CHINA & AFRICA

China is holding 60% of the US treasuries and is also having a strong balance sheet of reserves. China have been slowly and quietly building its reserves and now it is now busy in applying its resources to other economies where its sees the huge potentiality of growth. In may last write up I have depicted that china have signed 14 new agreements with Europe and Greece across various sectors and have invested around $300 billion dollars till now.

 

But you will be surprised that china is also doing huge quantum of investment in Africa. In fact china is replacing its positional crown with Africa as an emerging economy. The research, undertaken by the UN Conference on Trade and Development (UNCTAD), however shows China is among the most active investors in Africa,.

 

China invested $2.5 billion in Africa between 2006 and 2008, China as a matter of fact, recently invested $28 billion dollars in several nations on the African continent. China is doing this at very slow rate as compared with the total inflow of FDI in Africa. Southern Africa remained the largest recipient of FDI within Africa, even though inflows declined from a 2008 high propelled by the Industrial and Commercial Bank of China's purchase of 20% of Standard Bank for $5.5 billion. South Africa was the fourth-biggest recipient of FDI on the continent, with $5.7 billion of inflows in 2009.

 

Very recently their was an article published in newspaper that china don’t want to be in the first position of the ladder of FDI. I want to make one thing clear to my readers that FDI increases due to higher M&A deals. Its is a strategic way of investment rather than direct setting up of factories and manufacturing hubs in an economy. Its true since china have created manufacturing hubs in Africa and helping Africa to be an emerging economy. How many economies play the game like the one being played by china is question of deep thinking.

 

We find a host of countries in Africa which have attracted the FDI inflow . The biggest local company abroad in 2008 was cellular group MTN with $13.3 billion of foreign assets, followed by Sasol ($6.7 billion), Sappi ($5.9 billion), Netcare ($5.6 billion), Steinhoff ($5 billion), Gold Fields ($4.8 billion), Medi-Clinic ($4.8 billion) and Naspers ($3.8 billion).

 

Africa has suffered once upon time due to the tussle among the strong economic nations. In plain words the battle between Europe and US have made Africa to suffer lots of pain. History bears the facts of America and European horrid brutalities in Africa. History clearly indicates that African peoples have been left in the lurch by foreign powers from America and Europe and the pathetic underdevelopment, the abject poverty and the desperate human conditions on the African continent has zero input from China and Chinese corporation.

 

 

America and Europe have been in Africa for almost a thousand years! And evidences about of how America and Europe have pauperized Africa by stripping the continent of tangible and intangible resources, ranging from human beings during slave trade, to raw materials during industrial revolution. More recently, stripping of African gold, diamond, petroleum and cheap labor. A movie was also made on this theme named Black Diamond. The nadir economic and political conditions in Africa are directly related to slavery, colonialism, apartheid etc.

 

China had a least role in all these heavy weight counter fights among the powerful nations. This is the main reason why Africans have readily accepted china’s proposal of investments and other policies. What makes china to make investments suddenly in Africa. Prime reasons are many, but among them top reasons includes:

 

• Diversification of its economic reserves.

 

• Utilization of low cost manufacturing as labour rates are abnormally low in Africa as compared with the rest of the world and

 

• Last but not the least China is in dire need of sustained and uninterrupted energy supply. Hydrocarbon is the demand in China and Africa has this huge reserve of hydrocarbon in its womb.

 

What ever be the reason but its far from the cruelty being offered by US and Europe to Africa, If china needs hydrocarbon then its paying the cost by replacing the Africa from the crown of underdeveloped economy to emerging economy. China is reducing its risk by diversification of its reserves. Investors have faced the burns of doing investments in one basket in the 2008 crisis. For example Investments in Europe have fetched negative return of 13.14% as compared to Asia pacific index excluding Japan which rose to 7.8% ending 12 months respectively . To add further feather to the crown world's largest 500 companies are having presence in emerging economies as compared to the dominance of western economy.US $12trillion GDP accounts for 30% of the world GDP. Surprised to find out but this reflects that new opportunities new lands are invented and they are contributing in real terms.

 

So if Europe and US needs to reduce the unemployment then its needs to invest in emerging economies and send their people to other countries. But that space is very narrow .In fact US and Europe might be getting the blessings of the cruelty they created in history