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AFRICA NEWS
Africa uneasy as China turmoil threatens investment boom
By Stephanie FINDLAY
Johannesburg (AFP) Aug 28, 2015


African cement giant in $4 bn deal with Chinese builder
Lagos (AFP) Aug 27, 2015 - Nigeria's Dangote Cement has announced a $4.34 billion deal with Chinese construction company Sinoma International Engineering to build plants across Africa.

The project is expected to add 25 million tonnes of capacity across 11 African countries and Nepal, Dangote said in a statement on Wednesday, according to Bloomberg News.

Dangote Cement, controlled by Africa's richest man, Aliko Dangote, has been expanding outside of Nigeria in recent years, signalling the company's increasingly international ambitions.

The new plants will increase capacity to around 71 million tonnes and Dangote is targeting further gains to about 100 million tonnes by 2020, Dangote said in a speech in Lagos, according to Bloomberg.

"We are progressing very aggressively. Africa will not lack cement," it quoted the billionaire as saying.

Speaking at a ceremony to inaugurate a $400 million plant in Zambia earlier this month, Dangote said cement production was a "symbol of African development."

When Chinese company Shanghai Zendai bought 1,600 hectares (4,000 acres) of land outside Johannesburg in 2013, it promised to build the "New York of Africa."

The sleepy district of Modderfontein would be transformed into a $7.8 billion metropolis with a forest of skyscrapers, 35,000 houses and a sanctuary of green space to rival Central Park.

The planned city became a symbol of China's seemingly limitless ambition across the African continent.

But as global alarm bells ring over China's slowing economic growth, future projects on the vast scale of Modderfontein could be under threat.

"It's like we had a big party and the hangover is going to continue a bit longer than we anticipated," Dennis Dykes, head economist at South Africa's Nedbank, told AFP.

"It was unrealistic to believe that China would continue operating at the level it was."

For the past decade, China gobbled up much of the commodities that Africa produces, overtaking the United States in 2009 to became the continent's single largest trading parter.

Surging commodity prices helped the sub-Saharan Africa region grow at over four percent annually for two decades.

From power plants in Botswana to diamond mines in Zimbabwe -- and a spate of shiny sports stadiums -- Africa counted on China for investment, infrastructure and jobs.

Beijing even built the $200 million African Union headquarters in the Ethiopian capital Addis Ababa in 2012 as a gift expressing "friendship to the African people."

Chinese companies are involved in hydropower projects in Zambia, Gabon and the Democratic Republic of Congo.

China built a huge shopping mall in Zimbabwe's capital Harare, laid a ring road around Maputo, the capital of Mozambique, and invested billions in Nigeria's newly refurbished Lagos-Kano rail line.

China has also funded coal power stations, roads and schools in Botswana, mines in Namibia, and in Malawi it provided funds for a new parliament, a university, hotels and conference centres.

However, the rapid pace of investment could be at risk as China grapples with weak demand for its goods and a schizophrenic stock market.

- 'Drunk on China's growth' -

Many experts now question the sturdiness of China's growth and warn of the inevitable damage to those countries who rely on it.

"The first impact is on commodity prices, which directly influences Africa. The second is investment, which will obviously slow down," said Celeste Fauconnier, Africa analyst at Rand Merchant Bank. "We should be concerned."

Already, countries are reeling from the Chinese turmoil, with commodity prices falling to a 16-year low, according to the Bloomberg Commodity Index tracking 22 raw materials.

Bureaucrats have had their pay delayed in Nigeria after the price of oil collapsed to less than $50 a barrel and depleted state coffers.

In South Africa, iron ore sales tumbled 36.9 percent since last year and mining companies have announced major layoffs.

"We are worried because China is one of the major consumers," said Fredson Yamba, a treasury official in Zambia, which derives almost 70 percent of its export earnings from copper.

The China slowdown has exacerbated problems in African countries that depended on high commodity prices to balance their books, with South Africa particularly hard hit.

"It has impacts on our current account balance, it has implications on our trade balance," said Hugo Pienaar, economist at the University of Stellenbosch Bureau for Economic Research.

"You'll see it in investment numbers and you'll see it in employment numbers, and that has spillover effects."

To keep growing, African economies have to wean themselves off commodities, analysts say.

"As China rebalances, commodity driven economies need to rebalance too," said Martyn Davis, head of Frontier Advisory, an emerging markets research firm.

"Most sub-Saharan African countries have been drunk on China's growth. The thing they should have been doing 15 years ago is to rapidly diversify their economies and not rely on commodities," said Davis.

"It's never too late, but the pressures now are intense."

Despite the worries, economists say predictions that China will no longer be a major player in Africa are overblown.

"China certainly enjoys a privileged relationship with many African countries and has access to big infrastructure projects," said Ryan Wibberley, emerging market equity dealer at Investec in Cape Town.

"The general trend of China as infrastructure partner is not going away."

Instead, China's activities in Africa are set for a wholesale review to take into account the new global economic outlook.

"We're in a much lower commodity price regime for the next couple of years," said Dykes. "I must admit, this has a horrible structural feel to it at the moment."

strs-sf/bgs/bc


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