Pure potential
China and Africa work well together. The Middle Kingdom has invested in many African countries in recent years that Western nations avoid because of instability or political sensitivities. And thus far, China has been rewarded for its efforts. Two-way trade has increased 14-fold during the last decade, to US$116.2 billion in 2011.
Natural resource-related industries are the first that might come to mind when considering investments into Africa. Angola was China’s second-largest oil supplier in 2011 after Saudi Arabia, while South Africa is the world’s largest producer of gold and platinum. But there is still room for further investment as evidenced by Angola’s underdeveloped mineral wealth.
Investment opportunities extend further to sectors including agriculture, manufacturing and infrastructure. Africa offers some of the cheapest land in the world on a per acre basis, yet so far China has invested only US$3.5 billion in agriculture. Typical of developing economies, Africa also has an abundance of cheap labor for manufacturing that China could harness, especially in industries that use African raw materials. Furthermore, the Dark Continent is still in need of vast amounts of infrastructure, an area of Chinese expertise.
But Africa is not without its pitfalls. Corruption, low levels of education, instability and malnutrition continue to ravage much of the continent. Prudent investors would do well to understand all aspects of an African country before deploying capital there. To that end, China Offshore Quarterly has dissected seven key African countries – among the largest in GDP or trade with China – in order to uncover the various opportunities and challenges presented by the highly varied continent.
Nigeria Investment Promotion Commission
NIGERIA
Key statistics*
Population: 170 million
GDP (by purchasing power parity): US$414.5 billion
Exports to China: US$1.58 billion
Imports from China: US$9.21 billion
Key sectors
Industries: Oil, metals/mining (coal, tin, columbite, steel), rubber products, wood, textiles, construction materials (including cement), food products, footwear, chemicals, fertilizer, printing, ceramics
Agricultural products: Cocoa, peanuts, cotton, palm oil, corn, rice, sorghum, millet, cassava (tapioca), cattle
Taxes
Corporate: 30%; Indirect (VAT/Goods and services tax): 5%; Capital gains: 10%; Personal income: 5-25%
Ease of foreign investment†
Procedures required: 12
Time required: 44 days
Ease of establishment index: 47.5 out of 100
Investment considerations
Pro: Spreading oil wealth means Nigerian consumers have more to spend
Pro: The country has the world’s eighth largest natural gas reserves, and the energy industry is to be privatized, allowing for foreign investment. Also opportunities in fertilizer, methanol and petrochemical companies using gas as a raw material
Pro: Tax incentives and easier registration is offered to firms locating in a Nigeria Export Processing Zone (NEPZ)
Con: Underdeveloped infrastructure may affect shipping. Electricity not universally available and outages frequently occur
Con: Corruption and to a lesser extent violence
More information
Nigeria Investment Promotion Commission: www.nipc.gov.ng
Sources: CIA World Factbook, UN Council on Trade and Development, KPMG, Deloitte, World Bank
*2011 †2010
South Africa
Key statistics*
Population: 48.8 million
GDP (by purchasing power parity): US$554.6 billion
Exports to China: US$32.1 billion
Imports from China: US$13.4 billion
Key sectors
Industries: Mining (platinum, gold, chromium), automobile assembly, metalworking, machinery, textiles, iron and steel, chemicals, fertilizer, foodstuffs, commercial ship repair
Agricultural products: Corn, wheat, sugarcane, fruits, vegetables, beef, poultry, mutton, wool, dairy products
Taxes
Corporate: 28%; Indirect (VAT/Goods and services tax): 14%; Capital gains: 14% (corporate) and 4.5-10% (individual); Personal income: 18-40%
Ease of foreign investment†
Procedures required: 8
Time required: 65 days
Ease of establishment index: 78.9 out of 100
Investment considerations
Pro: World’s largest producer of gold and platinum and a major producer of diamonds, coal, manganese, chrome, platinum
Pro: Africa’s largest and most developed economy, making it a gateway to the rest of Africa with world-class infrastructure, communications, financial system and legal framework
Con: Committed to promoting Black Economic Empowerment (BEE), so investors should plan to include training of black workers at all levels of the company and to work with other BEE companies
Con: A high crime rate in some urban areas
More information
Department of Trade and Industry, Republic of South Africa:
www.thedti.gov.za
Sources: CIA World Factbook, UN Council on Trade and Development, Deloitte, World Bank, Tara Consultancy, General Administration of Customs, China, CEIC
*2011 †2010
MOROCCO
Key statistics*
Population: 31 million
GDP (by purchasing power parity): US$163 billion
Exports to China: US$474.77 million
Imports from China: US$3 billion (2011)
Key sectors
Industries: Phosphate mining and processing, food processing, leather, textiles, construction, energy, tourism
Agricultural products: Barley, wheat, citrus fruits, grapes, vegetables, olives, livestock, wine
Taxes
Corporate: 30%; Indirect (VAT/Goods and services tax): 20%; Capital gains: 30%; Personal income: Progressive up to 38%
Ease of foreign investment†
Procedures required: 8
Time required: 18 days
Ease of establishment index: 55.3 out of 100
Investment considerations
Pro: Stable political and economic development with strict enforcement of intellectual property rights and improved labor code
Pro: Low-cost workforce. Persistent unemployment means the government will provide incentives for businesses that brings jobs
