CHINESE INVESTMENTS IN AFRICA OBSERVATIONS FROM ZIMBABWE

1. CHINESE INVESTMENTS IN AFRICAOBSERVATIONS FROM ZIMBABWE PREPARED BY: STERNFORD MOYO & NELLIE TIYAGO A member of the Lex Africa Network

2. SIGNIFICANCE OF CHINESE INVESTMENT IN AFRICA • In the year 2009 Africa’s stock of foreign direct investments were US$517.4 billion. • In the same year, China’s stock of investment in Africa was only US$9.33 billion or only 1.8%. • Only US$1.44 billion came into Africa from China in the year 2009. In the same year US$5.73 billion came into Africa from the United States of America and 5.03 billion Euro came into Africa from France. • Whilst China’s investment stock in Africa was 9.33 billion by the year 2009, United States of America’s investment stock in Africa stood at 44.8 billion.

3. Chinese Companies’ investment in Africa is at a relatively low level. Only a small proportion of investments are devoted to service sectors such as finance and tourism. Investment in the manufacturing sector has been limited to low technology industries such as elementary processing sectors involving low scale investment. Although Chinese companies undertake construction of engineering projects, they do not usually take part in the management and operation of the projects after commissioning.

4. Table 2: Major World Investing Countries in 2010-2012 (US$ billion)

5. Chinese companies appear to operate at levels below traditional transnational corporations operating in Africa. The small businesses run by Chinese investors in Africa have shown capacity to outcompete indigenous businesses but not the large transnational corporations.

6. Activities of Chinese Investors

7. Investment by Industrial and Commercial Bank of China in Standard Bank Limited, the largest banking group in Africa; • Chinese state owned and private mining companies active in coal, chrome and diamond mining; • Chinese companies actively putting together joint venture entities with Zimbabwe National Army in pursuit of commodities particularly cotton and maize;

8. Chinese state company in collaboration with Chinese private companies has shown interest in energy sector particularly coal mining and capacitation of a major thermal power station; • China Development Bank, Export and Import Bank (China Eximbank) have directly funded Chinese activities while the Industrial and Commercial Bank of China has indirectly funded Chinese activities. Standard Bank has one of its most senior resources in China to facilitate economic activities between Chinese companies and African companies;

9. In about 2007/2008, there was an allegation of a controversial US200 million importation of arms from China. • China-Africa Development Fund is a fund which supports Chinese investors in Africa. It has financed projects across Africa. • China-Africa trade and economic corporation zones have been established in a number of countries including Zambia, Mauritius, Nigeria, Egypt, Ethopia and Algeria. • The Chinese have shown ability to pursue flexible funding arrangements such as funding infrastructure in exchange for resources and/or commodities.

10. The Chinese built a whole army training college and village North of Harare recently. It is a highly impressive development. • The Chinese have been active in real estate development and construction in general. A Chinese company has acquired a number of boutique lodges/hotels in and around Harare. A number of blocks of flats have been constructed by Chinese companies in and around Harare. • The Chinese Government, to promote its business interests in Zimbabwe, has made various grants and donations to the Government of Zimbabwe including donating highly sophisticated scanners required to enhance border posts control and revenue collection. • A Chinese company is one of the three majors cement producing companies in Zimbabwe today. Its operations are, however, way below the other two which are transnational corporations.

11. Common Corporate Structures

12. In large Investments, a state owned Chinese company tends to move in to pave the way for private companies; • There is a clear preference for joint venture arrangements with governmental or quasi governmental entities; • The majority of Chinese investors use locally incorporated companies as vehicles for their investments. However, some are sole traders and a few operate as partnerships. Public companies are rarely used. The Chinese tend not to list locally. They raise their capital requirements in China.

13. Funding for Chinese activities tends to be exclusively from Chinese sources; • Importation of Chinese labour, machinery and specalist services is a common feature of Chinese investments.

14. Regulatory Framework

15. Zimbabwean investment acquisitions require that indigenous Zimbabweans own 51% of the equity and are equitably represented on the governing body of the business. Questions have been raised regarding whether or not this is applicable to Chinese businesses. Many Chinese companies are operating without compliance to Zimbabwe’s indigenization laws. • In South Africa the Chinese achieved a black classification for the purposes of black empowerment legislation;

16. Acquisition of Zimbabwean registered securities by foreign companies or foreign residents requires prior approval of Exchange Control Authorities. There are exceptions applicable to listed securities where foreign residents can acquire up to 40% per counter and a foreign resident can acquire up to 10% per counter without Exchange Control approval.Because of the governmental and quasi governmental strategy of their involvement,Chinese investors appear to obtain speedy approval. A number of small Chinese companies has shareholders who have not been approved by Exchange Control Authorities.

