South Africa seeks value-added China investment

South African President Jacob Zuma ended a three-day trip to China last week with a raft of trade deals intended to shore up South Africa's status as a "gateway to China" for the natural resources that fuel the Asian giant's rapid growth.

South Africa is China's No. 1 source of African iron, copper, manganese, chrome, and diamonds. But President Zuma stressed that South Africa wants more out of the relationship, saying that his government would like China to invest more toward infrastructure that would aid his country in the "beneficiation of minerals." And during his trip to Beijing, the mining term – which refers to the refining and processing of raw minerals – emerged as part of a new thrust for Africa's largest economy, one heavily reliant on commodity exports.

Building refineries would not only create new streams of revenue for the South African government and perhaps save China some money in freighting raw materials to Chinese refineries, but it would also create new jobs, something that is desperately needed in South Africa, which has an official jobless rate of 25 percent.

"China is indeed a key strategic partner for South Africa, and South Africa is open for business in a big way," Zuma told reporters on Aug. 24. "We envisage meaningful future cooperation in infrastructure, the beneficiation of minerals, engineering, energy, information and communications technology, and electronics. There are also opportunities to be explored in manufacturing."

China's potential to South Africa

Zuma's trip came days after the official news that China surpassed Japan as the world's second-largest economy. China also last year surpassed the United States as South Africa's lar­gest trading partner.

The Asian power buys raw materials from South Africa, but does its manufacturing at home, giving its own citizens all the plum jobs. In return, China sends its finished goods – mostly clothing, electronics, and cheap tools – back to Africa for sale.

It is this one-sided benefit to China – measured by a $2.7 billion trade deficit – that South Africa would like to correct. And South Africa is hoping that its status as Africa's largest economy will give it more leverage.

Yet Martyn Davies, head of Fron­tier Advisory, a research firm, says South Africa still is not enacting the pro-business policies that would make it a more attractive location for foreign investment.

"We overemphasize the politics," says Mr. Davies. "South Africa is trying to leverage its relations with China by saying, 'someone has to represent the voice of Africa.' It wants to elevate itself into the new arena of BRIC [the economic grouping of Brazil, Russia, India, and China], because it is the largest economy in Africa. But we could have done more to project South Africa's presence."

During Zuma's visit to Beijing, China's Vice Commerce Minister Gao Hucheng said China will increase its investments in South Africa and import more "high-value-added products." What shape that will actually take remains to be seen.