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Chinese investment in South Africa: Set for success, if common mistakes are avoided

Chinese investment in South Africa: Set for success, if common mistakes are avoided

2018 marks the 20th anniversary of diplomatic relations between South Africa and China. China is South Africa’s biggest trading partner, with bilateral trade growing 11.7% to USD 39.17bn in 2017 – just under a third of total China-Africa trade1 . Chinese foreign direct investment (FDI) into South Africa reached USD 15.2bn in 2017, or 19% of total FDI,2  making the country the second-largest recipient of Chinese FDI in sub-Saharan Africa after Nigeria.3  One of the most significant Chinese investments in South Africa was the Industrial & Commercial Bank of China (ICBC)’s acquisition of a 20% stake in Standard Bank for USD 5.5bn in 20074. ICBC was attracted both by South Africa’s status as the only G20 member state and its developing economy with a significant middle-income consumer segment.

Improving political climate brings new opportunities for investors

Heightened political tensions in 2016-17 caused by leadership struggles within the ruling African National Congress (ANC) raised international business concerns about South Africa’s investment environment. Chinese investors in particular were initially concerned by the replacement of Jacob Zuma by Cyril Ramaphosa as national president in early 2018, and the adverse impact it might have on South Africa’s relationship with China. Zuma saw China as an alternative investor source and often had a confrontational attitude to the West. Ramaphosa, by contrast, was perceived to be close to the West, and possibly sceptical about China and the BRIC nations more broadly. 

  • However, despite the change in leadership, the future for the China-South Africa relationship looks promising:
  • Ramaphosa avoids antagonistic relations, and focuses more on consensus and compromise: he will not attempt to play West off against East and will not show political bias in favour of one side or the other. 
  • Ramaphosa’s principal objective is to attract investment and grow the economy, and he will see China as a key part of that plan. 
  • he expected wider positive effect of Ramaphosa’s leadership on the South African economy will also benefit Chinese investors. His administration is likely to become increasingly responsive and transparent. This will serve to strengthen the business outlook for Chinese and other overseas companies beyond the 2019 general elections and in the longer term – something that is also reflected in an improved risk-reward score for the country.

By Courtesy of controlrisks.com

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