Africa, a trap or an opportunity?

The world's poorest continent is becoming the hottest gold rush. It is Africa.

Although there are many reasons to be optimistic about Africa, the numbers speak for themselves: According to media reports, Africa has accounted for 6 of the 10 fastest-growing economies in the world over the past 10 years, with Ghana in western Africa in In 2011, it ranked first in the world with a growth rate of 13%. Such figures make this ancient and magical land shine like a local diamond in the turbulent dust of the global economy, attracting the attention of "gold diggers" all over the world.

Gold diggers from China are also proving their presence in numbers: Since 2002, the number of Chinese exporters in Africa has increased, according to a report released in March by South Africa's Standard Bank. The share has more than tripled, with imports from China accounting for 16.8% of Africa's total imports last year; Chinese companies have made the most profit in the past four years selling machinery, cars and electronics.

Interactive topic:
How can Chinese enterprises eat the "African cake"?

But what is thought-provoking is that in October this year, the International Monetary Fund quietly lowered its forecast for African economic growth in 2012, coupled with previous reports by domestic media on the tragic failure of Chinese businessmen investing in African mining, and the fact that Chinese businessmen invested in African mining. Concerns about the security situation in Africa, all kinds of chaos can't help but make people tangled: Is Africa an opportunity or a trap?

In this issue, we invite Liu Guizhong, assistant to the president of Galanz Group, Wu Shaokang, chairman of the South African Feilitong Group, and China Lin Shunjie, Deputy Secretary-General of the International Chamber of Commerce, participated in the dialogue and tried to describe a real Africa for Chinese enterprises.

Must go to Africa

CEConlines: The three are familiar with Africa. Both Mr. Liu and Secretary-General Lin have visited Africa many times. Mr. Wu has also been in Africa for nearly 20 years. What kind of impression is it?

Wu Shaokang: Most people think that Africa is very poor and backward. In fact, Africa is very large, and the consumption levels of different countries are very different. For example, in South Africa, its consumption level is not much different from that of China.

Liu Guizhong: The barriers to entry in Africa are relatively low, so the market growth prospects are very impressive.

Lin Shunjie: Every African country has its own characteristics. If Chinese companies can carefully prepare and fully understand it, it can be said that every country is suitable for entry, unless the country is currently due to political turmoil and a tragedy like Libya occurs.

CEConline: There were several China-Africa Cooperation Forums in the second half of this year, which led to an "African fever" in the country, but in October the IMF lowered its 2012 growth forecast for South Africa from 5.4% to 5%, So is now a good time to explore Africa?

Lin Shunjie: Whether it's a good time or not, now must go to Africa. Because the European and American markets continue to be sluggish, we judge that the European market will not have a good recovery until the second half of next year. Due to the strong anti-Chinese sentiment in the United States recently, especially this year is an election year, the impact on China is relatively deep, so we can only go to emerging markets. Among the three emerging markets of Latin America, the Middle East, and Africa, Africa has the greatest development potential, and we must go.

As for the downgrade of the rating, I think these data are useful for reference, but we can't be superstitious, because the downgrade of a few tenths of a percentage point will not have a significant impact on Africa's production this year, so don't use these traditional data to measure too much it.

Liu Guizhong: Now some African countries are paying more and more attention to the impact of the entry of Chinese products on their own enterprises, and some countries are also taking some measures, similar to trade barriers, such as not being able to import the whole machine, and the import of the whole machine will be subject to high fees tariffs, etc.

African companies love and hate Chinese companies, we must pay attention to trade barriers, and don't waste all the previous efforts because of trade barriers.

CEConline: It seems that Africa is really a market with both opportunities and challenges. Specifically, which fields or industries have more opportunities and what challenges exist?

Wu Shaokang: There are good opportunities in real estate, mining, and light manufacturing. Not only South Africa, but also many surrounding countries are rich in mineral deposits. But whether you are investing in real estate or mining, you must have strength and professionalism. Chinese mining in South Africa, many of them are small companies, neither mining rights nor enough funds. Millions of dollars bought mining rights from others. If there is no subsequent capital investment, the mine owner will not get the share agreed in the contract, so he will recycle the mine and may sue you.

Liu Guizhong: As far as the home appliance industry is concerned, compared with other countries in Africa, the home appliance market in South Africa has a good foundation for development and has formed a certain scale, but 80% of which are still dependent on imports, which gives the domestic home appliance industry a huge development space. However, the existing processing and manufacturing industry in South Africa is very imperfect, the supporting system is poor, and the distribution channels are also chaotic. Therefore, it is necessary to find good local partners.

Is Africa safe?

CEConline: At present, the Western media are reporting China's grabbing of African wealth. In August this year, US Secretary of State Hillary Clinton visited Africa and even encouraged Africa to be wary of China's "foreign infiltration". Judging from your personal experience, African governments and African Are the people friendly to China?

Wu Shaokang: Different countries may have different situations. As far as South Africa, where Felix is located, the local people are very friendly to Chinese people. The police even send people to protect Chinese businessmen 24 hours a day, and they are all free of charge.

Lin Shunjie: Generally speaking, African people are quite friendly to China. Even in Zambia now, people are shouting "the Chinese get out" all day long, but this anti-China sentiment is only a local political need, it is deceived by Western countries and will not last long. If we can manage the railway with the mentality of building the Tanzania-Zambia Railway, I believe it will still win the hearts of the people of these countries.

On the other hand, Chinese companies also need to make careful preparations to influence their government and their labor organizations through private channels. After the local mine is opened, it is necessary to process and smelt locally as much as possible, and some local needs can even be traded locally. In this way, on the one hand, local labor can be hired, and on the other hand, transportation and other costs can be saved.

