INTERVIEW with Stephen Priestley

CHINA-Africa bilateral trade has been growing at 28 percent annually over the past 10 years. Customs data show China-Africa trade volumes were a historical high at US$126.9 billion in 2010 – and trade between China and Africa in 2011 is slated to set a new record. China's Ministry of Commerce figures show China-Africa trade volume during the first nine months reached US$122.2 billion, a 30 percent increase year-on-year. Standard Chartered estimates that total trade between China and Africa is set to double from the current levels by 2015 to reach US$1.7 trillion in 2030.

China is both an importer of natural resources from Africa, and exporter of capital goods to the continent.

Natural resources, including oil and mining resources, dominates China's imports from Africa, which is the main fuel behind the booming bilateral trade. There are indications that China's exports to the continent have been shifting from low value textiles to high value capital goods. Machinery and transportation equipment took the largest share of China's exports to Africa, which is 41 percent of total exports in 2009.

By the end of 2010, more than 2,000 Chinese companies have invested in Africa. Since 2000, China has been providing infrastructure financing to some African countries. Over the decade that ended in 2010, China's infrastructure finance commitments in Sub-Saharan Africa have increased from less than US$1 billion in 2001 to US$17 billion in 2010.

With the importance of China-Africa bilateral trading, many banks have grasped the opportunity to serve Chinese companies investing in Africa. Operating in Africa since 1863, Standard Chartered is one of the foreign banks that have had an early presence in the continent. The bank has an extensive network in Africa with over 170 branches in 15 African countries. Standard Chartered also completed the most merger and acquisition deals among foreign banks. Thomson data shows the bank had M&A deals valued at US$15.66 million in 2010.

We had a one-on-one interview with Stephen Priestley, managing director and regional head for Africa of Standard Chartered's Origination and Client Coverage group, on China-Africa trading.

Q: What is the significance of the African market for Standard Chartered?

A: Africa is one of the key growth markets in the world. Seven out of the top 10 countries in the world with the fastest GDP growth are in Africa. Standard Chartered has a diversified portfolio in Africa, delivering revenues of more than US$1,200 million in 2010. The bank's revenue in Africa took up 8 percent of Standard Chartered's group revenue in 2010 and it's growing at an annual rate of 14 percent. The growth in Africa is mainly driven by the export of oil and minerals, but the growing middle class will drive consumption, and increase manufacturing and imports in future.

Q: What is the main trade trend between China and Africa?

A: We estimate there will be increasing Chinese manufacturing in Africa, such as construction and transport equipment. There will also be more value-added and processed agricultural goods in Africa from China. China has a growing presence in Africa, a continent with very different growth prospects. We focused on providing services as a trade bank that facilitates trade flows that is growing fast in both directions.

The US$100 billion trade flows between China and Africa will grow exponentially in coming years, with structural difficulties in Europe and America. We don't see a lot of competition coming from Europe. We have already seen a shift in trade patterns from Europe, the current largest trading partner of Africa, towards Asia by 2030, when China will be the single largest trading partner. I think this will happen even before 2030.

Q: What services do you provide to Chinese companies? How are they different from services provided by other banks?

A: At an initial stage we help Chinese companies guarantee performance for project bonds. Then we help Chinese clients establish operations in Africa by helping them identify local partners and make the right investment, like doing joint ventures with local companies. With our expertise in Africa, we provide Chinese companies with local knowledge and help them understand the opportunities and risks of investing in Africa. We are working on a few M&A projects with some Chinese companies.

A recent example is we helped a Beijing-based investment company's financing to an Angolan national oil company in Uganda. We facilitated the transaction with China Development Bank. On December 12 we met with machine construction company Sany in Changsha, Hunan Province to help finance sales of equipment and machinery in Africa.

Our advantage is we have the best network in Africa. We can help Chinese companies find partners in not just one country but the whole region. Our local Chinese staff is also our great asset. It would be very helpful for Chinese companies if their bank has staff who can speak Chinese. We have eight Mandarin speakers in Africa dedicated to working with Chinese companies, who understand sophisticated banking products.

Q: What are the key risks for Chinese companies when they do business in Africa? How do you help them avoid these risks?

A: We help Chinese companies manage exposure to forex, which is a major risk. When selling products to Africa some companies have to lower the exchange rate by 10 to 20 percent. We also helped Chinese companies continue business as much as possible after the disruptive civil war period in C?te d'Ivoire.

When Chinese companies first started doing business they had some misunderstandings. But after a few years of operation, they have become more insightful and sensitive to the local situation. Chinese companies are extremely welcomed in Africa. The political situation in Africa has greatly improved from five years ago. There are still political risks but they are much less than before. Now African countries compete to attract Chinese investment and they have been trying to make trade with China easier. For example, it took months to open a business in Rwanda, but now it only takes five days.

Q: How has the Euro debt crisis affected Africa and China's trade with Africa?

A: We have not seen the full impact yet. Trade flow between Europe and Africa has slowed down as European banks withdraw money from Africa back to Europe. It is a big opportunity for Chinese companies to take over the trade that Europe has reluctantly given up. There is a lot of capital available to Chinese companies.

Q: Nigeria has decided to use yuan as part of its reserve currency in December 2010. Do you think more African countries will follow suit? There are reports that by 2015, 40 percent of trade between China and Africa will be conducted in RMB. Do you agree?

A: The trend of using yuan as reserve currency has been established, but it's still in the early days. Using RMB as reserve currency is an evolution, not revolution. There are already several central banks in Africa adopting yuan as a reserve currency, and some are considering. It is totally realistic that 40 percent of bilateral trade will be conducted in RMB by 2015.

We have conducted education campaigns in Africa to help the local commercial banks and central banks understand more about the yuan and settling trade in yuan. In May 2011, we conducted the first trade settlement in yuan for a South African steel company.