China sticks to Mozambique – By Levy Sergio Mutemba

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China sticks to Mozambique – By Levy Sergio Mutemba

5:55 CAT | 21 Apr 2017

Business team shaking hands in front of the flag

Courtesy from the Forum on China-Africa Cooperation (FOCAC)

“Chinese companies are committed to increase the participation of local entrepreneurs under the current investment cycle in Mozambique”, assures Su Jian, Ambassador of the People’s Republic of China in Mozambique. The pledge was formulated earlier today in Maputo during a business-focused round table called Mozambique’s Economic Partners (Parceiros Económicos de Mozambique), organized by Barclays Mozambique and the Portuguese fortnightly business magazine Exame.

The objective of the event is to assess the trade relations between China and Mozambique at a time when the latter is experiencing a deep economic and financial crisis. Thus, the pledge made by the Chinese diplomat was a response to concerns expressed by various Mozambican entrepreneurs in the audience.

These often lament the lack of inclusion of their businesses in mega or significant projects undertaken in Mozambique by foreign companies, including Chinese ones. However, Su Jian insisted on the multi-dimensional involvement of Chinese interests, underscoring their effort to build local content through the transfer of know-how and technology for the benefit of Mozambicans.

“Three projects are currently under discussion between Mozambican and Chinese companies in the agricultural sector”, specifies the Ambassador, who went at length reminding the more-than 50-year friendly relations between the two economies and the accumulated USD 6 billion invested by China in Mozambique since the independence of that country. He added that these agricultural projects will definitely contribute to building national productive capacity for Mozambique, helping local residents to become progressively self-sufficient.

For his part, Barclays Mozambique’s CEO, Rui Barros, emphasized the crucial importance of Chinese investments in Mozambique for local entrepreneurship, while stressing patience. “Many opportunities for local businesses do not necessarily occur in the initial phase of an investment project”, says the executive of the Mozambican financial services group. “These are also created along the way.”

Rui Barros also reminded that the Chinese financial sector is an important factor for the expansion of the Mozambican economy and its business environment. The CEO cited the China Development Bank (CDB) as a prime lender for Chinese enterprises seeking to expand globally, especially in Africa.

As a reminder, CAD purchased shares of British parent bank Barclays (Plc) in 2014, after the signing of an agreement under which the UK-based bank would provide CDB with its historic corporate and investment banking capabilities.

As a large part of commodities used in the Chinese economy is imported, the logic of such an alliance consists in providing support to Chinese corporate clients in their attempt to access the natural resources-rich countries of Africa, including Mozambique, where Barclays is a major and historic actor after more than 40 years of presence in this southern African state.

Beyond commodities such as gas and oil, power generation, transportation infrastructure, construction, manufacturing and agriculture are also critical sectors of interest for Chinese companies. Soon, tourism should also feature in the list.

“Last year, more than 135 million Chinese tourists travelled around the world”, recalled Su Jian. “Can you imagine the opportunities for the Mozambican tourism sector if only a fraction of those tourists could be attracted in the country?” asked the Chinese ambassador to a large audience of Mozambican and Chinese business operators.

The official indeed outlined the key urbanization process taking place in the future tourism town of Catembe (KaTembe) in the southern bay of Maputo, where the longest suspension bridge in Africa should be completed at the end of the year. Costing about USD 725 million, mainly funded by the Export-Import Bank of China, the bridge is part of the Maputo Bridge and Link Roads.

Though the panelists of the event were keen on emphasizing the economic and business potential of their respective countries, it is impossible not to raise the question of the impact on Mozambique of China’s current economic transition into a more internal demand-oriented market as opposed to an export-oriented one.

The International Monetary Fund (IMF), for instance, is particularly concerned. In a recent research paper from its African Department, the international organization highlighted that the commodity-exporting countries in sub-Saharan Africa are divided into two groups. Those whose exports are mainly driven by investment in China (for example, ores and metals exporters) and those whose exports are driven primarily by Chinese consumption (for example, agricultural and foods exports).

Mozambique, along with Angola, Tanzania, Nigeria, Rwanda or the Democratic Republic of Congo, clearly falls into the first category, which is the most exposed to China’s economic cycles. A one percent increase in China’s growth is indeed associated with, on average, a two percent increase in their own growth. Whereas the correlation between the economies of China and African consumption-driven commodities exporters is null or even negative in certain cases.

“Thus, if China’s growth were to slow down because of falling investment, the investment-driven commodities exporters would likely experience negative impacts on their growth, while consumption-driven exporters would not face the same adverse effects”, explains the IMF. This second category comprises countries such as Benin, Burkina Faso, Kenya, Malawi, Mali, Madagascar and Uganda.

“The spillovers from China are not limited to direct channels such as exports and government revenue. They extend further to subsequent spillovers from the export sectors to other sectors in the economy resulting from sectoral links”, concludes the monetary institution in its special report (A Rebalancing Act for China and Africa – The Effects of China’s Rebalancing on Sub-Saharan Africa’s Trade and Growth).

By Levy Sergio Mutemba