Friday, 30 July 2010

China (III) - Beijing's scramble for Africa

Paul Sweeney: This is the third of four (maybe five) posts on China. The first examined Chinese investment and the second FDI in China and its impact on workers’ rights and trade unions in the “communist” state. This one is about Beijing’s scramble for influence and resources in Africa.

China is Africa's second-largest trading partner after the United States. The continent needs China’ extensive investment to rebuild its failing infrastructure. Chinese companies are replacing Western companies with contracts to build roads, railways, pipelines, hydroelectric dams, and to upgrade ports.

Chinese interest in Africa is direct and indirect; large landholdings, factories, investment and construction of infrastructure etc. For example, China is rebuilding oil-rich but corrupt Nigeria's poor and inefficient railway system. However, China will supply nearly all the equipment and technical personnel, and at prices which it determines. And in line with other projects in Africa, China will supply most of the workers.

China also requires the energy supplies and huge minerals resources of Africa. The comrades in Beijing know that West African oil reserves are a resource that can reduce its dependence on volatile Middle Eastern markets.

The United States and the West are aware of the growing Chinese involvement and investment in Africa. While the United States does not have a colonial past (except as the first colony to break free) as do the major European countries, it is still viewed as the world’s only Superpower today by many in Africa. So the Chinese are welcomed.

U.S. legislation forbids aid for projects that may transfer U.S. jobs abroad, while Chinese aid is actively encouraging Chinese companies in key industries and also to even move factories to Africa. China's aid is often non-transparent, and many investments pay no attention of local interests and ignore local communities.
Ireland’s Tullow Oil is siding with the huge Chinese state oil company China National Offshore Oil Company (CNOOC) rather than with US companies. "Our shareholders believe in Africa," its boss, Aiden Heavey says. American investors, by contrast, are still wary and "tend to stick offshore". Tullow grew from nothing into the top third of the FTSE 100 with a market capitalisation of Stg£11.3bn, thanks to two of the biggest oil discoveries of the past decade, remains to a great extent "unexplored". Even last week Tullow found more oil in Ghana.

Tullow is negotiating with France's Total and CNOOC to farm out at least half its assets in Uganda's Lake Albert basin, where it has played the main role in the discovery so far of 750m barrels of oil. The deal would deliver a "hell of a combination", Mr Heavey argues.

"The Chinese will be very helpful in building up other industries and CNOOC is a very attractive option there because the Chinese have proved in the past that they will put the infrastructure in place," Heavey said, adding that Total brings oil expertise, financial firepower and long experience in Africa to the equation.
Chinese companies are also considering the purchase of interests in Nigerian oil companies, including the stakes currently held by major American companies.
Beijing is encouraging Chinese companies to buy great tracts of farmland abroad, particularly in Africa and South America, to help guarantee food security. Concern over food supplies has increased in China, Japan and Russia. Russia plans to form a state grain trading company to control up to half of the country's cereal exports. Cofco, China's state-owned food processing group, is working with Itochu, the Japanese trading company, to buy grain and other agricultural commodities in global markets to build pricing power and so combat rising food costs.

The congested roads in Nairobi are being widened and repaved as "a gift from the people of China.” While the investment will ease congestion for Kenyan motorists, it is really secondary to Chinese interests which require modern infrastructure to move African commodities to ports for shipment to China. It has been reported that China recently purchased half the farm land under cultivation in the Congo!

In Namibia, China established its first overseas military base to track its satellite and manned space flights.

The issue of Chinese involvement is not uncontested, and is turning nasty in parts of Africa. In Nigeria, the Movement for the Emancipation of the Niger Delta (MEND) has said it will expel all Chinese workers in the area. In April 2007, nine Chinese workers were killed in an attack by armed men on an oil field in eastern Ethiopia.

In South Africa, the textile union claims around 100,000 jobs have been lost as Chinese synthetic fabrics replace cotton prints in street markets across Africa and, in 2007, South Africa's unions threatened to boycott anyone selling Chinese products, including on street markets. Rene N'Guetta Kouassi, the head of the African Union's economic affairs department, warned: "Africa must not jump blindly from one type of neo-colonialism into Chinese-style neo-colonialism" (AFP, September 30th 2009).

China is known to work uncritically with some of the nastiest regimes in Africa. It sells arms, jet fighters, and military vehicles to Zimbabwe, Sudan, Ethiopia and, in the UN, China has used its veto power to block sanctions against tyrannical regimes in Sudan and Zimbabwe.

