-African agricultural projects. It acts as a bridge between Chinese enterprises and African farmers, whereby the former provide the latter with seed, fertilizers, pesticide and technical guidance. The project also includes setting up cotton ginning mills and cottonseed oil mills to produce processed products, which will promote local exports, earn foreign exchange and thus benefit the 600,000 or so farmers in the three countries.

A power plant in Ghana – a joint venture between the CAD Fund and Shenzhen Energy Group Co., Ltd. – has been in commercial operation since October of 2010. The project has a 200,000-kilowatt generating capacity, making up one sixth of the local installed capacity, and has helped to reduce local power shortages. Both the former and present presidents of Ghana have highly commended the project.

A leather-processing factory constructed near Addis Ababa, capital of Ethiopia, began production on November 24 of 2010. It now has an annual capac- ity of 4.5 million finished leather items. The factory employs 500 workers and has also bolstered the income of 50,000 livestock farmers. Every year, the factory earns more than US $20 million through leather exports, thereby encouraging local farmers to raise livestock and promoting an upgrade in the local leather processing industry.

The Suez Economic and Trade Cooperation Zone is a joint venture between the CAD Fund and the Tianjin Teda Group Company Ltd. So far, 30 or more enterprises have entered the zone and created around 1,000 jobs for local residents.

Meeting the needs of Africa

China Today: Is there any standard applicable to the CAD Funds choice of projects? How do you take the needs of the African continent into account?

Chi: The actual needs of Africa have been foremost in the CAD Fund since its establishment. We encourage big Chinese companies with solid reputations to invest in the continent, and proactively channel Chinese capital into industries and projects that Africa most wants to develop. As both a bridge and platform, the CAD Fund has gone all out to promote Africas economic development and improve the lives of local residents.

We focus on projects likely to enhance the internal dynamic force that drives lo- cal economic development and improves peoples living standards. We also keep close tabs on the market and balance risks and returns.

When choosing a project, we first study local conditions and assess the regions comparative advantages and most suitable development path. We then evaluate from those perspectives the prospects and potential of the project. An investment must meet local needs, which represent the real market.

China Today: The Chinese government has always attached great importance to Sino-African relations, but the CAD Fund operates independently and takes responsibility for profits and losses through a market-based mechanism.

Is there any situation under which the CAD Fund sacrifices profits in efforts to promote Sino-African relations?

Chi: No. The CAD Fund is the first and only professional private equity fund focusing on investments in Africa. Its purpose is to encourage and support Chinese enterprises to invest in Africa. When it comes to choosing projects and evaluating risks, however, we make our own choices through market-based mechanisms and pursue sustained returns. What we do differs from economic aid. We follow standard investment rules and procedures, conduct market investigations, and make investments based on risk-return evaluations.

The stable development of SinoAfrican relations has provided a favorable environment for bilateral cooperation in various areas. By promoting Chinese investment in Africa we hope to forge a new type of Sino-African strategic partnership.

Great Potential for Investment Cooperation

China Today: China has provided much economic aid to Africa and also large amounts of low-interest loans. Compared to such aid, what are the advantages of the CAD Fund? Are African nations happy with the help they receive from it ?

Chi: China and African nations are all developing countries. The two regionsrespective socio-economic development and resources define the Chinese and African economies as highly complementary. The history of Sino-African economic and trade cooperation shows that traditional models of cooperation such as aid and taking on African contracts have played an important role in promoting the China-Africa economic and trade relationship.

Chinas present goals are to transform its economic development model and adjust its economic structure. As African nations enter a period of greater political stability the common focus of their governments is on developing their rapidly expanding economies and getting rid of poverty. Investment cooperation, as the most stable and sustainable model for bilateral cooperation, hence meets the needs of China and African nations, and has good prospects. Direct investment in Africa will improve its ability to generate sustainable economic development.

Chinas investment in Africa has escalated over the past few years and played an important and strategic role in promoting Sino-African economic cooperation and advancing socio-economic development and industrial upgrading. Chinese investment is a way of expanding the social and economic benefits of traditional China-Africa cooperation and strengthening its internal structure.

The CAD Fund, in a joint effort with Chinese enterprises, offers what African countries most need for development, including capital, technology, talented human resources and management experience. Investment has a bright future and will become the most important model for future China-Africa economic and trade cooperation.

China Today: Amid Chinas present economic transition the Chinese government encourages Chinese enterprises to go global and expand investment overseas. How will the CAD Fund take advantage of opportunities it has?

Chi: To make the most of this turn of events we must be far-sighted and understand more about the international scene. We can then decide on the CAD Funds best path of development.

The CAD Fund has now developed into the largest platform for Chinas direct investment in Africa. We provide an allround service, including research into capital, markets, industries and Africas development experience, investment and risk management, and legal consultation. After years of accumulated experience, the CAD Fund has become adept at guiding Chinese enterprises investment in Africa.

Better Investment environment

China Today: African countries are clearly interested in Chinas development experience. Personally speaking, do you think Chinas model is suitable for African countries?

Chi: China and African countries are at similar, but not identical,development stages, and are becoming increasingly complementary in their process of urbanization and industrialization. African countries now face impediments to economic development similar to those China has experienced, such as irrational industrial structures, lack of industrial products and consumer goods, and underdeveloped infrastructure. Some are trapped in poverty.

Reviewing Chinas development history, we can see that when faced with similar problems it has stuck to its path of development with Chinese characteristics. The successful use of investment, especially the introduction of foreign capital, has played a big part. This is what African countries could learn from China. International investment could compensate for the domestic shortage of money supply and help improve industrialization, create more jobs, increase tax revenue and improve trade conditions. It could also bring in cutting-edge technology and development experience.

African countries want to learn from Chinas development experience, but the two regions have different systems and mechanisms.The former should make adjustments based on their actual conditions while at the same time learning from China.

China Today: China and Africa now understand more about each other and have a well-established cooperation partnership that has deepened in various fields. What do you think the African market can do to be more attractive to Chinese enterprises?

Chi: Many Chinese enterprises are drawn to the vast African continent by virtue of its rich resources and huge market potential. In recent years, many African countries have experienced a good momentum of economic growth, thus offering opportunities to Chinese enterprises. But the African market is still unstable and filled with uncertainties, which is why Chinese companies tend to take a prudent approach.

African countries are in the process of urbanization and industrialization. The introduction of foreign capital could help ease problems caused by shortages of funds, technology, management experience and talented workers. Having worked hard over the past few years to improve their investment environment, many countries are nevertheless still at varying levels of development. It is our hope that the governments of African countries will adopt effective measures to improve the investment environment, such as keeping policies stable, opening up markets, reducing foreign exchange controls and establishing preferential tax policies for foreign investors.