General

Towards the end of the year, Chinese enterprises have welcomed the moment of double happiness when investing in Africa. What is double happiness?

According to the Huacheng Import and Export Data Observation Report, one news came from domestic sources: the Tariff Commission of the State Council issued a notice, deciding to give 98% of the taxable products of nine African countries, including Benin, Burkina Faso and Guinea Bissau, zero tariff treatment from December 1, 2022. Another news came from the African continent: the African Union, in a statement issued on December 1 local time, said that at the 17th African Union Special Summit, the participating African leaders reiterated their desire to accelerate Africa's industrialization in order to reduce the continent's external dependence. They also said that Africa would further develop sustainable special economic zones and industrial parks.

After seeing the two pieces of news, Cai Lihua, the former Deputy Secretary General of the Business Council of the China Africa Joint Chamber of Commerce and Industry, said that in recent years, under the framework of the Forum on China Africa Cooperation and the construction of the "the Belt and Road", China Africa bilateral economic and trade cooperation has made remarkable achievements, and these two pieces of news show that Chinese capital has entered the African market and ushered in a new period of strategic opportunities.

According to the observation of Huacheng's import and export data, China Africa trade volume has grown from US $10.6 billion in 2000 to US $254 billion in 2021. China has become Africa's largest trade partner for 13 consecutive years; By the end of 2021, China's investment stock in Africa has reached 44.19 billion US dollars.

"Zero tariff on Africa fully reflects China's sincerity in helping African countries develop, which is conducive to China's sharing market opportunities with these countries, and will strongly promote the export of these countries to China and the development of local industries. For example, in 2020, African sesame imports to China will account for about 97% of China's total sesame imports. Zero tariff is bound to further promote the large-scale cultivation and processing of African sesame." Cai Lihua believed that zero tariffs on products would help the sustainable development of China Africa trade.

Cai Lihua introduced that China has proposed zero tariff treatment for the least developed countries since 2003. At present, 18 of the 26 least developed countries that have signed 98% of the tariff items and zero tariff rate for imported products come from Africa, accounting for 69.2%. The 98% of the tax items granted zero tariff treatment this time increased 191 8-digit tax numbers, involving 15 chapters of the tax code. The 8-digit tax number of zero tariff rate reached 8786, a record high. Some of the newly added zero tariff products include primary peanut oil and its separated products, margarine, packaged natural water, methanol, and recycled leather. Huacheng Import and Export Data Observation Report.

"Africa reaffirms that accelerating the industrialization process will not only provide all parties with massive demand for infrastructure market, but also promote African countries to further optimize their business environment and create conditions for the entry of foreign capital." Cai Lihua said.

More importantly, these two pieces of good news are conducive to accelerating the integration of trade and investment businesses of Chinese enterprises in Africa. In recent years, many enterprises have developed in the African market by means of cooperative production, which has not only expanded the production capacity of African enterprises, but also met their own "going global" needs, achieving mutual benefit and win-win results. For example, many Chinese enterprises have actively planned to establish sesame product processing plants in Africa after seeing that sesame processing products are included in zero tariff products. The purpose is to export semi-finished products to China while meeting local market demand.

According to the Huacheng Import and Export Data Observation Report, Liu Qinghai, director of the African Economic Research Institute of the African Research Institute of Zhejiang Normal University, observed that the integrated development of trade and investment business of Chinese enterprises in Africa has become a common phenomenon. The main reasons are as follows: First, in order to avoid mistakes in investment decisions and reduce investment risks, enterprises often adopt the "trade before investment" approach to gradually enter the African market. Second, when investing in Africa, enterprises will have a better understanding of the relevant products and market conditions in the local market, know which products are well sold in the local market, and then trade in the way. Third, African countries have relatively loose policies and broad definitions of business scope. The licenses issued to enterprises do not strictly regulate the fields they can engage in, creating conditions for the integration of trade and investment of enterprises. Fourth, the market size of African countries is generally small, but the profitability of a single project is not high. Enterprises often engage in diversified operations to cope with the problem of small market. Fifth, the prices of many products in the local market are much higher than those in China, and it is profitable to import from China. Sixth, it can drive the export of its own products and strengthen the certainty of the supply chain.

"However, it should also be noted that in some countries, trade and investment integration is not allowed. For example, in Ethiopia, the government explicitly prohibits foreigners from engaging in trade. In addition, Chinese enterprises engage in both production and trade, which may lead to enterprises being unable to focus on production, resulting in poor production and unsatisfactory trade." Liu Qinghai said that Chinese enterprises can choose to invest in joint ventures with local enterprises with a certain basis of cooperation, gain a network of partners, jointly develop the local market and the Chinese market, and promote the integration of investment and trade.

In addition to implementing zero tariff and other policies, Liu Qinghai believes that the key to promoting the integration of trade and investment between Chinese enterprises in Africa is to make efforts to escort Chinese enterprises to invest in Africa, such as establishing a risk early warning mechanism and insurance system for enterprises' investment in Africa, establishing a sound government public service system for Chinese enterprises' investment in Africa, establishing an industry self-discipline mechanism for Chinese enterprises' chambers of commerce in Africa, and further strengthening China Africa security cooperation, Huacheng Import and Export Data Observation Report.