It is estimated that by 2025 the about 10,000 Chinese firms operating in Africa will be earning $440 billion in annual revenues from their African operations, up from $180billion today, according to a recent study. The figure is equivalent to the Gross Domestic Product GDP, of Nigeria, Africa’s largest economy.
Chinese firms according to the report have dominated the continent’s infrastructure and they handle 12 per cent of industrial production. They are also said to be strong in services, real estate and trade. Nearly one-quarter of 1000 firms surveyed by McKinsey Africa said they covered their initial investment within a year while one-third recorded profit margins of more than 20 per cent. Banking the report said is no exception to this trend. The Banker’s top 1000 world banks ranking for 2017 shows that African banks have the highest returns on capital in the world at 27.42 per cent. Most other regions fall in a 13 per cent to 16 per cent range.
“It is not difficult to figure out why. Africa’s markets for basic banking products – such as savings and deposit accounts, credit cards, car loans, and so on – are nascent and underexploited; populations are large, young and growing; the opportunity is there to do a big leap in banking infrastructure and go straight to mobile banking, with all its cost efficiencies.
“Here, too, the trend of China taking the initiative while some Western banks retreat is much in evidence. Barclays, whose roots in Africa go back to 1925, announced last year the selling down of its 60 per cent stake in its Johannesburg-listed subsidiary, citing concerns about the continent’s volatility and the regulatory burden of owning the shares. Heading in the other direction, China’s leading bank, Industrial and Commercial Bank of China, has for 10 years had a 20 per cent stake in Africa’s largest bank, Standard Bank. Standard Bank’s return on capital is 31.47 per cent, whereas the average for western Europe is a measly 6.47 per cent.
“On top of this, Africa is on course to complete the Tripartite Free Trade Area (TFTA) later in 2017, creating a free-trade zone stretching from Cairo to Cape Town, and giving intra-regional trade a big boost. For the 10,000 Chinese firms operating in Africa – 90 per cent of them private – this will provide another welcome boost to business. Chinese business has at times been criticised for being too aggressive in Africa, for buying up large tracts of agricultural land and for not developing the local workforce. But these companies have also shown a lot of entrepreneurial flair in exploiting opportunities that Western firms have been unable to capitalise on” the report said.
