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Dragon to Panda bear

China/Africa collaboration soaring.

The negative spectre of the large fire breathing dragon dwarfing its investment destinations is being replaced by a warm cuddly panda bear.

Dr Martyn Davies, Chief Executive of Frontier Advisory, believes that the negative perception of invading Chinese colonialists is being done away with and the trade numbers support his view.

Davies said China is the single largest trading partner and financier of infrastructure into the African continent with trade levels showing compound annual growth of 35%. Total trade of R9.34bn in 2000 has grown to R111bn in 2011. The relationship is not all one way Davies pointed out with dependence on exports to China rising across the continent.

Davies said the strong, pervasive and undeniable force of China has seen it record growth levels of 9.1% during a western economic crisis with 8.5% forecast for next year. Davies scorned the prophecies of hard or soft landings for the Chinese economy saying “you ain’t seen nothing yet”.

Davies predicted that by 2020 China will overtake the US to take the number one spot in terms of GDP numbers.

Davies said that the Chinese economy was overheating at growth rates of 13% and that the lower growth rates of 8% to 9%, reported since quarter three of 2010, are an indication of a steadying growth trend. The Chinese are beginning to feel comfortable with these lower growth rates Davies added.

Evidence exists of a strong correlation between Sub-Saharan Africa and Chinese economic growth. Davies believes this has been accelerated by the Western debt crisis. Countries and companies are likely to benefit should they re-align their focus to take advantage of the shift in power.

One such company that has recognised this shift is Promet Engineers Africa Pty Ltd who launched its merger with one of China’s largest project engineering corporations today. Dadi Engineering Development Group has joined forces with Promet to raise its exposure to African projects.

Promet Dadi Africa (Pty) Ltd, as the new company will be known, brings capability of over 2000 project managers and engineers to the forefront of mining projects in the African market place. It also enables Promet Dadi to undertake Lump Sum Turn Key contracts of up to US$300m directly on its combined balance sheet.

Managing Director, Rob Bennet, sees this merger bringing significant cost and time efficiencies to the African space, claiming capital savings of 25% for clients on two projects locally already. In terms of time efficiencies a 3mtpa coal plant will take five months and 18 days. Similarly a 12mtpa plant will take six months and 20 days Bennet said.

Vusi Kekana, a team leader for BHP Billiton’s manganese projects believes that the merger is a step in the right direction as it presents great growth opportunities for South Africa. Promet Dadi now has the resources to back up large projects Kekana added.

Khehla Nkosi, a project studies manager at BHP Billiton, believes that time is of the essence in mining projects, particularly with regard to capturing upside during commodity cycles. Nkosi also said Promet’s approach combined with Chinese technology is a powerful combination.

Kevin McMillan, Metallurgy Manager Projects at Anglo Coal, said that it is looking at increasing its capital expenditure from China and will consider the best options in terms of its procurement process. Cheaper prices and shorter pay back periods without sacrificing quality are what Anglo are looking at McMillan said. “It is phenomenal how quickly things have changed” McMillan responded to a question regarding the perception of quality levels out of China.

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