Govt backs energy, mining investment in Africa

The government has reiterated its backing of Chinese companies investing in Africa, particularly in energy and mining industries where jobs can be created and local communities improved.

Zhong Manying, director general of the Department of West Asian and African Affairs of the Ministry of Commerce, said on Wednesday that during the recent visit to the continent by President Xi Jinping, more than 20 economic and trade cooperation agreements were sealed with African countries.

Chinese financial institutions and companies also finalized around 10 commercial contracts, in sectors including agriculture, machinery, power, ports, energy and mining resources.

"In the past, China imported minerals and crude oil directly from Africa - but now we are investing more in downstream mineral processing businesses there, in order to bring more jobs to local people and improve local economies," Zhong said.

According to the China Institute of International Studies, energy exploration technology levels remain relatively low in Africa, and much of the prospecting is still done by foreign companies.

Currently, around 400 foreign oil firms have oil and gas exploration rights in Africa, covering about 80 percent of the available blocks.

"Developed countries have acquired many high-quality oil and gas blocks in Africa, but they do not develop the resources fast enough, and African countries have learned from that," said Zhong.

As a result, African governments are imposing stricter requirements on new energy and mining resource contracts signed with foreign developers.

Wang Wei, a senior researcher at CIIS, said that in Angola, for instance, local laws require foreign contractors to invest at least $35 million in the first three years of any oil and gas exploration contract.

In Sudan, contractors must start energy prospecting within three months of contracts becoming effective, and any investment in the first two years cannot be less than $4 million.

"Energy cooperation between China and Africa is based on equality and mutual benefit, to realize win-win results, which is different from many energy resources exploration agreements made with developed countries," said Wang.

In the past year, China imported 64.7 million metric tons of crude oil from Africa, accounting for 24 percent of the country's total crude imports, according to official figures.

China's direct investment in Africa reached $2.9 billion in 2012, up 70 percent year-on-year, a strong indication of how Africa has become the priority investment target for many Chinese companies, said Zhong.

"They will face more challenges in energy investment in Africa, as countries there raise their requirements for deep-processing projects besides upstream resources exploration," she added.

Some African host countries require investing oil producers to build refineries in an effort to boost local economies.

Zhong explained that China entered the African energy market later than developed countries, which means many of the sites now being developed by Chinese companies are more remote, adding to transportation costs.

"It is a challenge for Chinese companies to invest in African energy projects because of the high investment costs involved," she said.

Yu Yingfu, deputy director-general of the ministry's Department of Aid to Foreign Countries, said that Chinese aid had been used in the past to develop African resource exploration, which was beneficial to local energy industry development.

He said that China's foreign aid amounts to about 40 billion yuan ($6.3 billion) going to more than 100 countries, including Africa.

"Our aid policy is to help solve the problems of these countries, rather than help in exchange for resources."