Page 1 of 2 China doubles down in Africa
By Peter Lee
"Obama to Africa: Drop Dead," echoing the famous admonition of president Gerald
Ford to a cash-strapped New York City in the 1970s, was, for all practical
purposes, the message the American president delivered to the African continent
in Ghana on Saturday.
Barack Obama, mindful of the shaky United States domestic constituency even for
the bailout of the American economy, and loath to display favoritism to his
father's home continent, decided against investing any political capital in a
call to provide significant amounts of assistance to sub-Saharan Africa during
the current global recession.
His rather empty declaration, "We must start from the simple
premise that Africa's future is up to Africans," provided little consolation or
inspiration for the poorer nations of Africa, which are reeling from the
balance-of-payments, aid, investment and developmental consequences of the
West's catastrophic exploration of the extremes of sophisticated financial
leverage.
Obama's speech was also a remarkably cynical piece of diplomatic triage, given
what is widely recognized to be the genuine state of economic affairs on the
African continent.
However, China appears to have made a strategic decision to funnel in more aid
and investment, as the West struggles with the consequences of the global
recession and fights a losing battle to focus on Africa's needs for aid, trade
and investment.
For Africa, it couldn't come at a better time.
Even before the current crisis, with optimistic pre-crash assumptions about
exports, inward remittances, financial reform and reduced capital flight, the
United Nations estimated that sub-Saharan Africa would need tens of billions of
dollars per annum in external funding if it were to make any headway in its
struggle to alleviate widespread poverty.
Post-crisis, the African Development Bank projects that the continent's exports
will drop a staggering 40% by 2010 compared to pre-crisis projections. This
shortfall, a loss of a quarter trillion dollars in revenues, will throw the
aggregate current account into deficit, create a dire food and fuel import
crisis for cash-strapped countries and put paid to the idea of servicing any
normal external debt for infrastructure construction.
Therefore, much of the perhaps US$50 billion in infrastructure investment
needed per annum to sustain Africa's economic growth will have to come from
outside in the form of investment or aid.
However, the message in the alphabet soup of international finance is not
encouraging: Foreign Direct Investment (FDI) and Official Development Aid
(ODA), at least from the Development Assistance Committee of the Organization
for Economic Co-Operation and Development, will not be forthcoming in
significant amounts.
ODA to SSA (sub-Saharan Africa) peaked at $22.5 billion in 2008 and is expected
to drop by 15-20% in 2009; forget about achieving the growth targets announced
at the Group of Eight summit at Gleneagles in 2005.
FDI to SSA looks like it's DOA; it reached $30.6 billion in 2008 but is going
way down and nobody knows how far; a recent estimate pegs the decline in FDI to
all emerging markets at a colossal 60% as commercial banks pull in their horns.
Foreign remittances to the continent - a staple of many African economies - are
expected to drop by a third from pre-crisis levels of roughly $10 billion per
annum.
If billions in desperately needed investment and aid for Africa is going to
materialize in the next two years, it looks like it will have to come from the
BRIC countries (Brazil, Russia, India and China).
And China is ready to step up.
Since the crisis began, China has announced its intentions to maintain its
existing levels of aid to Africa, promoted its $1 billion mini development
bank, the China-Africa Development Fund, and sent the Industrial and Commercial
Bank of China - its designated investment bank for Africa and the 20% partner
(at the tune of US$6 billion) in South Africa's Standard Bank - on the road to
look for investable projects.
More notable, China has undertaken significant post-recession initiatives to
advance its interests on the continent through government-to-government
resources, infrastructure and financial mega-deals.
In recent months, Beijing has taken major steps to secure its relationships
with Zimbabwe, Uganda, the Democratic Republic of Congo, Zambia, Angola and
Botswana.
