China reaps rewards from Africa

By Ranganayi Makwata



IT is claimed that China has always had good relations with African governments. The Asian nation first became involved in Africa during the cold wa

r when it made friends and did business in parts of the world overlooked by the West.


It also provided arms and logistical support to many liberation forces in Africa. China is said to have contributed significantly to the decolonisation of the continent. Another factor which has made it a darling of African leaders is its no-strings-attached or strictly business type of friendship.


Whereas in the past the relationship seemed one way, with the continent being the main or only beneficiary, the years of investment are beginning to pay off with the relationship now symbiotic in nature. Africa has become an important source of raw materials for China’s booming export industry. There is no love lost between the West and China on this issue though. The West likens China’s involvement in Africa to neo-colonialism. China however insists that its relationship with Africa is mutually beneficial.


In recent years, China has poured billions of dollars into infrastructure projects on the continent. The latest of its African forays involves a US$5 billion loan deal to the Democratic Republic of Congo (DRC) for development of infrastructure and mining projects. Endowed with vast mineral resources such as copper, cobalt, gold and diamonds, it is not surprising that this huge African country has become a prime target for treasure hunters, China included.


The deal involves the construction of railway lines, roads, hospitals and two universities among other projects. Also envisaged is the rehabilitation of the mining sector. In return China hopes to clinch mining concessions and toll revenues for its companies.


Zambia, renowned for its copper production, is also a beneficiary of Chinese largesse. A deal was recently signed for the construction of a 40 000 capacity stadium by the Chinese government in Lusaka for an estimated US$70 million. The construction is expected to be completed by 2010 in time for soccer World Cup in South Africa which is expected to boost the economic fortunes of the whole Southern African region with the influx of tourists normally associated with such tournaments.


This is notwithstanding that Zambia is not within the 90-minute plane journey to the match venues in South Africa, a prerequisite for a country to host 2010 World Cup teams. Zambia hopes that the facility will draw in teams that come to acclimatize to the region before the games start.


China has also become one of the largest oil consumers in the world and with the price of this precious commodity rising higher, coupled with war in Iraq, and the unpredictability of other suppliers in the Middle East, Africa becomes a safe bet as a source of energy for China. By the same token, the big Asian country also views its relations with Africa as a means to secure other raw materials for its expanding manufacturing sector. This is not a daunting task for the Chinese given their huge foreign currency reserves estimated at US$1,4 trillion.


Where then does Zimbabwe fit in this matrix of economic kindness from a friend, or is it comrade? It is evident that China is no longer the same purely communist state where comradeship takes priority over economic considerations. Funds now being deployed anticipate a return and the generation of profits.


If this is not the case then nothing will come the African country’s way whether from foes or allies alike. Recently a trade attaché at the Chinese Embassy is reported in a local weekly paper to have said that many commercial agreements with China have not materialised due to the failure by Zimbabwe to raise both the foreign and the local currency for the projects. It is one thing to have resources-untapped- in a country, and a different one altogether to have conditions conducive for the exploitation of those resources for the betterment of the economy.


This is critical now as it was before, given the competition there is for markets for those resources, unless, of course, it is oil, in which case demand always exceeds supply deliberately curtailed by Opec.


Talking of an unconducive operating environment for business one does not have to look any further than the latest company financial statements for evidence. The same story continues to be reported wherever one goes: volumes and, of late profits are on a steep descent.


Turnall, however, appears to be bucking the trend. In the six months to June 30, 2007 the company experienced a 33% rise in volumes driven by private and institutional housing developments. The quest for self subsistence and the need for to extra income has seen the mushrooming of poultry and piggery projects, a development which led to a rise in the demand for asbestos roofing sheets. The solid growth in volumes saw turnover increasing by 15 080% to $205 billion with $9 billion of the revenues coming from exports.


In order to sustain this volume growth, which is beneficial in as far as capacity utilization is concerned and the recovery of fixed costs, the company had to follow a deliberate strategy to forego some margins. Operating margin thus fell from 54% in the previous comparative period to 38%. Consequently, operating profits grew at a watered down rate of 10 637% to $79,1 billion.


The devaluation of the local currency, in the form of the introduction of the Drought Mitigation and Economic Stabilisation Fund rate of $15 000: US$1, saw Turnall booking in $9,7 billion worth of exchange gains, which when combined with interest income of $3,2 billion resulted in net financing income of $12,9 billion being recorded.


This inflow could not, however, adequately compensate for the loss of margins hence attributable earnings grew by 11 707% to $68.13 billion


A knee jerk reaction to the price control directive saw volumes slumping by 50% both month-on-month and year-on-year as distributors reduced their uptake of products. The situation quickly reversed in August, with a 125% increase in volumes, when compared with July. The company remains confident that a turn for the better will find it well prepared to supply products.