Sudan, with its huge oil reserves, is the largest recipient of Chinese investment. It sells two-thirds of its oil to Beijing. China has been criticised for its links with this government for its role in the ongoing crisis in Darfur.

The working conditions in many Chinese aid-funded projects are poor. Many Chinese developers still see environmental destruction as the price to be paid for economic progress. For example, the Bui Dam will flood a major part of a national park, and will probably generate much greenhouse gases. This dam, in Ghana, is an example of China's resource-backed lending. In 2007, China Exim Bank, the Chinese state import-export bank, approved $562 million in loans for this hydropower project on the Black Volta River. Ghana mortgaged its cocoa exports to access this loan.

China is also investing $1bn in a coal project in Mozambique’s Tete province. Wuhan Iron and Steel, one of China’s biggest steel producers, will spend $200m on an 8 per cent share of Riversdale, an Australian company developing two coalfields there. Wuhan will also commit a further $800m to the Zambezi coal reserve. The coal is one of the world’s largest untapped reserves of coking and thermal coal. Coking coal is used to make steel, while power plants provide a market for thermal coal. Wuhan will buy about 40 per cent of the coking coal produced from Zambezi, and the company will have the right to purchase at least 10 per cent of that produced from the neighbouring Benga project. And another Chinese company will build connecting infrastructure to get the coal to port by barge!

Many Chinese firms employ large numbers of local workers in many projects, but wages remain low. However, there is evidence that African workers are learning new skills because of the availability of Chinese-funded work. Taking advantage of low labour costs, the Chinese are also building factories across Africa. "China consistently respects and supports African countries," Yan Xiao Gang, China's economic attaché in Ethiopia, told the BBC. "It never imposes its own will on African countries, nor interferes in the domestic affairs of African countries."

On the plus side, Africa does well when commodity prices are high, and it is China which has pushed them up, with its huge demand. Poor African consumers like the cheap Chinese goods. Chinese migrant traders are increasingly selling cheap clothes, plastic goods, shoes, and household wares. In many of the smallest towns and the largest cities in Africa, Chinatowns are emerging up, with bazaars selling cheap imports from China. But against this, as African economies continue to export unprocessed goods, its indigenous manufacturing industry fails. And those cheap imports have threatened the collapse of Africa's textile industry, and local manufacturing. Most African countries have now a growing trade deficit with China.

African governments like China's loans which are cheaper and have much fewer strings attached than loans from the IMF or World Bank. Chinese interest in Africa is stimulating other countries and firms’ interest in the continent, and so investors and traders are setting up shop there. China's gifts to modern-day Africa will soon include a major new conference centre at the headquarters of the African Union in Addis Ababa.

In conclusion, China’s interest in Africa brings many benefits to the continent’s 50 states and its peoples, with its huge demand for resources, its investment in infrastructure, and its cheap goods for its citizens. China also gives less tied and cheaper loans than the ideologically-laced loans from the IMF and World Bank. But on the other hand, we have seen that uneven international development means that African industry is threatened, and while workers have jobs and roads, they are being exploited too.

China’s scramble for Africa is an interesting space, with many shades of history repeating itself. In the next post, I shall examine the role of Chinese state companies, just as Ireland’s short-sighted government establishes the Privatisation Board.


Paul Hunt said...

I can understand your concern, from a TU perspective, about the exploitation of workers, but I fear your assessment of the costs and benefits of China's involvement in Africa is seriously deficient. Although you mention some of the downsides, the current and future costs to Africa are likley to be far greater than the continued exploitation of workers - bad and all as that might be.

Paul Collier, probably the foremost authority on economic and political development in Africa provided an excellent assessment of the situation China is exploting in his books "Bottom Billion", and "Wars, Guns and Votes: Democracy in Dangerous Places". His latest book "The Plundered Planet: How to Reconcile Prospeity with Nature" provides an excellent example:
"In December 2008 a coup in Guinea installed a young captain as president... The following September the regime shot dead 157 people gathered to protest at the lack of democracy. The very next month a Chinese consortium struck a $7bn (£4.7bn) deal with the government for resource extraction: plunder writ large."

I look forward to your next instalment on what the Chinese government's policies on its SOEs can teach the apparently wayward Irish government.

Miichael Burke said...

Paul S,

There is a great deal of misinformation about China' role in Africa, often laced with accusations of 'imperialism' from precisely those countries who have robbed the continent and despoilt it. This includes the US, the strongest behind-the-scenes supporter of the Aprtheid regime in S. Africa, with Thatcher's Britain performing the public role.

