China Drills Into Africa with $5.4 Billion Investment

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By Mike Caggeso
Associate Editor

An overwhelming majority of South Africa's Standard Bank Group Ltd. (JNB:SBK) shareholders approved the sale of 20% of the bank's assets to state-owned Industrial and Commercial Bank of China Ltd. (HKG:1398) – a $5.4 billion purchase, making it China's largest overseas investment.

More than 95% of Standard Bank shareholders approved the sale of new shares at 104.58 rand ($15.32) per share and the sale of existing shares at 136 rand ($19.92) per share to ICBC, Reuters reported. The banks made the deal in late October, but shareholders hadn't given it the rubber stamp until now.

Standard Bank is Africa's largest lender, servicing 18 sub-Saharan countries. Meanwhile, ICBC is the world's largest bank by market value.

"This agreement is definitely of economic interest to both parties, as well as a catalyst to cement the economic and trade ties between China and Africa," ICBC chairman Jiang Jianqing said in an October statement.

China's Interest in Africa

African Business reports that trade between Africa and China grew at a rate of 40% a year since 2001. Last year, bilateral trade between the two was $50 billion.

While China has initiated trade with Africa in a wide range of sectors, its principle interest seems to be oil. China is growing at record rates and it needs commodities to sustain its pace. Sub-Saharan Africa has scores of oil and mineral reserves, and those reserves are in countries in dire need of infrastructure to elevate their economies and public image, above that of abject poverty.

Already, 14% of China's oil imports come from Angola. About 60% of Sudan's oil goes to China. The copper industries of Zambia and the Congo are flush with Chinese investments, as are the timber industries of Cameroon, Mozambique and Liberia.

This latest deal aligns China's government with the largest bank in Africa, paving an inroad to the long-term, commodity-driven economic growth economists are calling for – beginning with a joint $1 billion global mining fund to invest in natural-resource projects between the two banks, Bloomberg reported.

In real terms, China's government will get a piece of every new loan, every ATM fee, every credit card, etc. taken from Standard Bank.

And Standard Bank is doing its best to invest its latest mountain of cash into areas of growth:

"We will try to keep almost all the money that we can outside of South Africa because it is earmarked for growth in Africa and growth outside of Africa," Jacko Maree, Standard Bank CEO, told Reuters.

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