By Wang Yongqiu, executive director

 

Former Chinese ambassador to Tanzania and Nigeria

 

For an enterprise, "Go Global" is an inevitable requirement posed by the social and economic developments under globalization. A Chinese enterprise must go out of its own country, develop and expand business in other countries or regions that best suit its self-development, if it aims to become bigge rand stronger, making itself into an international corporation. At present, the world economy is on a downward slide, and China's domestic economic structure is in a period of adjustment. As a result, for many enterprises of great strength, exploring and developing the Africa market is not only a sensible choice, but also a novel opportunity for development.

 

1.Understand Africa Market

(1)Africa has a vast territory and rich natural resources, with 150 kinds of proven mineral resources in the world. Among the most important 53 minerals, Africa ranks the first in terms of reserves of at least 17; of which, oil reserve accounts for 11% of the world, and it is estimated that in 2012, it would account for 20%. So far, Africa has surpassed the Middle East and become the largest oil supplier to the United States, being known as the "second Gulf Region" and "New Continent of Oil Supply".

(2)Africa has a single-economy structure, capital deficiency, weak infrastructures and backward management. Most African countries have come up with lots of preferential policies to attract international investment. According to the statistics, African countries attracted $36 billion foreign direct investment in 2006. According to the statistics of the US Department of Commerce, the return on direct external investment in sub-Saharan Africa is as high as 24% to 30%, much higher than the 16% to 18%, the average ROI of the developing countries. In recent years, China and Africa have constantly expanded their economic and trade cooperation. Chinese enterprises have great enthusiasm to develop their business in African countries, increased investment markedly, and made pretty good earnings. After leaving my post (as ambassador), I was invited to visit Nigeria with a corporation leader. This guy said something very classical: "I was jittery before going to Africa but fell in love with it when I arrived and miss it since I came back."

(3)African markets have great potentials, and preferential tariff policies of Europe and the US can be made use of from there. Most African countries are short of industries, processing industry in particular, let alone heavy industries. African people rely on imported industrial products, articles of everyday use, office supplies as well as food (including rice and flour, etc). So for many Chinese enterprises, there is a huge potential on the Africa market. For example, many African countries produce high-yield and high-quality fruits; however, due to backward preservation facilities and processing industry, most of the fruits are left rotting in the field. Ironically, African countries have to import a great deal of canned fruits or jams at extremely high prices. China has a state-of-the-art fruit processing industry, so if the Chinese enterprises could open small and medium sized processing plants, they ought to have good returns. Here is another example. China's household appliances are of high quality and price is lower compared with the similar products made in western countries. The Chinese enterprises may have a profitable return if they could invest in setting up household appliance assembly lines manufacturing TV sets, refrigerators, air-conditioners, etc in African countries. In recent years, due to the relatively stable political situation, improved economy and urban living conditions in Africa, the real estate market is entering into a boom little by little. However, African countries are short of construction materials and their prices are pretty high. The Chinese enterprises could grasp this good opportunity to build plants in Africa. Some African countries are abundant with wood; but due to outdated technology, the local products are of poor quality. What is more, furniture import is prohibited in Africa. Taking these factors into consideration, the Chinese enterprises can make investment in building local plants to manufacture furniture, making full use of the local raw materials. In this way, local market demand would be met and the products can be exported to other countries in the meanwhile. Nigeria is abundant with good quality Kaolin, which is the raw material for producing high-end household porcelain. If the Chinese enterprises were willing to make investment in this field, they would have satisfactory returns. In addition, in terms of mining and agriculture, Chinese enterprises have a competitive edge and strong competence to enter the two fields and take up a good position. In short, Africa is not only a big bright spot in the future, it is also a prime region for the Chinese enterprises to transfer their products, equipment, technologies and capital. During my tenure of office in Nigeria, many companies asked my opinions about making investment or doing business in Nigeria and I would reply "High risks and high profits."

(4)African countries maintain relatively stable political situation, steady economic development and improved investment environment. Last year, many African countries had accomplished general elections without great turmoil, which means that the African Continent is on the right track, shifting from turmoil to good governance. In recent years, many African countries have strengthened economic reform by drawing up preferential policies and establishing special organizations to attract foreign investment and improve the investment environment. As a matter of fact, the international financial crisis in recent years has not severely affected the development of Africa.

