Enhancing Direct Foreign Investments: Non-negligible Role Of Equity Fund

China-Africa Development Fund has deepened Chinese investments in 87 projects in 36 African countries and importantly serves as an opportunity to reduce over indebtedness!

 

As Cameroon and Africa in general continually strive to attract as much direct foreign investments as possible in their quest to lift their economies from the doldrums, it may be necessary to open up and benefit from an equity fund that China has put in place or set up theirs for other investors if the means and expertise are there. Such a fund once put in place positions itself as a shareholder in investments and serves as a financial partner for investors.

Unlike concessional loans and others from commercial banks that may worsen a country’s indebtedness, experts say an equity fund, by virtue of its shareholder role, accompanies investors and shares in the ups and downs of their investments.

Addressing a group of African journalists at the fund’s headquarters in Beijing on September 27, 2016, officials said since creation in 2006 and inauguration in 2007, China-Africa Development Fund has been working to deepen Chinese investments in Africa. As China’s first equity fund with focus on leading and supporting Chinese enterprises to invest in Africa, the fund has so far boosted Chinese investments in 87 projects in 36 African countries to the tune of 3.5 billion US dollars. Areas of investments include infrastructure, industrial capacity cooperation, agriculture and livelihood as well as resource development.

“As equity fund, we are like generating blood for Africa rather than transfusing blood,” Zhou Chao, Executive Vice President of the fund told Cameroon Tribune. It is also a veritable opportunity to diversify investments especially to the manufacturing sector that has the propensity to boost the continent’s industrialisation, create jobs and generate wealth for the economy. Joint ventures with local enterprises also facilitate technology transfers. Zhou Chao disclosed that embracing the innovative funding model helps Africa to help itself as it focuses on fields that strengthen the capabilities of host countries to grow their economies in depth.

Hisense South Africa Home Appliances Industrial Park with an annual production of 560,000 televisions and 450,000 refrigerators, generating 500 direct and 2,000 indirect jobs; Ghana Sunon-Angoglo Power to generate 20 per cent of the country’s energy and the StarTimes Digital TV Project with over 2,500 jobs tell the success story of the equity fund in detail. Malawi, Mozambique and Zambia are also benefiting from the fund through a China-Africa Cotton Cultivation Project that has impacted over 200,000 peasant households. It therefore bridges Chinese and African enterprises in direct investments for win-win cooperation.

wThe fund, officials say, functions according to market principles, respecting international rules and those of the investing country. Investment decisions are powered by the profitability of the project. Unlike China’s economic package to Africa (aid and loans), the fund doesn’t allocate its money by country. It operates independently through market-based mechanisms and bears its risks on its own. As such, it provides funding for enterprises with investment opportunities  but insufficient capital, explores investment opportunities  for enterprises with capital but no projects and seeks Chinese investors for African projects as well as shares risks with enterprises which have projects and capital but unwilling to bear risks on their own.

This requires an investment-friendly environment, openness and sincerity of government officials, the least of which is not surmounting infrastructure challenges that stare the continent in the face. Developing economic zones wherein potential investors have almost every infrastructure they need for win-win investments alongside putting in place investment-friendly legislations and enforcing their applicability need to be given serious considerations. Suez Economic and Trade Cooperation Zone in Egypt that has attracted 68 enterprises with a total investment of one billion US dollars and created some 2,000 jobs is an eye opener.

 

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