Beijing Axis, a cross border facilitator working with Chinese mining and natural resources companies is convinced that the mining industry could expect more China-Africa deals in the next 24 months.
In a presentation at the just ended Mining Indaba, in South Africa titled “China and Africa–A transforming business”, Beijing Axis founder and group managing director Kobus van der Warth said the level of Chinese investment in the African mining industry was nothing compared to the Asian giant’s involvement in the years to come.
"The Chinese are bold and they have the capacity and balance sheets to support that," said Van der Warth. "China has recovered from the financial crisis-induced slowdown in better shape than ever, with solid prospects for 2010. With the stimulus of government investment, China's economy left the financial crisis in its wake to march on past 8 percent GDP growth in 2009."
He said China was readying itself for the challenges of 2010 and the next stage of its "relentless rise".
The Beijing Axis boss recently noted that although the Chinese economy was currently in a period of vulnerability, growth will likely rebound by the fourth quarter of this year.
He predicted a surge in foreign direct investment (FDI) by Chinese firms that had gained momentum over the last three or four years to continue.
Chinese nonfinancial FDI rose to 40.5-billion USD in 2008, compared with 700-million USD in 2001, and “the intention of CEOs in Chinese companies is to go global”.
"Mindsets are shifting to become (bolder), more assertive, and we can expect more prominent transactions and deal structures," he said.
Van der Warth said the difference between China and other economies is that China ignored the scramble to limit the damage and instead to a spirited investment-led response to the financial crisis.
China's rapid economic growth and demand for resources had been significant contributors to economic growth in Africa.
Total bilateral trade reached 63 billion during the first and third quarter of 2009, with China supplying 5.4 billion USD in FDI to Africa.
Van der Warth said an impressive exchange of 90 billion USD may yet occur, given that China-Africa trade equaled 80 billion USD from January through November 2009.
He also pointed out that the Chinese will make investments where other countries will not because of concerns about the constitutionality of the government.
He was, however, quick to point out that the Asian giant was prepared to change their attitudes to come into line with other investors "if there is push-back".
He said the perceived threat of Chinese dominance in the mining sector was speculative and that, for Chinese businesses to overcome this perception when expanding their operations globally, they need to adhere to local business practice conventions and regulations.
“One cannot isolate a problem with Chinese companies investing in expansion other than to say that they must follow the rules of engagement and conduct themselves with good governance, good ethics, integrity, environmental and safety awareness and with a view to sustainability,” he said.
Meanwhile, Van der Warth said the significant downward adjustment in demand that the mining industry experienced during the global financial downturn had come to an end and that an increase in demand and pricing in the industry was likely.
Financing for capital expenditure projects and increased liquidity from banks were contributing to the positive outlook.
“It’s a more buoyant environment for global resource sector companies,” says Van der Wath.
He said that the upturn was not as exaggerated as during the boom period in the mining industry prior to the global downturn, but that this may not be negative as it would encourage industry to consolidate and progress with a focus on sustainable growth.
“The feeling following the devastating impact of the global financial downturn was that the industry had become vulnerable,” he said.
Sustainability will be a significant component for the development and maintenance of company reputations as the industry consolidates, said Van der Wath.
He said there was a continuation of mergers and acquisitions activity and a number of significant corporate transactions are likely in the near future.
“Mining is certainly a global industry and it is going to become more so with key players from India, China, Russia and a number of other regions rising to the same level as the Western mining companies that previously dominated the sector,” he said.
Veronica Novoselova, Rough&Polished African Bureau Editor, from Cape Town
