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October 20, 2008 02:00 AM

Resources and trade send China to Africa

Steve Toloken
Assistant Managing Editor
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    Plastics companies in mainland China, Hong Kong and Taiwan are showing much more interest in Africa, looking for opportunities in a place that is often not given a lot of thought by Western businesses.

    What's driving them is a boom in overall trade between Africa and China, especially as rising oil and commodity prices have led to economic growth in resource-rich areas of Africa.

    Chinese exports to sub-Saharan Africa, for example, nearly quadrupled between 2002 and 2006, to US$19 billion, vaulting China to the region's third-largest trading partner, after the United States and France.

    That growth rate was faster than Chinese exports to the United States in the same period, although trade to Africa remains small by comparison, only about 10 percent of that with America.

    Data on plastic-specific trade is much harder to come by, but anecdotally, there's a lot of interest among Chinese firms.

    Cammy Chan, the founding chairman of the Hong Kong Plastic Machinery Association and a 30-year veteran of China's plastics industry, said she wants to set up an industrial park with machinery manufacturing, a recycling plant and a plastics technology training center in Lagos, Nigeria.

    Chan said she's working with several Hong Kong firms she declined to identify but said the group sees long-term opportunities. Africa imports much of what it needs for daily life — in some cases more than 80 percent of those necessities — which opens up opportunities to manufacture locally and sell equipment, she said.

    ``Processing production is the huge business opportunity in Africa,'' said Chan, who is also vice chairman of consulting firm Asia Africa International Co. Ltd.

    But, she said, there are major challenges, such as getting enough skilled workers and ensuring adequate electricity supplies to power factories. And the local markets remain fragmented and small, not providing the sizable orders that Chinese firms are used to seeing.

    Still, some Asian firms see opportunities against more expensive Western or Japanese competitors, as Africa looks for good but lower-cost equipment to upgrade.

    One of Taiwan's largest injection press makers, Fu Chun Shin Machinery Manufacture Co. Ltd., is setting up an office in Durban, South Africa, and expects Africa to be a significant market in the next five years, said Susan Wang, director of FCS subsidiary, the Africa Taiwan Technology Group Co.

    ``Africa used to ask for equipment from Europe, but Europe is too expensive,'' Wang said. ``Where is the next Europe for technology? It's Asia.''

    She estimated that Africa is about 5 percent of sales for Tainan-based FCS, but said it's difficult to know because some of its machines are shipped to agents in the Middle East, making it harder to track where the equipment goes from there.

    Higher-technology goods like plastics machinery seem to be an increasingly large part of Chinese exports to the continent.

    A 2007 World Bank study said that since 2002, electronics and machinery have become 50 percent of mainland Chinese exports to sub-Saharan Africa, a sharp change from the 1980s and 1990s, when China mostly exported lower-value clothing, footwear and light manufactured goods.

    That's been Taiwan's experience as well. A big chunk of Taiwan's exports to Africa is industrial machinery, including for plastics, where Taiwanese firms have advantages in supplying turnkey systems, said Richard Lin, executive director of the Africa Taiwan Economic Forum in Taipei.

    ``I think for the plastic business in Africa, they are lacking a lot of knowledge of machinery, manufacturing and production,'' Lin said. ``Taiwan is very strong in plastic machinery.''

    Direct trade between Africa and Taiwan is growing about 10 percent a year, and last year stood at US$8.25 billion, with Taiwan importing oil from Nigeria, and BMWs and wine from South Africa.

    Lin said many Taiwanese firms also are using their mainland China factories to ship to Africa, taking advantage of tax benefits and other policies Beijing has set up to boost economic ties with Africa.

    Overall trade between mainland China and Africa grew from US$12 billion in 2002 to US$55 billion in 2006, according to United Nations statistics, but it has not come without some tensions.

    Much of the trade between China and Africa now consists of Africa exporting its raw materials, particularly oil and metals that China needs for its rapid industrialization, while China sends manufactured goods and machinery to Africa.

    That, some critics say, risks echoing past Western colonial trade practices, if it does not bring more sustainable economic development to Africa.

    A World Bank study by economist Ali Zafar said China is bringing Africa ``desperately'' needed aid and investment, and in infrastructure like hydropower plants. But the report also said the expanding Chinese presence threatens to overwhelm local industry, if not managed properly.

    One 2007 review by the Washington D.C.-based think tank the Open Society Institute, for example, said Nigeria's plastics and textile industries were at risk of ``drowning'' from cheap Chinese imports.

    A Nigerian community leader in one Chinese city hopes to use the growing economic ties to boost many industries, including plastics, in his country.

    Ojukwu Emma, president of a local community and business development group called Nigerian Community China, is working with Chinese partners to promote Chinese-Nigerian cross-investment in several industries. The group is based in the southern Chinese city of Guangzhou.

    He said Nigeria, Africa's most populous country with about 130 million people, would be a good base for making plastic motorcycle parts and plastic machinery.

    There are strong links between South China and Africa. Many Africans head to the factories around Guangzhou to buy products like computers or mobile phones to export back home, and Emma said 6,000 of the 7,000 Nigerians in China are in Guangzhou.

    He said he sees potential for manufacturing in Nigeria if the country can improve its electricity supply.

    ``If we have steady electricity, we could produce goods,'' he said. ``Our problem is only electricity.''

    Emma said it's not good for Africa in the long-term to mainly export its natural resources and not develop, but he said Nigeria has to use its advantages now with oil to try to broaden its economy and develop more local manufacturing.

    ``You use what you have to get what you need,'' Emma said.

    Emma is helping to organize a China-Nigeria investment forum in Guangzhou at a yet to be specified date in late October, working with several Chinese business people, including David Wai, the director of machinery maker and blow molder Welloyd Industries Co. Ltd. of Hong Kong.

    Wai knows Africa well, having started a molding plant in Nigeria 25 years ago.

    He said Hong Kong firms have something to offer Africa. The experience firms like his have in navigating the rapid changes in mainland China during its last 30 years of economic reforms provide a good background for dealing with changes in Africa.

    He does not think Africa will develop at the breakneck pace that China has in recent decades, but he still sees opportunities. Money from oil is providing some economic growth, and Chinese firms understand what kind of equipment is needed in Africa.

    ``Hong Kong just came up from a developing to a developed economy, so we can supply middle-technology that is very good for Africa,'' Wai said.

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