 

So far, China has established diplomatic relations with 50 African countries. In early 2006, the Chinese government issued China's Africa Policy, stating its willingness to establish and develop new strategic partnership with Africa, featuring equality, mutual trust, economic cooperation, win-win result and cultural exchange. In early November last year, China successfully hosted the Summit Meeting and 3^rd Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC). On the Summit Meeting, the Chinese president Hu Jintao announced 8-pointed measures for China to strengthen its pragmatic cooperation with Africa, including expanding Africa trade, debt relief, tariff exemption, providing preferential loans, establishing China-Africa Development Fund, providing assistance for construction of the Conference Center of African Union, training qualified personnel, setting up anti-malaria centers and agricultural technology demonstration centers, etc. The 5^th Ministerial Conference of FOCAC is going to be held in Beijing, and the Chinese government will issue new measures to strengthen China-Africa cooperation. Statistics show that in 2011, the trade volume between China and Africa exceeded $160 billion, and China has become Africa's No. 1 trading partner. In terms of investment, China's accumulative investment in Africa has exceeded $40 billion, of which, direct investment accounts for $14.7 billion and more than 2000 Chinese firms having made investments in Africa. So far, China has planned 6 economic and trade cooperation zones in Africa. What is more, the China-Africa Development Fund and special loans to small and medium sized African enterprises established by the Chinese government have encouraged Chinese enterprises to "Go West", while many African countries proactively promote "Look East", emphasizing on learning from China's experiences in development as well as finding a development path that suits their own conditions. As a result, there is huge potential for economic and trade cooperation between China and Africa.

 

2.Issues China Should Watch out for When Developing Africa Market

(1)Strengthen research and investigation; understand the national conditions of African countries. Africa is home to a large number of countries with different economic and political development levels and policies. Therefore, China must strengthen researches and investigations of the country in which China is going to make investment by carrying out adequate market research and necessary on-site investigations on the political environment and risks, comprehensively analyzing and studying the local investment environment, laws and regulations, foreign exchange policies, market demand and potential, labor cost, purchasing power, resource advantages, etc, and making investment plans on the basis of current market conditions and development potentials of African countries. In terms of deciding the site and size of an investment project, the Chinese enterprises may consider making use of the industrial parks or free trade zones established in Africa by the Chinese government as a platform, and using China-Africa Development Fund as the source of capital for investment.

(2)Maximize favourable factors and minimize unfavorable ones, and give full play to one's own advantages. Strictly speaking, Africa is not a virgin territory that is totally undeveloped. While the western countries had enslaved African countries for several hundred years, they also established some relatively modern industries, and monopolistic positions in many important fields. It is the initial stage for the Chinese enterprises to go into Africa, so they must, based on their strengths instead of weaknesses, select appropriate project to initiate investment and partnership, and apply business strategy in accordance with their own advantages and strengths. For example, Chinese enterprises have strong competitiveness in areas of light and textile industries, household appliances, food processing, water conservancy construction and agriculture, and monopolistic advantage in road and bridge construction in some African countries. The Chinese enterprises may take the aforesaid fields into consideration and make the right investment in Africa and avoid making blind moves or repeated construction projects in the same country or the same region.

(3)Avoid "upstart mentality" and establish long-term operation awareness. In recent years, some Chinese enterprises have sought short-term successes and quick profits when they make investment or do business in Africa, which have caused adverse results. In terms of development, the enterprises should change their attitude and give more importance to building up a sound foundation for long-term development when they invest in African countries. While we may provide a wide range of products, both high-end and low-end, according to market demands, the essential thing is that the quality of the products exported to Africa has to be good; and the goods produced in the plants built by Chinese enterprises in African courtiers have to be of high quality, in particular. We should not replace superior goods with inferior ones, and we should provide good after-sales service for the high-tech products.

(4)Abide by the laws and regulations and keep good relations with the local community. The Chinese enterprises should observe the local policies, laws and regulations, respect local customs, and appropriately handle relations with the law enforcement departments, business partners and employees. They should treat African people in equality and good faith. The Chinese enterprises should not only seek profits but also take the necessary social responsibilities, make contributions to society and build good corporate image in Africa.

(5)Strengthen contact with the Chinese embassies and consulates in Africa. The embassies, consulates, economic and commercial counselor's offices are the main organizations to protect, support and help overseas Chinese citizens and enterprises, and also play an important guiding role in situation analysis, information collection and political activities. The Chinese enterprises should strengthen contact with the Chinese embassies and consulates and keep timely communication on large scale investment projects so as to utmost safeguard the interests of the nation and enterprise.

(6)Strengthening safety awareness. Generally speaking, African society is getting increasingly stable; however, some disturbances occur from time to time due to political, economic, social, religious issues and tribal interests. Therefore, the Chinese enterprises must keep a strong safety and self-protection awareness when doing business in African countries by making emergency plans in advance to ensure the safety of their employees' lives and corporate properties.