Africa to benefit from China infrastructure investments

Africa’s infrastructure is poised for increased development and investment. The nextdecade should see increased spending on the back of commodity expansion and a growing middle class on the continent. Africa’s economy has remained resilient despite the downturn being experienced in Europe and the US. Africa and South America will be the next global growth point and will see increased investments especially from China.

Key to this continued growth is the development of infrastructure and natural resources.

China remains an important partner in not only the commercial extraction and refining of Africa’s vast mineral resources, but continues to be heavily involved in infrastructure projects on the continent.

George Fang, Standard Bank Group’s Head of Mining and Metals based in China, says: “China has an enviable reputation in competitively designing and rolling out key infrastructure projects, within budget and on time on the continent. Africa infrastructure projects are poised for a huge overhaul largely driven by lessons from the past. Standard Bank sees key trends developing with more cooperation between invested parties.

“We are now seeing builders, financial service providers, governments, communities and especially commodity companies co-operating to ensure that projects benefit not just mining companies, but also the developmental needs of the environment in which they operate.”

Sino-African trade is forecast to surpass USD200bn this year, up from USD166bn last year. Bilateral trade has expanded by an average of 22% y/y each month so far this year. Africa is China’s fastest-growing trade partner, accelerating faster than even Latin America and Asia. Today, China accounts for 20% of Africa’s trade (up from 10% in 2008).

Examples of investment and trade include, Standard Bank facilitation of the largest inward investment from China in 2011 as lead financial advisor and investment bank with Jinchuan’s USD1.3bn acquisition of Metorex. Equinox is also an example of Standard Bank supporting an Africa-focused mining company move from junior explorer to global tier-1 producer. In 2011, Barrick Gold’s USD7.3bn acquisition of Equinox was one of the largest African mining merger and acquisition deals ever executed.

Mr Fang says: “Take iron ore mining and production. It is heavily reliant on good infrastructure from rail to port. Africa could potentially be one of the important iron ore supplies in the world. In the ratio of ‘production vs consumption’, Africa is ranked the world’s number three, close on the heels of Australia and South-central America. Iron ore production in Africa in 2010 accounted for about 4% of the world total. Considering the huge resources of iron ores in Africa, accounting for 24% of the world total, there is a big gap, reflecting significant potential for further development.”

Demand for iron ore from China has been rising steadily since 2008. There has alsobeen a similar rise in Chinese resources swops for infrastructure. Almost 60% of all capex expenditure on commodity projects is infrastructure related. This fact is reflected across the continent with more than 50 infrastructure projects ranging from rail to road and hospitals to telecoms builds under development.

The potential for investment on the continent, however, remains substantial. Fifteen major road projects in Africa have been identified, valued at hundreds of billions of dollars. Similarly, 15 major rail network projects have beenidentified across the continent. Ports, another key element in the infrastructure network will require investment and expansion in at least 21areas across Africa. Plans are also underway for the development and upgrade of nearly 50 power generating sites.

Mr Fang says: “Mining and infrastructure projects are key to the future economic development of the continent. It is important to have strategic partners inorder to make the investment not only work, but also connect and enrich surrounding communities. Standard Bank has a strong team based in China, along with on-the-ground presence in 18 African countries, making it an ideal partner, advisor and financier of the growing demand for mineral and infrastructure projects on the continent.

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