China: Partner or predator in
Africa? By Greg Mills and Chris
Thompson
The conventional wisdom is that
China presents Africa with major threats and
opportunities, and that there is growing tension
between the United States and China over the
latter’s evolving African interests. On paper, at
least, the nascent interest of China in Africa
looks to the latter’s advantage.
China’s
trade with Africa has dramatically increased from
US$11 billion in 2000 to $56 billion in 2006,
making it the continent’s third-largest trade
partner behind the United States and France.
Beijing also has an African trade target of $100
billion by 2010 [1]. Africa is a new continental
market for lesser-priced Chinese
exports, while it is a major
source of raw materials, especially oil.
China has rapidly become the most
assertive investor nation in Africa. More than 800
Chinese state-owned enterprises are today active
on the continent, while Angola has now become
China’s largest supplier of oil. Chinese firms
have already invested more than $6 billion in
Africa in 900 projects - notably in the oil sector
[2]. This, however, still represents only 3% of
Chinese overseas foreign direct investment (FDI)
stock, illustrating the potential for future
growth [3].
Reflecting this growing level
of engagement, President Hu Jintao visited 17
African states during 2006-07- more than by any
other head of state. The November 2006 Africa
summit in Beijing was the largest diplomatic
gathering ever in China. China has diplomatic
relations with 48 of Africa’s 53 states - Gambia,
Malawi, Burkina Faso, Swaziland and Sao Tome
apart.
At the Beijing summit, the hosts
pledged to double African aid and to offer $5
billion in loans and credits by 2009, while it has
granted government scholarships to almost 20,000
people from 50 African countries and sent some
16,000 medical professionals to 47 African
countries.
Beijing has also remitted a
combined 10.9 billion yuan ($1.42 billion) in debt
owed by African countries and on top of that, more
than 10 billion yuan in debt cuts is under way
[4]. In May 2007, it was announced that China is
to ramp up infrastructure and trade financing to
Africa to $20 billion over the next three years
via its Exim Bank (Reuters, June 1, 2007).
As one recent indicator of the scale and
type of Chinese involvement in Africa, in
September 2007, China announced that it would lend
the Democratic Republic of Congo $5 billion to
modernize its infrastructure and mining sector.
Under a draft accord, Beijing earmarked the funds
for road and rail construction projects and for
rehabilitation of Congo’s mining sector, while the
repayment terms proposed included mining
concessions and toll revenue deals to be given to
Chinese companies (International Herald Tribune,
September 21, 2007).
An August 2006
high-level meeting of African, US and Chinese
specialists held at Tswalu in the Kalahari* found
that there is no strategic conflict between the
United States and China, though this situation is
dynamic and could change. In addition, the
prospects for such conflict may heighten due to
the pursuit of China’s African commercial
interests almost exclusively through state-owned
firms.
Strategic competition or
co-operation? There is less clarity,
however, on whether there is conflict between
African interests on the one hand, and those of
China and United States on the other.
African countries face a conundrum with
regard to China’s changing relationship with the
continent. African domestic industries, in
textiles and other areas, risk being swamped by
cheaper Chinese products. Such concerns are raised
by the investment trends of China - as well as the
United States - in Africa, which have tended to be
in the oil sector. This type of investment
traditionally has not benefited African citizens
for a range of reasons, including the nature of
governance in those countries and macro-economic
effects such as the overvaluation of currencies.
Oil booms have generally enriched African elites
and not their populations [5].
These
concerns relate to Africa’s emergence as a
commodity superpower in a commodity super-cycle.
At present, the United States imports two-thirds
of its oil needs, 15% of which comes from Africa.
This figure could increase to 25% by 2015 (BBC,
September 13, 2002). Africa produced 6.8 million
barrels of oil per day in 1979. In 2005, this
increased to over 9.8 million bpd. The
second-largest global energy importer behind the
US, China currently imports over six million bpd
(International Herald Tribune, November 13, 2005).
This figure is expected to double in the next 15
years.
With only half of its energy needs
now supplied by domestic sources, China is
aggressively pursuing fresh oil interests in
Africa, notably in the Sudan, which comprises
one-tenth of all Chinese oil imports. Today the
China National Petroleum Corporation (CNPC) is the
largest investor in the Sudan.
