China specialist, Duncan Calder, advises Australian companies to “Go To Africa” to seize the benefits of China’s massive Belt and Road Initiative

October 24 01:15 2018

The mammoth Belt and Road Initiative, (the BRI), is the Project of the Century and the flagship economic policy of Chinese President Xi Jinping, revitalising the Old Silk Road with strategic investment in massive economic infrastructure projects to deepen regional cooperation and improve connectivity across the globe.

Duncan Calder, respected China commentator and former National President of the Australia China Business Council (ACBC), claims that “It is a great economic tragedy that Australian companies are missing out on participating fully in the biggest game in town”.

The very scale of the BRI – in which up to AUD 10 trillion of expenditure is expected – means that some Australian resources companies, such as the major iron ore producers, will benefit as suppliers – but sadly many Australian businesses will miss out.

When Premier Li Keqiang invited Australia to join the BRI party, the Federal Government, unlike more astute neighbour New Zealand, opted not to do so. “Failing to get us a seat at the table of the biggest global infrastructure play of our time – the unifying Belt and Road Initiative – is an economic miscalculation of epic proportions” says Calder. 

Calder, who founded KPMG Australia’s China Business practice at the turn of the millennium, notes that this failure by Government has already had negative consequences that extend beyond the lost infrastructure opportunities under BRI, as reflected in the huge reduction in Chinese investment into Australia, which fell by a massive 40% last year.

This is a sad, but entirely predictable, consequence of the failures of our Federal Government in recent times to fully respect and nurture Australia’s historically mutually beneficial win-win relationship with China, our largest customer”, Calder continued.

Australia must not continue to be a knee jerk partner of US foreign policy. Australia should remember that the USA is driven ONLY by US interests, not by those of its allies. We shouldn’t be too naïve about the motivations of the USA and the dumbed down rationale it presents for the trade war, which is, in truth, about US hegemony.

Professor Gareth Evans, former foreign minister of Australia, commented recently in a keynote address to Chinese Community Council of Australia that “We should recognise the essential legitimacy of the scale and ambition of the Belt and Road Initiative”.  I couldn’t agree more.  We here in Australia need, as a country, to protect our interests and to respect the massive contribution being made every day by China (and Chinese Australians) to our economy and to the lifestyles of Australian families as well as recognising China’s emerging status as a rule maker in international relations.

Sometimes our interests will involve backing the United States, but sometimes Australia needs to follow its own path.  Especially when the cost of not doing so is so huge.

Businesses can’t wait for Federal Government ministers who clearly are not performing well in managing the critical relationship with China. Australian businesses need to engage directly with China to bring game changing infrastructure opportunities to Australia and to Australian companies.

Whilst it is imperative to continue to seek Chinese collaboration in major strategic infrastructure projects in Australia, such as the dream of successive Western Australian governments over decades to develop a deep water port at Oakajee and to open up the MidWest Region of the state, this is more challenging than it need be because of the positions adopted by the Federal Government.

A better short term strategy for many Australian companies to access the mouth-watering opportunities being created by BRI may be to look to collaborate with Chinese companies in developing projects elsewhere around the globe; particularly in Africa.

Calder, Managing Director of advisory house Contour Capital, sees massive benefits for Australian companies in collaborating with China to develop resources projects in Africa: “Australians have a great reputation throughout Africa built on our strengths in developing opportunities, exploring effectively and using our geological and engineering skills to create exciting projects.”

However, investments in Africa don’t come without challenges; So a partner who can deliver political strength to protect investments, a partner who can deliver construction power and expertise with massive, low-cost labour supply, and a partner who can provide financial strength and access to both equity and low-cost large debt capital is very welcome. And China is the perfect partner. China brings to the table Political Muscle, Construction Muscle and Financial Muscle.

Africa, as a whole, has close to 1 billion people; not that much less than China at around 1.3 billion people. Importantly, however, demographics work in Africa’s favour, and currently has more than 500 million people of working age and by 2040 will have the world’s largest working-age population. We may be in the century of the East, but this century also promises much for Africa. But, it is still enormously challenging and wretched poverty still covers half the continent.

Australian companies bring energy, creativity, geological and engineering know-how into Africa. Australian companies have been in Africa for many years and have shown they can act transparently as good corporate and environmentally responsible citizens. But many are junior companies, living on their wits and exposed to the risks of project development in Africa.

China can deliver the funding to develop the mines and associated port and rail and power infrastructure, often on attractive terms, especially where China sees the opportunity to secure supply of important commodities and to sell its engineering capability under the BRI banner.

A small Australian resources company looking to develop a project in Africa can be vulnerable to sovereign risk and even project expropriation. But if that same company is operating in joint venture or in collaboration with a Chinese SOE, then those risks are significantly reduced.

It is perhaps not surprising that a company such as AustSino Resources Group Limited, that is looking to raise Chinese capital to develop infrastructure at Oakajee in the Mid West of Western Australia is alert to the current tensions in Sino-Australian geopolitical relationships and has now opted, simultaneously, to look to acquire control of Sundance Resources which needs Chinese partners to develop its exciting Mbalam iron ore project in Cameroon.  That move will doubtless make Chinese authorities more receptive to allowing Chinese capital to flow into the ASX-listed AustSino.

With Australian companies so active in Africa and with China looking to fund major infrastructure projects through BRI, there are many compelling reasons for Australian companies to partner with Chinese companies in developing resources projects successfully under the BRI policy.

Duncan Calder, based in the massive resource-rich province of Western Australia, sees that the role of Sino-Australian advisors, like Contour Capital, is to help Australia and Australian resources companies to play a larger role seizing the BRI opportunity both within Australia as well as in Africa.

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