Commentary for the Week
Profiting From The World's Largest Stash Of Commodities
Jason Simpkins (Stockhouse)
March 16, 2010
In the quarter century stretching from the late-1880s to the First World War, there was a mad rush by the world's leading powers to occupy and annex African territory. Now, 100 years later, the world's elite again are scrambling to make their respective marks on the continent.
The methods of extraction have changed, but the end goal remains the same - to gain access to Africa's coveted bounty of commodities.
Most notably, Chinese interests have swarmed Africa, constructing roads, rail lines, municipal buildings, schools, ports, and pipelines in exchange for access to natural resources.
China's success on the continent has attracted the likes of India, Brazil, and Japan. But if these relatively new arrivals want access to Africa's gold, silver, cotton, cocoa, copper, aluminum ore, and oil, they'll have to negotiate around China, which by far has the strongest ties to the continent.
Engineering an empire
China's African investments in 2009 rose an astonishing 80%. In fact, Africa now represents 10% of China's total outward foreign direct investment (FDI).
Trade between Africa and China has grown 40% a year since 2001, reaching a record-high $107 billion in 2008. That was enough for China to top the United States and European Union as the continent's largest trading partner.
China is most interested in Africa's oil resources, such as those found in Nigeria, Sudan, and Uganda. About 13% of Africa's total oil exports go to China.
The state-run China National Offshore Oil Corp. (CNOOC) (NYSE ADR: CEO, Stock Forum) is the main agent in such oil deals. CNOOC recently purchased oil assets in Uganda from Britain's Tullow Oil for $10.5 billion (seven billion pounds), and is in talks with Nigeria to buy six billion barrels of oil - equivalent to one-sixth of the country's total reserves - for as much as $50 billion.
CNOOC also paired with Sinopec Corp. (NYSE ADR: SHI, Stock Forum) to take a 20% stake in an oil field off the shore of Angola for $1.3 billion, and with Ghana National Petroleum Corp. (GNPC) to bid for a stake in the Jubilee oil field in West Africa.
Of course, China isn't just pursuing industrial resources. With incomes growing among its more than one billion citizens, China is growing into one of the world's largest markets for luxury goods.
China last year surpassed the United States and Germany as South Africa's largest trading partner, in part because of its ravenous appetite for diamonds. Diamond sales in China rose 16.9% to $1.5 billion in 2009. South Africa-based De Beers' diamond sales in China quintupled to 2.3 million stones.
Total trade value between China and South Africa was $14.29 billion in 2009 - down 1.19% from 2008, according to statistics recently released by South Africa Customs. Those statistics also showed that trade value between South Africa and Germany fell 27.88% year-over-year, and trade with the United States fell 34.8% from 2008.
Bilateral trade between Egypt and China grew to $6.24 billion in 2009 from $610 million in 1999, according to Egyptian government statistics. The annual rate of growth in the past five years has been more than 30%.
"The Chinese people cherish sincere friendship toward the African people, and China's support to Africa's development is concrete and real," China's Premier Wen Jiabao said at the fourth ministerial Forum on China-Africa Cooperation (FOCAC) in November. "We will help Africa build financing capabilities. We will provide $10-billion for Africa in concessional loans."
Premier Wen and Chinese President Hu Jintao unveiled eight measures on bilateral cooperation at that meeting, as well as $10 billion of low-interest loans to African nations.
Can you hear me now? Africa gets wired
With the long-term outlook for commodities decidedly bullish - and given China's apparent success on the turbulent continent - many other emerging countries are coming to view Africa as an important part of their economic growth models.
India - China's continental rival - is one such country.
Indian officials next week will meet with representatives from 34 African countries for a three-day conclave to discuss $9 billion worth of business projects. The conclave will also lay out a roadmap for the second edition of the India-Africa Forum Summit to be held next year. India hosted the first summit in New Delhi in 2008.
India's trade with Africa soared to more than $30 billion in 2008 from just $967 million in 1991. And it could reach $70 billion in the next five years. Sudan and Mauritius are among the top five investment destinations for India, with both accounting for about 18% of India's FDI flow.
It's not just Africa's commodities that India is interested in, either.
Indian telecoms tycoon Sunil Bharti Mittal, chairman of Bharti Airtel Ltd., last month shocked investors when he revealed that his company had offered to buy the loss-making African assets of Kuwait's Zain Telecom.
Africa represents "the most under-penetrated market in the world," offering huge potential growth, Mittal told the AFP in a conference call with analysts. The deal could negatively impact earnings in the short term, "but in the long run, we are looking for a growth story in this. And therefore it's not a cause of worry." (continue reading...)
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