South Africa: looking East for funding

The South African government announced July 24 that it secured more than $17 billion in funding commitments from China during Chinese President Xi Jinping’s visit to the country. The Chinese funding adds to the $20 billion pledged during South African President Cyril Ramaphosa’s recent visits to Saudi Arabia and the United Arab Emirates.

The foreign funding brings Ramaphosa closer to his goal of raising $100 billion in foreign investment for South Africa. The Chinese commitments are to fund the completion of construction of the Kusile coal-fired power generation station, as well as to finance other trade agreements intended to facilitate South African exports into the Chinese market.

Ramaphosa’s funding acquisitions are notable in their magnitude, as well as for their source. While the scope of the precise projects the foreign funding will underwrite is likely still subject for negotiations, once a heads of agreement deal is struck its more probably the funding will be guaranteed. The funding pledges are made more credible given the geostrategic intent the governments of Saudi Arabia, the UAE, as well as China use when deploying capital of such scale in countries they don’t ordinarily conduct robust investments in.

Ramaphosa’s approach for investment funding from the Gulf states and China is unsurprising and explained by constraints his government faces in raising Western-sourced funding. Amid shifts by the Ramaphosa administration’s legislative and regulatory regime that compromise the autonomy and performance of the all-important mining sector, as well as asserting a land reform agenda that will likely lead to the expropriation of privately owned property without compensation sooner rather than following general elections to be held in 2019, the credibility of the South African government as a guarantor of private sector sanctity and prosperity is increasingly undermined.

Turning to non-Western sources of foreign investment complies with the South African government’s political imperative of securing crucial amounts of funding necessary to sustain the country’s industrial activity, given the insufficient domestic bases of available capital. Adopting a funding mechanism that is less performance-based and instead driven by geostrategic calculations is extremely valuable, however, this approach trends South Africa into a new paradigm of centralized command over the country’s political economy.     

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