AFRICA LEGAL BRIEF SERIES | APRIL 2012
Crossing borders
China and Africa
By Rita Chen, associate and reviewed by Greg Nott, director
China’s engagement with Africa
is nothing new; it never left
the continent in the first place.
The noticeable impact on the
performance of African economies
is underpinned by the growing
strategic partnership between China
and Africa. According to Chinese
official figures, China has invested
$40 billion in more than 50 African
countries till the end of 2010,
benefiting over 2000 enterprises.
In 2010, direct investment in Africa
from Chinese firms’ amounted to
$2.11 billion, up by 46.8 percent year
on year.
Africa’s interest in learning from
China’s reported success
The 2008 crisis had a severe impact on
Africa as it did on China. There were
670 000 closures of small companies with
the loss of 6.7 million jobs in China. Clear
signs of recovery were however evident by
2009. China’s economy grew by 8.9 percent
in 2009, foreign direct investment (FDI)
grew by 30 percent and retail sales rose by
16.9 percent. This headline making recovery
sparked Africa’s interest in learning from
China’s success. This success is evident in
its economic management, home-grown
radical economic transformation agenda and
visionary leadership.
China also promotes its economic interest
in Africa by concluding bilateral investments
treaties (BIT). By 2007, China had concluded
BIT’s with 33 African countries and double
taxation treaties with four African countries
to protect and encourage FDI to Africa.
In order to create a more secure environment
for Chinese investors in the continent and for
African students wishing to study in Chinese
institutions, over 20 Confucius Institutes have
1 Chinese Commerce Ministry, 2008
been established in African countries and
African study centres have been established
in China for the purpose of expanding cultural
exchanges.
China’s footprint in Africa
China’s outward FDI into Africa is dominated
by a few resource-rich countries, including
South Africa. Between 2003 and 2007,
more than half of Chinese FDI into Africa
was absorbed by just three countries,
namely Nigeria (20.2 percent), South Africa
(19.8 percent) and Sudan (12.3 percent)1.
China has positioned itself to capture the
vast neglected African market and secure
supplies of African oil and mineral resources
that it needs to supply its rapidly emerging
economy. Oil alone represented 71 percent
of Africa’s trade with Beijing. China National
Offshore Oil Corporation (CNOOC), China
National Petroleum Corporation (CNPC) and
China Petroleum and Chemical Corporation
(Sinopec) – China’s three state-owned oil
companies, have either acquired stakes
in established African operations or have
entered into prospecting and exploration
deals with major oil producing countries such
as Nigeria, Angola, Sudan, Equatorial Guinea,
Gabon and Chad. Africa has an abundance
of natural resources, oil and minerals which
provides unlimited business opportunities for
the continent. The position taken by Nigeria,
the leading oil producer of sub-Sahara Africa,
reveals the Chinese strategy in recent years
of seeking energy independence. It weighed
much less in 2003. According to the Financial
Times, CNOOC is negotiating with Nigeria, to
acquire one sixth of the rights to the latter‘s
oil reserves. 2
Another investment by the Chinese in Africa is
transportation infrastructure. Recent examples
of infrastructure projects include roads and
bridges in the Democratic Republic of Congo,
railways in Angola and hydro power stations
in Zambia. In the rail sector, China’s largest
deals include the construction of mass transit
systems in Nigeria and the construction of
new lines linked to mining developments in
Gabon and Mauritania. The importance of this
improved transportation infrastructure, not
only provides regional integration between
African countries, but it allows access to
globalised markets and strengthens Africa’s
position in international negotiations.
Africa to strengthen its continental
and national policies to secure longterm FDI
It is not unusual to hear investors criticise
Africa’s government services, disintegrated
regional and continental strategy and
incoherent national policies. Commentators
argue that Africa must learn from its past
failures and accept the recommendations
that are pointed out by investors. By doing so
Africa will maximise this enormous economic
opportunity. African leaders must develop
coherent national policies, integrated regional
and continental strategy, reliable provisions
of government services and expanded
infrastructure investments including the
support for regional trade. Evaluation and
monitoring is an efficient tool to gauge
compliance of trajected growth. It is in respect
of these tools that Africa will fall short.
Africa must seize the opportunity and create a
coherent and transparent legal framework. It is
this framework that will form the cornerstone
for a long-term African strategic partnership
with China as well as with its global trading
partners.
Strategies for promoting
investments in Africa
The law, the economy and the people of Africa
are on the move. Plenty of stories are yet to be
told in the unfolding of this exciting phase of
Africa’s rise. We at Werksmans Attorneys are
fortunate to have our own African story.
We are also privileged to be part of Lex Africa,
a blue chip legal network that is pan-African
in its composition.