CEConline: Is there a serious security problem in Africa? I heard that Mr. Wu has encountered several robbery incidents.

Wu Shaokang: I did encounter it. Therefore, Chinese people should pay special attention to this when they go to Africa, especially many Chinese like to use cash transactions, which are easily targeted by gangsters and become the target of robbery. In addition, try to go as little as possible to places you shouldn’t go, don’t show off your wealth when you have money, drive a BMW, live in a big villa, and it’s hard not to be the target of robbery by gangsters.

Lin Shunjie: There are indeed some criminal activities against foreigners in Africa, but judging from the experience of our member companies in Africa, local personal attacks and property attacks on Chinese companies are not a prominent problem . Some kidnappings and robbery incidents against Chinese people, many of which were designed and participated by local Chinese.

CEConline: In addition to security issues, what else should we pay special attention to?

Lin Shunjie: Currency risk, the currencies of some African countries often depreciate very quickly.

Wu Shaokang: We used to pay full tuition, and its currency depreciated so much that sometimes you might lose everything overnight. When I went to South Africa in 1995, 1 US dollar was equal to 2.9 South African Rands, but in 2001, 1 US dollar was equal to 13.8 South African Rands. The beating is still very big now, and it has depreciated by 20% this year. However, we can have some means to avoid risks, such as using forward foreign exchange, or settlement in US dollars, settlement in RMB, etc.

Liu Guizhong: Reputational risks should also be noted. The payment reputation of Africans is not particularly good, and some countries have foreign exchange controls, and even the letters of credit issued by some countries are unreliable, so it is necessary to make good use of some relevant financial tools to control financial risks.

CEConline: Western companies have already entered Africa. According to data, most African countries' commodity markets It is mainly monopolized by Western countries. Have Galanz and Felix ever encountered fierce competition locally?

Liu Guizhong: The strategy adopted by western countries is different from ours. They are small in quantity but very profitable, and their products are aimed at the high-end market. However, Chinese companies have a large volume of products. Although the profits of each product are not that rich, we adopt the traditional Chinese strategy of small profits but quick turnover. Therefore, we are differentiated from Western companies. In addition, we enter Africa through OEM, which is also conducive to avoiding fierce competition.

Wu Shaokang: Western companies did enter earlier, and many African countries used to be colonies of Western countries, so they took the lead. No matter what market you are in, there will be competition. Feilitong owns more than 20 brands, we all find other manufacturers in China for OEM, and then sell to South Africa. But as far as I feel, in Africa, especially South Africa, the competition with Western companies is actually not as fierce as it is said to be.

It must be in line with local consumption characteristics

CEConline: I heard that in Africa, the price of plastic fake flowers is several times or even dozens of times that of real flowers. The price of a small enamel cup is equivalent to 15 kilograms of potatoes in Africa . In other words, Africa is full of gold. is that so?

Liu Guizhong: Africa is not the free land we imagined, you can develop it however you want. After all, it has a small population and a small consumption base. For Galanz, we first open a few markets with a large population and good economic conditions, such as South Africa, Algeria, etc., and then penetrate step by step.

Wu Shaokang: When I went to Africa in 1995, it was the same idea, but I found out later that it wasn't that easy. In general, there are many opportunities in Africa, and you need to work hard to find gold.

Lin Shunjie: To say that Africa is an opportunity or a trap, I would say it is definitely an opportunity, not a trap. But any market has certain risks, depending on how you measure it.

CEConline: According to the three observations, how are the consumption characteristics of Africa different from those of China?

Liu Guizhong: The demand for high-end consumer goods in the African market is relatively small, while the demand for medium and low-end consumer goods is relatively large. As far as importers are concerned, I think they still don't quite agree with the quality of Chinese products, and some people will keep the prices very low. As far as end consumers are concerned, they are also more sensitive to price. Therefore, for the African market, you must choose the right products. If you choose high-end products like those in the European and American markets, you may be overwhelmed, because the prices they require are very low.

Wu Shaokang: What they are most concerned about is whether you have after-sales service. We sell a simple small appliance, such as a rice cooker, with maintenance for a year or two. Even if it is a small radio, we also give it after-sales service. But if the quality is good, the after-sales service is not so troublesome. I have been in the car business for a year, importing some Chinese brands of cars to Africa, and I lost more than 10 million because it was always broken, so I had to keep repairing it, and sometimes I even needed to express parts from China.

CEConline: Whether it is Galanz or Felix, it seems that they are only engaged in trade in Africa without direct investment to set up their own factories there. Why?

Liu Guizhong: The African market is different from the European and American markets. It is very different. Therefore, we cannot go it alone. We need to find a good partner. We cooperate with local agents who understand the local market better. The African market is not very mature. To invest directly, we need to improve local supporting facilities. We also need to have our own brand awareness and perfect sales channels, and we also need to improve the after-sales service system that supports the promotion of our own brands.

Wu Shaokang: We have been thinking about setting up a factory for more than ten or twenty years. We went to know about the local factory, and finally gave up the idea. Their trade unions are very powerful. In this respect, they are from the European school. To fire someone, you must have a very reasonable reason, otherwise he will sue you. Companies with relatively strong strength will set up factories, but for most Chinese companies, it is safer to go through trade.

Lin Shunjie: Generally, Chinese enterprises have a very clear line for foreign investment. First, they should set up a sales point, and then consider moving part of the production point to a joint venture with local enterprises. After the joint venture, I feel that I have a better understanding of the local culture and a more accurate grasp of the context of the development of local enterprises. I will consider becoming a sole proprietorship and gradually move production there. Africa is basically the same. At present, the first thing you see are some sales outlets, but as the market conditions get better and better, and the ability to control the local area becomes stronger and stronger, I believe that more and more Chinese enterprises will transfer production to the past, and even Hire local labor.