17. In the area of new investments, to facilitate repatriation of capital and dividends, registration by the Zimbabwe Investment Authority is advised although not mandatory except for investments in reserved sectors. Chinese investors, because of their governmental approach, and support by their government tend to navigate this requirement easily. Large numbers of small Chinese operators are operating without any investment licenses issued by the Zimbabwe Investment Authority.

18. Labour and Environment

19. With the exception of those from Hong Kong, many abuse holiday visas when coming into the country for work. Work permits are required when employing foreign residents. Chinese investors appear to obtain these easily. There is evidence of tightening by the Zimbabwean authorities in this regard. • Despite the fact that Zimbabwean labour market is heavily regulated, there have been allegations of Some Chinese businesses being able to disregard: • Working hours regulations; • Minimum wages legislation and industrial agreements; • Safety regulations; • Termination and retrenchment regulations; and • Leave regulations

20. Zimbabwe has sophisticated environmental legislation. Environmental impact assessments and Environmental certification are required before commencement of any project. There have been problems concerning operating projects owned by some Chinese companies particularly in construction and mining.

21. Impact of Chinese Investments in Zimbabwe

22. Due to the fact that Zimbabwe is a high cost environment for production, local manufacturers are finding it difficult to cope with competition from cheap products particularly clothing, electrical goods, machinery and tools; • Some of the Chinese goods tend to be inferior in quality. Some toys are alleged to be positively dangerous; • Some Chinese investors have tended to show insufficient regard for human rights;

23. There is rampant violation of intellectual property rights; • The Chinese quest for commodities and resources for beneficiation in China does not promote industrial growth in Zimbabwe; • The tendency to want to work with governmental and quasi governmental bodies has given rise to fear and suspicion of corrupt tendencies. Under the Zimbabwean law, the showing of any favour or disfavour by public officials is an act of corruption.

24. The Chinese factor in Africa has weakened the call by civic society for observance of human rights, good governance and the rule of law. Chinese investment tends to be free from such conditions as are normally imposed by the West. This has given rise to a perception of the Look East Policy as an attempt by African governments to avoid accountability. Furthermore, Chinese’s policy of non-interference in a world committed to responsibility to protect gives rise to serious questions;

25. Language and cultural difficulties in countries where English, French and Portuguese are official languages have given rise to problems of Chinese integration in Africa.

26. Benefits of chinese investment

27. Despite the above challenges, it must be admitted that China represents • A welcome source of alternative capital for businesses operating in Zimbabwe • A source of competition for our resources and commodities which should strengthen our ability to negotiate issues such as pricing on the international markets

28. A source of employment for cross border traders • A source of inspiration for countries such as Zimbabwe. The rise and rise of the People’s Republic of China to the status of an economic power house inspires us to develop our economy and learn from their experiences • An extension of historical ties dating back to our liberation struggle • An alternative tourism market

29. CONCLUSION

30. Chinese investment in Africa is, without doubt, increasing. However, statistics given in this presentation do not justify the Look East Policy adopted by most African countries. The Look East Policy appears to be heavily inspired by a desire to escape observance of human rights, respect for rule of law and the practice of transparency and accountability. • Great care needs to be exercised by African countries when dealing with Chinese investment. Contemporary China is not the philanthropistic communist China which participated in our liberation struggles . This is capitalist China driven by an industrial growth and population size which out strip its resources capabilities. It is, for example, a China without a single chrome mine, yet through aggressive acquisition and stockpiling of chrome ore, it is able to control the prices of chrome using Zimbabwean and South African chrome ore.

31. Contemporary China is creating employment for Chinese nationals in Africa, creating opportunities for its small scale business sector in Africa, making our small scale businesses uncompetitive, exporting unprocessed ore from Africa and driving its own industrialization and ability to control metal prices at the expense of Africa. • At a time when Africa requires transformation to a continent committed to human rights, democracy and rule of law, the inexorable rise of an economic power house prepared to turn a blind eye to this fundamental requirement of contemporary Africa, should be a source of concern for African lawyers and Bar Associations.

32. The Chinese drive hard bargains. Caveat Africa!

33. ZIMBABWE IS A RICH AND BEAUTIFUL COUNTRY COME AND SEE FOR YOURSELVES VICTORIA FALLS IN ZIMBABWE