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It’s
rare that a business deal intrigues investors and
political scientists alike. Industrial & Commercial Bank
of China Ltd.’s (ICBC) move to buy 20 percent of
Africa’s largest bank is such a transaction.
It’s the
biggest overseas investment by a Chinese company, in
this case the world’s No. 1 bank by market value. ICBC’s
$5.6-billion purchase of the Standard Bank Group Ltd.
stake is the largest in South Africa since apartheid
ended in 1994.
Yet
there’s something even bigger at play here. This is
arguably the first Chinese investment in Africa that
doesn’t carry a whiff of political strategy. Nor is it
directly related to China’s desire for resources, which
can often help despots more than African households.
ICBC’s
Standard Bank deal may be the watershed that begins
propelling China’s designs on Africa from talk to just
plain business, and smart business at that.
“From
the regulators’ point of view, this kind of
diversification is a great idea,” says Michael Pettis, a
finance professor at Peking University. “Chinese banks
are too highly concentrated in
China
and it’s not in their best interest that banks depend
exclusively on Chinese growth. That kind of dependence
is highly procyclical and can feed booms and busts.”
Standard
Bank has offices in 18 African countries, including
Nigeria and Kenya, and 21 other nations such as
Argentina and Taiwan. The Johannesburg-based bank has
713 branches in
South Africa
and 240 throughout the continent. The deal is a sign
that even if the Chinese Communist Party has strategic
reasons for investing in
Africa, companies are heading there for the economic potential.
See no
evil
Until
now, China’s Africa push has raised warning flags around
the globe, and rightfully so. To get resources to feed
its 11.5-percent growth,
China has hopped into bed with some of
Africa’s
most unsavory regimes, such as Sudan’s and Zimbabwe’s.
That see-no-evil-hear-no-evil approach is raising
eyebrows.
Warren
Buffett can deny it all he wants, but it’s hard to
believe that his Berkshire Hathaway Inc. would have
dumped its entire holding of PetroChina Co., Asia’s
biggest oil company, without the public criticism over
China’s support of Sudan.
PetroChina’s state-controlled parent is the biggest
foreign investor in Sudan. PetroChina’s stock gained
more than 11-fold since Buffett first bought it in 2003.
And yet he recently abandoned what he says is
“absolutely a first-class company.”
Buffett
was under increasing pressure from human-rights groups
over accusations that the Sudanese government supports
genocide. There was even a role for actress Mia Farrow,
who helped publicize the worldwide campaign to dub next
year’s games the “Genocide Olympics.”
No
baggage
ICBC’s
stake in Standard Bank comes without that kind of
baggage. It’s a state-controlled China bank, making it
hard to figure out where politics ends and business
begins. Yet the deal shows China is now making bets on
Africa’s economy.
Standard
Bank is gaining access to the fastest-growing major
economy and fattening its capital base.
China
is getting a foothold into Africa’s nascent
investment-banking and insurance industries. It’s also a
way for China to use its growing cash piles overseas
rather than making fresh domestic loans that may go bad
or fuel inflation.
All this
is stellar news for
Africa, which
usually suffers from the “paradox of plenty.” All too
often, inhabitants of resource-rich nations fail to
prosper while corrupt politicians and their cronies get
wealthy and ignore the development needs of the
struggling masses.
That has
been Africa’s experience for far too long. And the
failure of Western efforts to reverse the dynamic left
the region’s leaders open to Chinese investment.
Investment, not aid
One
interesting element of ICBC’s deal is how different it
is from the usual overture from Western banks. It didn’t
come laden with demands about how much control ICBC will
have over Standard Bank. It didn’t require pledges for
financial change. It’s merely one bank buying a piece of
another with transparent terms and conditions. It’s a
sign Chinese managers are willing to treat Africans as
peers.
The West
hasn’t learned that lesson with its aid programs and
lecturing. By trying a new tack,
China
may be testing what development economists have argued
for years:
Africa doesn’t need more aid, it needs more genuine investment and
trade.
Bono and
Columbia University’s Jeffrey Sachs will keep plugging
away, and thank the gods for that. But Chinese companies
appear to see something in Africa many in New York,
London and Tokyo don’t. Africa represents huge and
lucrative business opportunities if it gets its act
together.
That’s a
big “if.” With the exception of Botswana and Ghana,
Africa’s biggest consistency seems to be to pull the rug
out from under wide-eyed investors. China’s interests
are offering Africa a rare opportunity to boost its
economies.
China’s money
Another
interesting angle here concerns investors. Looking at
ICBC along with other Chinese deals of late—like Citic
Securities Co. buying a stake in Bear Stearns Cos.—it’s
clear something transformational is afoot.
In
recent years,
China
sought foreign investments in financial firms to shore
up capital and gain expertise. Now, cash-rich from
trade, stock offerings and surging share prices, China
no longer needs Wall Street’s money. Increasingly, it’s
foreigners who want a cut of China’s money.
“Getting
access to
China’s
market may no longer require putting money in
China,”
says Brad Setser, director of research at Roubini Global
Economics LLC in New York. “It may instead require
accepting investment from
China.”
China
may have just found a way to tame its own pressures and
tap
Africa without the baggage of the past. |
