Most Read Contributor in South Africa, September 2016
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
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
"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
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
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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