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The Rise of Chinese Private Sector Investment in Africa

Chinese investors have been wary of the African market. For a long time, China’s cash-rich venture capital, private equity, and corporate investors have preferred the stability in the U.S. or the cultural familiarity in Southeast Asia’s markets. Africa, in their view, just didn’t have the profile they were looking for as an investment destination. Many felt the risk was just too high in fragmented markets where consumers lacked sufficient wealth to generate the kind of returns their portfolios demand.

Well, that’s no longer the case.

Now that Chinese money is increasingly viewed as “toxic” in the United States and Africa’s consumer markets are beginning to mature, Chinese investors are increasingly getting over the fears they once had about engaging the African market.

Chinese private sector investment in Africa surged this year with hundreds of millions of dollars flowing into a variety of sectors across the continent:

  • Apparel: manufacturers are fleeing China’s rising labor costs to set up new factories in places like Rwanda and Ethiopia.
  • Electronics: little known Chinese OEMs are setting up small factories in places like Uganda to be able to cut shipping costs and take advantage of Africa’s preferential trade agreements with EU and US markets.
  • Mobile tech: Giants like Shenzhen-based Transsion Holdings are rapidly expanding into new markets beyond hardware including music and fintech among others.
  • Fintech: Without a doubt, the rush of Chinese investment into Africa’s (largely in Nigeria) fast-growing mobile payments space is the story of the year. So far, they’ve committed around a quarter-billion dollars with more expected.

The list goes on and on… from Huawei in the telecom sector to Beijing-based African pay-TV giant StarTimes that’s now making sizable investments in original content production and programming. And these are just the big names who get most of the attention. There are countless other small-to-medium-sized Chinese businesses active in every country across the continent doing everything from running factories that serve local markets to resource extraction.

In the last five years, the American Enterprise Institute’s China Global Investment Tracker has recorded 13 large Chinese investment deals in Africa and only nine in South Asia.

Irene Yuan Sun, Visiting Fellow at the Center for Global Development

But in order for Chinese investors, particularly those with large portfolios, to successfully to do deals in Africa, they need help, middlemen who can guide them through these very complex markets. So more banks in Africa are hiring people like Kai Zhu to be those guides. Kai is the China-Africa Corridor Deal Team Leader at Absa Group, the Johannesburg-based financial services company that is also Africa’s third-largest bank. 

Kai joins Eric & Cobus to discuss what’s behind China’s increased investor interest in Africa and where he sees the trend going in 2020.

Show Notes:

About Kai Zhu:

Kai is an experienced banker with good knowledge and over 13 years of track records in facilitating China’s outbound debt and equity flows into other emerging markets. Kai joined Barclays Africa (now Absa Group Limited) in March 2014 and has been responsible for managing the Chinese clients’ relationship in Africa and China. Prior to joining Barclays Africa, Kai worked as a Manager for Standard Bank’s Power and Infrastructure Finance team in Johannesburg for 1.5 years, and a Senior Analyst for Standard Bank’s Power and Infrastructure Coverage team in Beijing for 2.5 years. Kai graduated from the University of Toronto in 2006, with a Bachelor of Commerce degree (Hons, Joint Specialists in Finance and Economics) Kai started his career path as a Securities Administrator at CitiToronto.

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