Raid of the continent by Chinese

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By Jevans Nyabiage

Hundreds of Kenyan traders took to the streets of Nairobi on Thursday accusing Chinese dealers of peddling cheap wares, posing stiff competition to their businesses.

The hawkers, who started their demonstration from the populous Eastleigh area to the city centre, staged a sit-in at the Prime Minister’s office.

Although the Kenyan traders raise genuine concerns over the future of their businesses in an environment where Chinese traders sell their products at rock bottom prices, it is a global reality of Asia’s assault.

On a bigger picture, multinationals from emerging economies are also hungry to go global, racing to the continent for opportunities to fuel their growth.

The firms have an inherent advantage over their Western rivals. They are already familiar with growing their businesses in a high-growth, low-margin environment that is often hampered by political or infrastructural challenges.

The Africa expedition is a trend similar with nearly all BRICS, an acronym first coined a decade ago for the emerging powerhouse of Brazil, Russia, India and China.

A few years ago, South Africa was invited to join the group taking up the last S.  The countries have experienced astronomical growth and produced a new crop of firms that are slowly replacing the incumbents in the fierce battle for new markets.

China has proven to be a star among stars—establishing itself as a titan of global manufacturing and growing exports to the West almost exponentially. The firms are also likely to have substantial backing from their governments. Brazil, for instance, is heavily promoting the internationalisation of its companies.

Political heft

The firms with their willingness to use their political heft, and the burgeoning sense that the emerging world could eclipse developed markets in the coming decades, the BRICS are reshaping the global economy.

Between 2005 and 2012, the number of Fortune 500 companies from BRICS countries increased from 27 to 96. In 2005, there were 176 American firms in the Fortune 500 list. However, current data show that the number shrank to 133.

China, which has lately become a major business partner with Africa, in 2005, had 16 firms, but seven years later, the number has risen to 73.

Firms such as China’s Huawei, ZTE and Sinopec, India’s Tata and Ranbaxy, and Brazil’s Petrobras and Odebrecht, are major players in Africa.

Rio de Janeiro-based firms Petrobras and Vale have expanded into Africa with vast interests in mining and exploration. And Moscow-based oil and gas exploration firms Gazprom and Lukoil are also in the race for African resources to fuel their growth.

These firms, backed with their resource-rich parent companies back home, their foray into nearly all-critical sectors of the African economy has been rewarding, at least going by their investments.

Also, while often criticised for falling short in adequately unlocking opportunities north of its border, South African multinationals have also undoubtedly carved out important niches, even becoming household brands, in southern, and to an extent East Africa.

“It is true that Asia-Africa trade and Asian investment in Africa is rising rapidly from an initially low base. This is a reflection of the new economic realities reflecting Asia’s emergence,” Wolfgang Fengler, Lead Economist, World Bank Kenya, says.

Just last month, the Central Bank of Kenya licensed Bank of China — a Global Fortune 500 company — to open a representative office in Nairobi.

This is likely to be the first step towards a full operation in the East African region. The Beijing-based bank has operations in other African countries including South Africa and Zambia.

State broadcaster CCTV, based its African service in the Kenyan capital last year with Chinese government-owned newspaper China Daily currently setting up shop in Nairobi — with its first print set to hit the streets later this year.

Mukesh Ambani’s Reliance Industries, Tata Group, Essar, Bharti Airtel, The Sanghi brothers, Prakash, Sudhir, Ravi, and Girish, who own the Indian conglomerate Sanghi Group, are in the race for a slice of the African goodies. They have all set shop in Kenya.

Mr Ambani, through Delta Corporation East Africa – a local subsidiary of Reliance Industries – is currently constructing multi-billion shilling office towers in Nairobi’s Upper Hill and Westlands areas.

Tata Group chaired by Indian billionaire Ratan Tata, and which operates locally as Tata Africa is scouting for investment opportunities in pharmaceuticals, ICT, steel, construction, energy, tourism and mining where it is preparing to pump billions of shillings in the medium term.

Strategic importance

“The high number of BRICS firms from the Fortune 500 list – especially from Chinese and Indian business – indicates the strategic commercial importance being attached to Africa,” says Dr Martyn Davies, Chief Executive of South African-based Frontier Advisory (Pty) Ltd, a research, strategy and capital advisory firm that specialises in frontier and emerging markets.

Davies, a keen observer of China-Africa relations, says in China’s case, ‘state capitalism’ is driving this engagement with particular emphasis on the energy, mining and construction sectors.

Fortune 2012 and Frontier Advisory analysis shows that there are eight Brazilian multinationals on Fortune 500, with six of them having presence in Africa. Four Russian firms — which are among seven that are on the global Fortune 500 — have operations in the continent.

All the eight Indian multinationals on Fortune 500 have footprints in Africa. They are Indian Oil, Mukesh Ambani-owned Reliance Industries, Bharat Petroleum, State Bank of India, and Hindustan Petroleum. Others are Tata Motors, Oil & Natural Gas and Tata Steel.

Fifty of China’s 73 firms in the Fortune 500 have operations in Africa seeking both resources and growth opportunities on the continent.

Simon Freemantle, senior Analyst at Standard Bank says dual factors occasioned the drop in the proportionate number of firms from the US and Europe in the Fortune Global 500.

The financial crisis and constrained growth environments throughout the advanced world since 2008 has impinged the firms’ prospects. 

Second, backed by “go-global” strategies, which have often had state-level buy-in, emerging market multinationals have in the past decade in particular engaged more actively in cross-border expansion.

The financial crisis has enabled a more rapid shift upwards in terms of the number of, for example, Chinese firms in the Fortune Global 500 as advanced world firms have been under greater pressure.

Foreign Direct Investment (FDI) into Africa has dropped consistently since 2008, again as a result of global economic downturn.

“The fall-off has mostly been due to a lower appetite from European firms for investing in Africa,” Freemantle said, in an interview with Business Weekly.

“But Africa’s opportunity remains profound, and the firms engaging now are able to reap first-mover advantage,” he said.

“Last year, (excluding if you remove North Africa where FDI dropped substantially due to the Arab Spring in Tunisia, Libya and Egypt), FDI into Sub Saharan Africa was fairly robust.

“This is likely to continue – and will be driven not just by emerging multinationals, but also by growing African firms (Dangote, Standard Bank, Nakumatt), and advanced world players eager to re-establish their African presence.”