This is a very useful website.

I've highlighted one particular piece, but there are plenty. The creation of a Nigerian-owned refinery is China's side of the deal, for which it gets much needed oil. But no Western firm (eg Shell) has ever offered that, anywhere, in Africa, because it is in refining and other upstream activities that the profits are made.

Where the West for decades has offered no more than Swiss bank accounts, coups and starvation, China builds railways, roads and refineries.

I look forward to your piece on the SOEs, although these should really be called Collectively-Owned Enterprises, as Western observers often overlook that much of the State sector is actually held by regional and local authorities as well as other institutions, including the army.

The most authoritative work on ownership is Nolan's China's Rise, Russia's Fall.

Here is a long theoretical piece explaining China's economic performance by reference to its superior investment rates, which is a lesson applicable to all economies

Paul Hunt said...

I'm sure we can argue the toss about the virtues and deficiencies of the Chinese economic and political model until the cows come home. I've observed aspects of the process at first hand in both China and Africa. But leaving that aside, I'm still struggling to see the relevance of the policies of this authoritarian, mercantilist regime to a small wet island with a stable, but malfunctioning, democracy and a deeply distressed economy on the periphery of the EU.

paul sweeney said...

Paul Hunt says “I fear your assessment of the costs and benefits of China's involvement in Africa is seriously deficient.” I was just putting up a short version of what I know of Chinese involvement in Africa as I think we really need to focus more attention on this important country. But I think it is clear that I am very sceptical of that involvement. I would love to have the time to read Collier’s book and to other books I have heard of and which some have recommended to me and to Michael’s references too.

Paul Hunt said...

@Paul Sweeney,

I am taking the liberty of addressing you directly, even if you choose to use the third person in response to me - was it something I wrote?

I agree that it is very important to learn more about other countries - in particular those that are having an increasing global impact. All I am questioning are the validity and relevance of specific economic policy recommendations for a small open economy that draw on, what you admit is a limited understanding of, a very different political and policy regime.

Michael Burke said...

Paul Hunt

I think it strange you find it difficult to see any relevance from the Chinese experience.

Of parmaount importance is the ability of the Chinese authorities, beginning in 1978, to attract foreign capital AND use that investment to build up an indigenous industry of their own. Indigenous Chinese firms now lead the world in certain value-added production, notably green technologies, and are internationally significant in many more, inluding cars, photographic equipment, agricultural machinery etc.

It has done this by, amongst other things, massive state investment (currently over 20% of GDP), promoting technology transfer and building indigenous satellite industries on which the foreign MNCs have come to depend.

This economy has over 50 years head start on the Chinese, but not achieved as much.

Not relevant at all, then.

Paul Hunt said...

@Michael B,

What is relevant is how the established, developed democracies will respond to the rise of China. I am simply querying the validity of extracting aspects of China's 'model' (such as its thumbing its nose at the 'Washington consensus', the role of its SOEs and its high level of fixed investment) largely out of context and applying them to a small open economy in a very different context.

Instead of extracting examples from other very different economies and focusing on reams of comparative data (to defend the interests of specific segments in Irish society) it would be far better to take a good hard look at the current economic reality. Ireland didn't and doesn't have a bank resolution regime. Most countries do because they recognise that banks fail at all times and in all places. Ireland's policy and regulatory arrangements should have been extremely tight to compensate for this deficiency. The State and all citizens are now on the hook because of this policy and regulatory failure. And this is imposing a hard funding constraint.

This is the harsh and cruel reality. Failure to confront this means that the next step is direct involvement, as in Greece, by the EU/IMF.

Btw I am surprised that Nat O'Connor's papers on FoI haven't featured on this site. These recommend some of the governance changes required to get us out of this mess and to prevent a repetition.

Nat O`Connor said...

The papers mentioned are available on the TASC website.

I agree that democracies have the advantage over autoritarian regimes, because we have much more flexible and fluid information flows, which gives us an opportunity to correct public policy mistakes quicker.

Curiously enough, when a Finnish cleric introduced Sweden's famous freedom of information law in 1766, he was apparently influenced by the idea (or ideal perhaps) of the Chinese censorate, which was set up in the Tang Dynasty (618 to 907). The "Censorate’s main roles were to scrutinise the government and its officials and to expose misgovernance, bureaucratic inefficiencies and official corruption." You can read a paper on this here.