How accurate is investment reporting on China in Africa?
Financial Times African investment report comes under criticism; FT denies inaccuracies
An ‘Africa Investment Report‘ published by the Financial Times (FT) Group is being criticized for what some analysts say are misleading statistics about Chinese investment in Africa.
The widely-cited report, which was issued in September and is the product of several FT services, contends that China is the No. 1 source of foreign investment in Africa based on capital expenditure, and notes that Chinese interests poured US$36.1 billion into the continent in 2016, accounting for 39% of US$92.3 billion in total foreign investment.
However, some Africa watchers question the accuracy of the FT report’s figures and methodology, which they say exaggerate the scale of Chinese investment on the continent. The report is intended to provide data and promote foreign investment in Africa. While it aims to be constructive, it has appeared amid other articles in Western media that assert China is engaging in an economic takeover of African countries.
China-Africa expert Thierry Pairault recently wrote a critique of the FT report that was posted on the China Africa Research Initiative Blog, which is published by the Johns Hopkins School of Advanced International Studies (SAIS) in Washington. Pairault is a research director at the Centre National de la Recherche Scientifique, France’s largest government research center.
He voices “profound doubts” in his piece about the accuracy of the US$36.1 billion, 39% share apportioned in the report to Chinese investment in Africa, arguing that it’s overblown. Pairault further cites conflicting official data which shows that Chinese investment in Africa, in foreign direct investment (FDI) terms, is much smaller, and falling year on year.
“Nobody bothered to read the abundant information (on Africa) that China disseminated on both its government and corporate websites,” Pairault told Asia Times in an email interview. “The majority of people just read the press releases in English but do not check the meaning of words and information by going to the source.”
Pairault further points to what he calls “two flagrant examples of bald misstatements” conveyed by the FT report.
Numbers off for Algerian port?
The first concerns what the FT calls a “Chinese-owned” El Hamdania Port in Algeria. The report says that the government-owned China State Construction Engineering Corporation (CSCEC) invested US$3.3 billion in Algeria in 2016. Pairault, who keeps tabs on such projects, says the information is inaccurate. “This very large sum refers to the expected construction cost for the deep water El Hamdania port in Algeria,” he writes in his analysis.
According to Pairault, a Chinese consortium of banks may finance a portion of the port, although loans are yet to be signed for the project. But if a loan is incurred, it will be taken out by the Algerian government. “Neither the CSCEC nor the other Chinese engineering firm involved in the project – China Harbor Engineering Company, CHEC – are investors,” Pairault wrote. He emphasizes the two firms are functioning as service providers to the Algerian government. But the government is the sole investor.
Because of this, the US$3.3 billion project can’t be categorized as a Chinese investment in Algeria for 2016, the analyst says. Nor can it be viewed as a future Chinese investment project.
Pairault believes the FT may be confused about the structure of the port project, which provides for a joint venture, under Algerian law, between Serport, the Algerian public group acting as a port authority, and CSCEC and CHEC, the two Chinese construction firms.
“The majority of people just read the press releases in English but do not check the meaning of words and information by going to the source”
Under the arrangement, 51% of the shares are earmarked for the Algerian shareholde,r as required by local regulations on foreign investment. But Pairault notes that the Algerian project differs from the widely reported Piraeus Port in Greece, where half the port was leased on a long-term basis to the Chinese shipping and logistics company COSCO.
In Algeria’s case, he says the project’s structure doesn’t grant any ownership rights to the Chinese companies. Moreover, he says there isn’t much room for the Chinese to assume ownership of the port going forward since Algeria’s government has no plans to privatize such public domains.
The Algerian government is said to have structured the project in this manner because it can’t finance it on its own due to low oil prices and related economic issues. China has been criticized for increasing its hold over such projects by offering loans from Chinese development banks. But if the Algerian project does receive Chinese financing, Pairault believes it will consist of a long-term loan of up to US$3.3 billion. While this positions Chinese banks and companies to ensure that the port’s profits go to repay the loans, Chinese interests would not own the port.
In any event, Pairault notes that, as of February, no decision has been reached on prospective Chinese financing.
US$20 billion Chinese investment in Egypt?
Another deal detailed by the FT concerns a US$20 billion Chinese investment covering the second phase of building a new Egyptian capital about 45 km (28 miles) east of Cairo. The FT report has China Fortune Land Development’s (CFLD) “announcing” a US$20 billion investment that accounts for 22% of total foreign capital investment in Africa in 2016.
Pairault confirms there was a memorandum of understanding (MoU) signed in mid-October. “However, if one reads this MoU, there is no reference to the value of the work to be undertaken (i.e. no allusion to the ‘US$20 billion’).” The analyst also cites the actual text of the MoU, which shows that it is a non-binding agreement whereby the Egyptian government merely accepts that CFLD will be in charge of preliminary studies for the project. If the project moves ahead, Pairault believes CFLD will most likely serve as a project designer and manager, overseeing how financing of the Egyptian investment is organized.
With the entire project still in the MoU stage and with total costs yet to be fixed, Pairault argues there is no basis for saying that the Egyptian project comprises 22% of all outside capital investment in Africa. “The (El Hamdania and Egyptian cases) seriously hamper the conclusions drawn by (the FT Group’s) Africa Investment Report,” he said, noting that actual cash in the form of foreign direct investment (FDI) from China is yet to arrive.
In fact, the analyst notes that China’s FDI in Africa is modest and falling year-on-year. According to Chinese Ministry of Commerce figures, China’s total FDI in Africa during 2016 weighed in at US$2.4 billion, down 19% from US$2.9 billion in 2015.
Pairault’s criticism of the report is backed by other analysts.
“Like many others who try to collect ‘data’ on China’s outward engagement, the FT has made several mistakes,” Deborah Brautigam, a professor of international political economy at Johns Hopkins University told Asia Times in an email interview. “They’ve rushed into print too quickly, without checking the nature or the actual status of these discussions.”
Brautigam, who directs the China Africa Research Institute at SAIS, which posted Pairault’s piece, notes that it takes time to examine each project carefully to determine whether it is a firm commitment or an early discussion, and whether it’s merely financed by a Chinese loan or involves Chinese equity ownership. “These are very different with regard to their status as ‘fact’ or ‘fiction’ or their status as ‘development finance’ versus ‘FDI,’” said Brautigam, the author of ‘The Dragon’s Gift: The Real Story of China in Africa.’ But she notes that any errors in the report were probably unintentional.
FT denies report is inaccurate
Courtney Fingar, an editor for fDi Intelligence, one of the report’s contributors, rebuts criticism that its statistics were inaccurate, noting that “we count investment, in its full anticipated volume, at the time of announcement” and for “whatever year the investment is announced.”
“This project was flagged and double checked by the research team at the time of the report and was verified …,” Fingar told Asia Times in an email. “The data we publish adheres to a strict and open methodology and the outputs are fact-based and neutral.
“As such any manipulation of numbers or pushing of a political agenda would be contradictory to our purpose and damaging to the integrity of our products and business,” she added.