The China-Africa Development Fund (CADFund), the main platform for Chinese companies to invest in Africa, is one of the Eight Measures to strengthen pragmatic cooperation between China and Africa announced at the Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) in 2006. CADFund Chairman Chi Jianxin speaks to ChinAfrica about how the Fund provides services for Chinese companies and their African partners under the FOCAC framework, and its future five-year plan.
ChinAfrica : What is your view of the role the CADFund plays in Chinese investment in Africa and in China-Africa relations?
Chi Jianxin: The CADFund is one of the [most] important measures for the new type of pragmatic China-Africa cooperation under the framework of FOCAC. A creative complement to the traditional forms, such as trade and project contracting in China-Africa cooperation, it was established to support more Chinese companies to invest in the continent. In the eight years since its establishment, the CADFund has operated independently through market-based mechanisms, provided funding for enterprises with investment opportunities, sought Chinese investors for African projects, and worked on helping African governments improve their people's livelihoods. It has gradually turned itself into a major platform for Chinese companies to invest in Africa.
We have worked with more than 1,000 Chinese enterprises to explore cooperation with Africa, and tracked and analyzed more than 500 projects undertaken in Africa. So far, the CADFund has invested in more than 80 projects, ranging from infrastructure, manufacturing, agricultural planting and processing, livelihood and industrial capacity cooperation to industrial zones in 35 African countries, with the total commitment surpassing $3.1 billion. These projects will also bring in investment estimated at $16 billion from Chinese enterprises.
Have there been any recent changes in the CADFund's field of investment in Africa?
The CADFund has facilitated projects in Africa, including a power plant in Ghana, a joint investment with Shenzhen Energy Investment Co. Ltd., which helped alleviate local power shortage; digital TV services provided by the StarTimes Group, which have reached out to more than 60 million people; and cotton farm projects in Malawi, Mozambique and Zambia, which came up with a "company + rural household" model, helping about 100,000 local farmers increase their income. Upon completion, all CADFund-financed projects are expected to annually provide African markets with 11,000 medium- and heavy-duty trucks, 300,000 air conditioners, 600,000 refrigerators, 400,000 TV sets and 1.6 million tons of cement, generating additional exports worth $2 billion and $1 billion in tax revenue for African countries. More than 1 million local people may benefit directly.
We will continue to invest more funds, strengthening analysis of investment projects in infrastructure and giving greater support to industrial capacity and equipment manufacturing cooperation projects. This will boost cooperation in agriculture, the Internet and finance, thereby providing for sustainable economic growth in Africa.
The CADFund serves Sino-African trade cooperation through market-based mechanisms. What do African partners think of it?
The CADFund has invested in sustainable commercial projects that conform to local development needs on the basis of an integrated assessment of factors, such as the commercial viability, financial balance, risk control and social benefits. In this way, we can increase investment by introducing more social capital to solve the bottleneck of lack of capital, maintain the operation of the project, create jobs, increase exports and tax revenues, and enhance the self-reliant development capacity of African economies.
Hisense and the CADFund have jointly invested in the Hisense South African Electric and Home Appliance Industrial Park project. The technology transfer helps improve the level of home application manufacturing and create 500 direct jobs and an estimated 2,000 indirect opportunities, attracting favorable comments from locals.
The move to expand the CADFund to $5 billion was first announced in May 2014 during Chinese Premier Li Keqiang's visit to Africa. What is the impact of this increase in funding?
The CADFund was set up with an initial capital of $1 billion provided by the China Development Bank. Early in 2012, it received a further $2 billion. The CADFund is to reach its full funding of $5 billion this year to form part of the Chinese Government's practical implementation under the framework of FOCAC.
Some administering ministries, the China Development Bank and the CADFund are carefully studying and designing the program on increasing capital, with great efforts to promote the expansion of funds. Everything is working well, and will be completed soon. The injection of new capital will diversify the financial vehicles that facilitate Chinese investment in Africa, and accelerate China-Africa cooperation in high-speed railways, highways and regional aviation systems, industrialization and capacity building. It will help prompt more social capital to go to the areas of development in Africa.
What is the plan for the CADFund in the coming five years?
China will implement its 13th Five-Year Plan (2016-20) in the next five years, when it is critical to boost bilateral trade to $400 billion and increase the stock of China's direct investment in Africa to $100 billion.
We would like to first maximize our advantage to help businesses seek more investment opportunities. Second, in light of different situations in African countries, we will innovate on cooperation mechanisms and focus on major projects in key fields, exploring development and operation mechanisms for Sino-African cooperation projects on the construction of high-speed railways, highways and regional aviation systems, integrating upstream and downstream investment in industrial and value chains in industrialization and capacity cooperation projects, and supporting the construction of cooperation demonstration parks. Third, we will enhance innovative financing models and deepen cooperation with both international institutions and local businesses in Africa. Fourth, we will give full play to our expertise and experience in investing in Africa, supporting Chinese enterprises to conform to international practices in terms of human resources development, management and fulfillment of social responsibilities as their global vision expands. It is key for them to establish themselves as globally competitive enterprises.
What are the top challenges for Chinese companies going global? What are your suggestions for those companies that want to invest in Africa?
Relatively weak infrastructure, inadequate financial services, and foreign exchange risks are hurdles for Chinese enterprises' investment in Africa. Chinese enterprises overseas lack interdisciplinary talents in the short term. Another challenge is Chinese companies' lack of sufficient understanding of laws, tax rules and regulatory systems in the investment destinations as well as international rules. In addition, differences in cultures and business practices are also problems affecting harmonious cooperation of Chinese enterprises with their local partners.
Chinese companies should first understand the characteristics of the African markets, followed by the selection of projects based on awareness of local laws, analyze and assess investment conditions and strengthen pre-feasibility study. Chinese enterprises should also standardize their overseas operations and improve their awareness of the law, respect for local cultures, religions and customs, ensure the legitimate rights and interests [of others], give priority to environmental protection and insist on integrity management. Simply copying domestic practices in Africa is not adequate.
How does the CADFund encourage enterprises to fulfill their social responsibilities?
Ever since its establishment, the CADFund has valued the principles of responsibility, moral obligations and observation of rules, focused on cultural exchanges with local people, and emphasized that its investments produce social benefits in future.
We fulfill social responsibilities through our investments. The projects we have invested will annually generate, upon completion, more than $2 billion in additional exports and over $1 billion in tax revenue for Africa, directly benefiting more than 1 million locals. According to initial statistics, the related projects have provided local communities with nine roads (about 500 km), four hospitals and nine schools, among other public facilities. We also fulfill our social responsibilities through working together with relevant government agencies, partners and social organizations. For example, we have cooperated with the International Poverty Reduction Center in China to accelerate poverty reduction efforts in Africa; and we have helped build a cultural exchange platform for Chinese and African youths through hosting themed activities together with the China Scholarship Council and Sino-African Youth Club. In 2014, we made special donations totaling $450,000 to Liberia, Guinea and Sierra Leone to support their fight against Ebola.
In what way can African countries provide foreign enterprises with favorable policies and business environment, so as to attract more investment and expand their manufacturing capabilities?
Africa's manufacturing sector is showing growth potential. In recent years, political stability, fast economic growth, increase in urban population and the rising middle-class consumer in Africa have created a potential demand for consumer goods. Also, as African infrastructure, investment and industrialization processes speed up, Sino-African capacity and manufacturing cooperation will have huge potential. In addition, some African countries have obvious favorable conditions for the international industry division due to their location advantage, low labor costs, and good trade environment. The most important thing for African countries is to continue to expand opening up, adopt effective policies to encourage and protect foreign investments, and maintain consistency in their policies.