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By Jane Louis
Brazil, Russia and India are following in China’s footsteps in the scramble to access Africa.
19 Nov 2007
By Jane Louis
SAN FRANCISCO (ResourceInvestor): Few would dispute the significance of China’s impact on the global commodities market. As Chinese demand continues to grow, the country is increasingly looking for more resources to meet its consumption needs - and currently its sights are set on Africa.

In the keynote speech “The Scramble for Resources in Africa by the BRICs: Impact on the Global Market” at the San Francisco Hard Assets Conference, Dr. Martyn Davies analyzed emerging countries’ rush to mine in Africa and their impact on the commodities market.

“We will see in the next decade or two a serious disruption to the market as we know it,” he said.

Davies is CEO of Emerging Markets, a research and consulting firm that advises South African and foreign companies on international strategies in emerging market economies. He noted in his speech that there are a number of reasons why BRIC countries - Brazil, Russia, India and China - want to invest and operate in Africa, and the impact on the global market will be immense.

Africa is a target market in the eyes of BRIC nations, not a peripheral market as Western countries tend to view it, Davies said. BRIC countries - specifically China - are encountering fewer political obstructions when operating in Africa because they do not try to push their standards on the economies there.

“We are not seeing political obstacles,” he said. “…In fact, quite the opposite.”

Chinese Influence in Africa

“China will become Africa’s largest trading partner in two and a half years,” Davies said.

China’s pragmatic views on trade relations and expansion have allowed it to become one of the most active free traders in the world, while the U.S. is faltering.

“Africa, unfortunately, is the new cold commercial war of U.S.-China relations,” he said.

The U.S. has effectively blocked China from accessing oil in the United States with its obstruction of China National Offshore Oil Corporation’s [NYSE:CEO] acquisition of Unocol Corp. U.S. influence in the Middle East is also prohibiting China from touching reserves there, leaving Africa as the only logical option for Chinese access.

“Africa is strategically, politically open to China investment,” Davies said.

And oil is not the only resource catching China’s eye in Africa. “We are seeing China looking to acquire key assets in Africa in copper and iron ore particularly,” he said.

China has obtained strategic positions in Africa, according to Davies, including 20% interest in South Africa’s largest retail bank, Standard Bank. This is in spite of other countries’ attempts at blocking China’s influence, such as what is happening in the BHP Billiton [NYSE:BHP; LSE:BLT]-Rio Tinto [NYSE:RTP; LSE:RIO] takeover talks.

Some analysts see increased Chinese presence in Africa as a negative, while Davies said he tends to be more positive and constructive in his views. But the bottom line - whether market players like it or not - is that it is Africa that enables China to have a powerful position, he said.

A BRIC Wall

Brazil, Russia and India are following in China’s footsteps in the scramble to access Africa.

African nations are politically enabling Brazilian companies to operate, as is evident in Petrobras’ [NYSE:PZE] works in Angola and Nigeria.

“I think the major plays are in CVRD [NYSE:RIO] and Petrobras and in the biofuels sector,” Davies said.

Russian companies have begun politicizing business operations in Africa, according to Davies. “We’re seeing countries with very different political models become a new trend, a new force in Africa.”

In addition, India will see its trade with Africa increase 1,000% in 10 years, he said.

But China remains the “major driver” in the commodities sector. “It’s a calm before a Chinese storm,” he said.

China’s disruption of the global commodities market will be immense, according to Davies. China has the access, the ability, the political motivation and most importantly, the resource demand to be a major player in the African commodities sector.

“The Chinese demand curve is the greatest of any economy ever,” he said.

By Arrangement with www.resourceinvestor.com

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