Its only conspicuous setback to date appears to be a train wreck of a deal in
Nigeria - a $3 billion modernization of the Lagos-Kano railroad line that
mysteriously acquired a price tag of $8.5 billion under the presidency of
Olusegun Obasanjo and attracted the unfavorable scrutiny of the incoming
administration this year ... and that deal may even go ahead in a truncated
form.
China's willingness to finance resource and infrastructure projects without the
nagging conditions demanded by the West is well known - and often derided as a
willingness to "deal with dictators".
The German government decided to make that point to Ugandan President Yoweri
Museveni during his recent state visit.
In what might be a sign of changing times, Museveni decided not only to make
his disagreement known during the visit; he publicized his views in a press
release on June 17.
In the follow-up entitled "China is not a threat to Africa - Museveni", the
Ugandan media painted an amusing picture of the Chinese bankers doing
everything short of joining the Ugandan president on the plane to Berlin to
demonstrate their eagerness to cooperate:
[Germany's President Horst]
Kohler observed that Africa had opened its doors wide for Chinese investments
because the Beijing authorities do not put conditions in terms of democracy or
human rights.
Museveni, accompanied by the First Lady, Janet, said unlike in colonial times,
African leaders have identified their priorities and are capable of protecting
the continent's interests.
"Therefore, no power can exploit Africa," a press release from the State House
quoted him.
Kohler's remarks come two days after the Industrial and Commercial Bank of
China expressed interest in building an oil refinery and pipeline in Uganda.
Meeting Museveni at Entebbe Airport just before his departure for Germany, the
Chinese bank's chairperson also said they were keen on constructing hydro-power
stations and transmission lines.
On July 6, President Robert
Mugabe of Zimbabwe, the target of Western outrage for his inflationary,
power-grabbing ways, was gratified by China's unconditional extension of a $950
million credit tranche, even as the United States was seeking to embarrass and
isolate his regime and channel economic aid directly to [non-governmental
organizations] NGOs:
The Chinese package, the president said, was well
meant as it was coming to the government not NGOs, to assist in national
development and economic revival.
"That is the kind of help we would want to get, and not the Western dictates,"
he said.
The president said Western countries never give the developing world
development funds that promote economic growth and prosperity as that would put
them at par with the West and negate grounds for dominance.
"There is no funding with an investment capacity from the West that will enable
us to move from primary agriculture to secondary stages of development. They do
not want us, the West, to be that. They do not want us to be their equals, they
enjoy being masters over us and this is what Zimbabwe rejects," he added.
What is striking about the Chinese experience in Africa is that it is beginning
to look like engagement, and not simply exploitation.
To a significant extent, it is driven by Beijing's need to deal both with the
fallout of the global recession, and the political and economic consequences of
its push into Africa.
With the collapse in commodity prices, many Chinese investors who are either
fly-by-night or profit-driven, depending on your point of view - and helped
power the Chinese investment push into Africa in flush times - have literally
disappeared, as the Financial Times reported in February 2009:
More
than 40 Chinese-run copper smelters are standing idle in the Democratic
Republic of Congo after their owners fled the country without paying taxes or
compensating staff at the end of the commodity boom…
The abrupt downturn has released resentment over the conduct of some Chinese
businesses in Africa, where hard bargaining and a lack of warmth towards local
people won them few friends.
"Some serious companies remain with metallurgical plants. I don't have any
problem with them. But they are 10% of the Chinese who were here. Ninety
percent have gone," [Governor of Katanga Province] Mr Katumbi said, dismissing
them as "speculators".
In the Democratic Republic of Congo
(previously Zaire), the Chinese government is not counting on Chinese
speculators to manage its relationship with the DRC's copper industry.
Instead it has pinned its hopes on perhaps its biggest strategic investment on
the continent: a $9 billion project designed both to produce copper and rebuild
the DRC's war-shattered infrastructure.
The International Monetary Fund, egged on by the United States, is demanding a
renegotiation of the project on the grounds (which the Chinese deny) that the
financing increases the DRC's sovereign debt.
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