Our business starts by first understanding our
clients’ needs and from feedback in dealing
with Chinese clients in particular, including
some of the challenges they typically face
in South Africa; Werksmans co-hosted an
International Forum on Risk Management
for Chinese Global Investments with a select
group of leading international mining advisors
(Canada, Peru, Australia, Brazil and South
Africa) in Beijing, March 2012. We discussed
our experience in our dealings with global and
local mining companies and how to manage
the risks of acquiring finance, developing
and operating mining projects in the various
jurisdictions. We had over 100 attendees from
over 30 different companies, including most of
the important state-owned mining companies.
We are privileged to have high-level support
from the National Development and Reform
Committee (who is a macro-economic
management agency under the Chinese State
Council which has broad administrative and
planning control over the Chinese economy)
and high-level management from both
China Development Bank and Aluminium
Corporation of China as our guest speakers
at the conference to discuss their foreign
investment experiences.
At the conference we identified that mining
companies face an unprecedented level of
risk. Traditional risks, such as commodity
2 Burgis Tom; Chinese Seek Huge Stake in Nigeria Oil, Financial Times, 29 September 2009
prices, increasing capital expenditures,
labour shortages and engineering and
technical challenges, are more difficult than
ever. In addition, increased political and
social opposition to mining, environmental
regulations and demands for greater taxes and
government royalties are creating even further
challenges for mining companies today.
We discovered how Chinese companies are
becoming more sensitive to corporate social
responsibility and are starting to focus on the
“triple bottom line” – profit, social and the
environment. Overall, the conference proves
to be a success and despite the label which
has been attached to Africa as a high risk
continent, Chinese investors are still eager to
explore Africa as the returns are far greater.
Africa – the dynamic continent
South Africa, and Africa as a whole, is
going through a major transformative and
development phase and China’s entry is seen
as a mutually beneficial economic cooperation
that is shared amongst “developing country”
status.
Africa finds interest in China’s domestic policy
lessons and the role played by the Chinese
state in steering the market in a positive
direction by developing a series of institutional
reforms, financial support and investment in
vital infrastructures to unlock the prospective
domestic producers. The Chinese recognise
Africa’s needs and priorities and is able to fill
the gap by providing cheap, less bureaucratic
and support services within a shorter time
frame. Finally, contrary to the standard
Americans and Europeans analysis of Africa
as a landmass of disease, poverty, corruption,
starvation and death; China holds the view
that Africa is a dynamic continent with
unlimited business opportunities.
The rise of China is a fact. China needs to
understand the law in Africa as it needs to
learn Africa’s business. It is in this regard that
we can, in the cultivation of business links,
advise Chinese business on the business of law
and the law of business. It’s got to be a win!
About the Author
Greg Nott
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Director
Johannesburg
+27 (0)11 535 8136
+27 (0)11 535 8636
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[email protected]
Greg Nott is a director of Werksmans Attorneys. With a high profile in the legal fraternity - both local and international –
Greg was instrumental in establishing and building the South African office of a New York based international law firm over a
ten year period. During this time he was recipient of a number of awards including the prestigious 2010 International Lawyer
of the Year Award from the UK-based Legal Business Magazine. Greg’s business savvy and commitment to pro bono as part of
a commercial practice have been highlighted in a diversity of respected global directories. Under his leadership, the firm he
headed was recognised as Africa Law Firm of the year by Chambers Global: The World’s Leading Lawyers for Business in 2005
and developed a reputation for excellence in projects and energy. He has a BA LLB from the University of the Witwatersrand.
Rita Chen
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Associate
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+27 (0)11 535 8600
+27 (0)11 535 8000
[email protected]
Rita Chen is currently an associate of Werksmans Attorneys. She specialises in corporate governance, cross border
transactions, public private partnerships, contractual, statutory and regulatory issues in the energy sector, mining transactions
and black economic empowerment transactions. Rita holds a BCom and LLB from the Nelson Mandela Metropolitan
University and is also fluent in Mandarin.
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About Werksmans Attorneys
Established in the early 1900s, Werksmans Attorneys is a leading South African corporate and commercial law firm serving multinationals,
listed companies, financial institutions, entrepreneurs and government.
Werksmans operates in Gauteng and the Western Cape, and is connected to an extensive African network through Lex Africa*.
With a formidable track record in mergers and acquisitions, banking and finance, and commercial litigation and dispute resolution, the firm is
distinguished by the people, clients and work that it attracts and retains.
Werksmans’ more than 190 lawyers are a powerful team of independent-minded individuals who share a common service ethos. The firm’s
success is built on a solid foundation of insightful and innovative deal structuring and legal advice; a keen ability to understand business and
economic imperatives; and a strong focus on achieving the best legal outcome for clients.
Nothing in this publication should be construed as legal advice from any lawyer or this firm. Werksmans’ legal briefs
should be seen as general summaries of developments or principles of interest that may not apply directly to specific
circumstances. Professional advice should therefore be sought before any action is taken.
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*In 1993, Werksmans co-founded the Lex Africa legal network, which now has member firms in 27 African countries.