China Africa Development Fund has signed its debut investment deal in Africa, as the government tries to increase strategic cooperation there.

The fund will invest more than US$90 million in four Chinese companies with projects in Africa, China Development Bank (CDB), the fund’s main backer, said yesterday.

The fund signed the deals with the companies – CGC Overseas Construction Co, Sinosteel Corp, Shenzhen Energy Investment Co and China National Building Material Co Ltd – in Beijing yesterday.

The investment will mainly support housing, urban infrastructure, water conservation and industrial park projects and the development of Africa’s power, construction material, infrastructure and mining industries.

According to CDB, the fund’s first phase, launched with US$1 billion from the country’s largest policy bank, will not only finance Chinese firms that have set up operations in Africa but will provide advice for those planning to invest there.

The fund will be expanded to US$3 billion in the second phase and eventually to US$5 billion when it gets more investors on board.

The private equity (PE) fund’s goal is not return on investment but bringing benefit to the two countries, according to Gao Jian, the fund’s president.

But experts said if the fund is properly managed it will reap good investment returns, although it will not pursue the average profit rate of international PE funds.

They said Chinese firms face overcapacity while Africa’s are at an early stage of development – and that will boost the fund’s investment returns.

According to Gao, the fund will be used to support all qualified firms regardless of size, ownership and location instead of financing one or two projects as international organizations usually do.

China is Africa’s third largest trading partner and cooperation between the two countries is growing. Bilateral trade was US$55.5 billion at the end of 2006.

Of the more than 800 Chinese firms currently investing in Africa, only 12.5 percent are large, state-owned companies and most of the others are private ones, the Export-Import Bank of China said. CDB said it plans to invite a professional team to improve fund management and control risk.