Con: Risk that unscrupulous local businesses could cheat foreign partners
Con: Slow-paced and complex judicial system
More information
Invest in Morocco: www.invest.gov.ma
Sources: CIA World Factbook, UN Council on Trade and Development, World Bank, China’s General Administration of Customs, CEIC
*2011 †2010
LIBERIA
Key statistics*
Population: 3.7 million
GDP (by purchasing power parity): US$1.8 billion
Exports to China: US$4.7 billion
Imports from China: US$4.97 billion
Key sectors
Industries: Rubber processing, palm oil processing, timber, diamonds
Agricultural products: Rubber, coffee, cocoa, rice, cassava (manioc), palm oil, sugarcane, bananas, sheep, goats, timber
Taxes
Corporate: 35%; Indirect (VAT/Goods and services tax): 7%; Capital gains: N/A; Personal income: 2-35%
Ease of foreign investment†
Procedures required: 8
Time required: 25 days
Ease of establishment index: 55.3 out of 100
Investment considerations
Pro: IMF granted Liberia US$4.6bn in debt relief last year, reducing sovereign debt by more than 90 percent
Pro: Second largest nation for registered ships and effectively a transparent offshore tax haven
Pro: Two years stable development; inflation down to 5.3% in 2011 from 17.5% in 2008
Con: Underdeveloped infrastructure with existing infrastructure damaged by civil war
Con: Economy in need of diversification away from agriculture
More information
Liberia National Investment Commission: www.nic.gov.lr
Sources: CIA World Factbook, UN Council on Trade and Development, World Bank, China’s General Administration of Customs, CEIC
*2011 †2010
GHANA
Key statistics*
Population: 25 million
GDP (by purchasing power parity): US$74.77 billion
Exports to China: US$362.92 million (2011)
Imports from China: US$3.1 billion (2011)
Key sectors
Industries: Mining, timber, light manufacturing, aluminum smelting, food processing, cement, small commercial ship building
Agricultural products: Cocoa, rice, cassava (manioc), peanuts, corn, shea nuts, bananas
Taxes
Corporate: 25%; Indirect (VAT/Goods and services tax): 15%; Capital gains: 15%; Personal income: Up to 30%
Ease of establishment†
Procedures required: 10
Time required: 72 days
Ease of establishment index: 34.2 out of 100
Investment considerations
Pro: Sound macroeconomic policy. Competitive, skilled and trainable workforce
Pro: Abundant opportunities along the oil and gas value chain
Pro: Ghana Free Zones Act promotes inbound investment, including benefits such as total income tax exemption for foreign employees
Con: High poverty level, high unemployment rate
Con: Limited, slow reforms in the public sector
More information
Ghana Investment Promotion Centre: www.gipcghana.com
Sources: CIA World Factbook, UN Council on Trade and Development, World Bank, China’s General Administration of Customs, CEIC
*2011 †2010
Egypt
Key statistics*
Population: 84 million
GDP (by purchasing power parity): US$515.4 billion
Exports to China: US$1.51 billion
Imports from China: US$7.29 billion
Key sectors
Industries: Textiles, food processing, tourism, chemicals, pharmaceuticals, hydrocarbons, construction, cement, metals, light manufacturing
Agricultural products: Cotton, rice, corn, wheat, beans, fruits, vegetables; livestock
Taxes
Corporate: Income below EGP10 million (RMB10.4 million) at 20%. Above EGP10 million at 25%. (Oil and gas taxed at special rate of 40.55%.); Indirect (VAT/Goods and services tax): 10-25%; Capital gains: N/A; Personal income: Progressive up to 25% on annual income over EGP10 million. Resident income from foreign sources and all non-residents taxed at 10%
Ease of foreign investment†
Procedures required: 7
Time required: 8 days
Ease of establishment index: 63.2 out of 100
Investment considerations
Pro: Controls Suez Canal vital to Middle East and African trade
Pro: A large trained, competitively priced labor force. Low living and maintenance costs
Con: New, potentially unstable democracy. Rights violations against women
Con: Corruption, endless bureaucracy
More information
Egyptian Commercial Service: www.ecs.gov.eg
Sources: CIA World Factbook, UN Council on Trade and Development, Deloitte, World Bank, General Administration of Customs, China, CEIC, Embassy of Egypt
*2011 †2010
Angola
Key statistics*
Population: 18 million
GDP (by purchasing power parity): US$115.9 billion
Exports to China: US$24.89 billion
Imports from China: US$2.78 billion
Key sectors
Industries: Petroleum, diamonds, iron ore, phosphates, feldspar, bauxite, uranium and gold, cement, metal products, food processing, brewing, textiles
Agricultural products: Bananas, sugarcane, coffee, corn, cotton, cassava, tobacco, vegetables, livestock; forest products, fish
Taxes
Corporate: 35%; Indirect (VAT/Goods and services tax): 10%; Capital gains: Included in business income and taxed at the standard tax rate of 20% for unincorporated business (individuals are only subject to cap gains tax on business income); Personal income: 17% (max)
Ease of foreign investment†
Procedures required: 12
Time required: 263 days
Ease of establishment index: 39.5 out of 100
Investment considerations
Pro: One of the world’s largest diamond and oil producing countries. Among the biggest and least developed mineral treasure troves
Pro: A balance of economic and political reforms has helped develop a strong market economy
Pro: Abundance of cheap skilled labor
Con: The majority of the population does not have access to health care
Con: High illiteracy rate
More information
The National Agency for Private Investment: www.anip.co.ao
Sources: CIA World Factbook, UN Council on Trade and Development, Deloitte, World Bank, General Administration of Customs, China, CEIC, Consulate of Angola
*2011 †2010
