The diversity of the South African mining industry, as well its world class banking and finance systems, makes the country an ideal base from which Chinese firms can expand their investment into Africa.
This is according to Otsile Matlou, Head of Mining at ENS (Edward Nathan Sonnenbergs), who says that South Africa is increasingly becoming an attractive destination for Chinese investment.
"South Africa has over 150 years of experience in mining and is among the top five best banking systems in the world. Furthermore, we arguably have more mineral diversity than any other country in the world - mining over 50 economic minerals within South African borders. These factors are very important for Chinese investors," he says.
In addition, Matlou says the recently amended Regional Headquarter Company tax legislation provided a favourable tax position for foreign companies to set up their regional headquarters in South Africa. It has made it even easier for Chinese firms to use the country as a launch pad for the rest of their African projects. "We expect that there is going to be an influx of Chinese investment into Africa, through South Africa, as a result of this."
Matlou, whose firm has advised on mergers and acquisitions throughout Africa, says ENS has already seen an increasing interest from China, specifically in African mining ventures. "The indication is very much that the Chinese are going to invest in a diverse mining sector. They are not going to focus on one commodity and are looking to diversify in iron ore, manganese and gold, among others."
According to Matlou, the Chinese mineral strategy is largely extractive. "While most companies are choosing to invest in the countries where they are extracting minerals, Chinese mining companies are doing the exact opposite. They tend to mine the raw materials, ship it to China, produce the products and ship those products back into the international market."
Furthermore, Matlou says unlike other active investors in South Africa, such as India, the Chinese do not prefer entering into supply agreements if they can take control of the operations themselves. "In our experience, Chinese companies want to take control of the operations themselves. Therefore, Chinese companies will invest in operations that are already up and running and seek full control, so that they can determine the destination of the ore or mined commodity."
Matlou attributes this approach to the fact that most of the money available for investment is coming from Chinese public funds. "There is no shortage of money. The Chinese firms want to invest it into existing operating mines where they are guaranteed returns."
He says that the increased interest of the Chinese in Africa has significant advantages for South Africa if the South African authorities balance labour regulation and economic growth. "Foreign Direct Investment is always good for an economy and is often a catalyst for growth."
However, Matlou explains that the Chinese often tend to import their own country's human capital for projects, in order to maintain control. "This could potentially pose a serious threat to local job creation. The trick is to balance job creation and economic growth. " he concludes.
Ernie Lai King an executive in ENS Tax, who widely advises Chinese business and Chinese State Owned Enterrprises observes that ENS is very well placed to assist new Chinese investment into Africa as "having dealt closely with Chinese investment, we understand Chinese business and the difficulties it experiences when investing in South Africa and the Continent, especially the language and cultural problems. The Chinese are also appreciating the political sensitivities in the region."
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