China trumps Brazil in simmering African showdown

JOHANNESBURG, (Reuters) – A century ago, it was the  explorers and infantrymen of Europe’s great powers slugging it  out for slices of Africa. Now, it is the agents of Chinese and  Brazilian capital, but the competition is just as fierce.   

Underscoring the new world order of the 21st century,  Brazil’s Vale, the world’s biggest iron ore producer,  is going head-to-head with Jinchuan Group, China’s dominant  nickel producer, in a fight for Metorex, a medium-sized  South Africa-listed mining firm.   
Although the saga still has at least a week to run, Jinchuan  swung a hefty blow this week, with a $1.3 billion bid to trump a  $1.1 billion offer from Vale.   
Jinchuan’s juicy premium for Metorex, which operates copper  and cobalt mines in Zambia and Democratic Republic of Congo,  clearly demonstrates the lengths Chinese firms are prepared to  go to secure natural resources for ravenous factories back home.  
But it is also evidence of Chinese companies, in particular  state-backed ones, being able to post top-dollar bids for  foreign assets due to the cheap finance they can get from  Beijing, rather than having to raise pricier commercial funding.   
This aspect of Chinese growth in the new ‘Scramble for  Africa’ is likely to fuel the sense of a playing field tilted  unfairly towards Beijing, creating tension with other  up-and-coming powers and undermining efforts to boost  ‘South-South’ diplomacy.   
“Chinese state-backed firms with access to cheap government  export finance can easily trump the likes of Vale, who have to  pay commercial, and thus more expensive rates, for finance,”  said Markus Weimer of London’s Chatham House think-tank.   
“State subsidies for national companies will continue to be  watched with scornful eyes by Western governments, and  increasingly by other emerging powers such as Brazil and India.”   
That Brazil is a rising player in Africa is nothing new.   
During his time in office, former president Luis Inacio Lula  da Silva made fostering commercial ties across the south  Atlantic a major priority, visiting at least 25 African  countries and doubling the number of embassies there.  

Brazil now has 31 formal African diplomatic posts, behind  the United States and Russia at 46 and 45 respectively, but well  ahead of 26 for Britain, which is having to close embassies to  cut costs in what used to be its backyard. 

But against China, it still lags a distant second.   

On the embassy count, China comes in at 42 — double the  number of India — and Chinese firms looking abroad can tap a  wealth of funding sources, from the likes of the China Exim  Bank, the Bank of China and the China Development Bank.   

By contrast, besides commercial banks, Brazilian firms are  largely limited to the BNDES, Brazil’s national development bank  — an important player but one that steers clear of more  unstable markets.   

When it comes to trade, China is also streets ahead, doing  $107 billion of business with the continent a year — more than  the United States — against India’s $32 billion, Brazil’s $20  billion, and a paltry $3.5 billion for Russia, the final member  of the BRIC group that admitted South Africa this year.   

This is not to say China has it all its own way.
A preference for imported labour and heavy-handedness by  Chinese managers has bred grass-roots discontent, not least in  Zambia, where mine workers have been shot and wounded for  complaining about pay and conditions.   

But, given its pre-eminent commercial, diplomatic and  financial position, China looks set to stay ahead in Africa.   

“This Metorex deal really showcases the competition among  the BRIC countries for resources and access in Africa, and the  financial muscle and firepower that comes with major Chinese  players,” said Hannan Erdinger of Johannesburg-based consultancy  Frontier Advisory.

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