China also
agreed to a $3 billion credit line for the Angolan
government in 2004, subsequently increased to as
much as $11 billion (The Brunei Times, October 30,
2007). In 2006, China made a $2.3 billion
investment in Nigeria’s oil industry, paying 45%
for a stake in a local field (Associated Press,
January 9, 2006).
In Southern Africa,
Angola is at the center of the oil boom, with its
output increasing from 722,000 barrels a day in
2001 to 930,000 in 2003 (BBC, September 13, 2002).
By 2020, it is expected to reach 3.3 million
barrels a day. Nigeria’s output is predicted to
double to 4.4 million barrels a day by 2020 (BBC,
September 13, 2002). Today’s minor oil producers -
such as Equatorial Guinea, Chad and the Sudan -
could more than triple their output given this
demand. Today’s dozen African oil producers could
include five more in the next few years—Tanzania,
Kenya, Uganda, Mozambique and Madagascar—if
current exploration efforts prove fertile.
The benefit Africa generates from such
investment depends more on what they themselves do
than what China and the United States can do for
Africa. Good governance is a prerequisite for the
higher-order investments in Africa that its
citizens consider essential, such as beneficiation
of natural resources (that is, the treatment of
raw material such as iron ore to improve its
properties especially, eg in preparation for
smelting).
It is of course crucial that
Chinese and US economic activities not implicitly
or unconsciously undermine good governance. One of
the best guarantees that a venture will promote
African interests is the length of its engagement:
a company that builds factories and mine shafts
has a greater stake in stability and responsible
government than does the short-term speculator
[6].
In addition, low human capacity, poor
infrastructure and Africa’s small market size -
Africa has an economy the same size as the state
of Ohio - reduces its attractiveness for foreign
investors. More importantly, however, such
investors will follow the lead of their local
African counterparts. The fact that Africans
themselves are seen to be significant divestors in
their own countries - around 40% of African
capital has fled the continent - gives foreign
investors scant confidence and comfort [6].
Contrary to the general assertion that
there is a contradiction between China’s Africa
activities and improved standards of African
governance and democracy, good governance is also
in China’s best interest as it is the easiest
means to ensure that investor interests can be
safeguarded - a realization that Western countries
had long since arrived at in Africa. Similarly,
democracies have consistently performed better
economically than autocracies - outside of East
Asia about 50% faster growth from 1960-2003 -
hence their promotion would be in the investor’s
enlightened self-interest.
Moreover,
support for autocratic governments by external
powers is likely to pit them against African
citizens who have consistently fought for such
rights.
Given the combination of high
domestic investment (45%) and savings (50%) rates,
China is likely to be able to sustain its current
high growth phase and appetite for raw materials
for the next two decades. This highlights the need
for an Africa-China-US "win-win-win" strategy [7].
A win-win-win strategy? China’s
rise poses a tremendous challenge for African
development. Given China’s industrial
pre-eminence, African development is unlikely to
come from high-volume manufacturing. Asian
countries will probably dominate industries such
as cheap clothing or footwear for a generation or
more, thereby inhibiting most African countries
from climbing the traditional first step of the
industrialization ladder.
A combination of
natural resource exploitation, agricultural
self-sufficiency and high-value agro-exports, and
the expansion of their unique range of service
industries including tourism, would seem to be the
most likely and rewarding growth path for many
African states. This makes it imperative that more
value from commodity investments in Africa stays
on the continent.
Three issues stand out
whereby China, Africa and the United States could
together promote Africa’s development.
First is the need to raise the levels of
transparency and corporate governance in Africa.
Here African governments need to improve their
legal and regulatory environments. US and Chinese
firms - and governments - have a role to play in
ensuring that the terms and conditions of deals
are transparent so as to minimize opportunities
for corruption, patronage and rent-seeking. There
is a need to develop and transparently apply
continent-wide principles of corporate good
behavior.
Second, both Chinese and US aid
money should be strategically targeted at projects
that will stimulate growth by reducing the costs
of doing business. In many countries, this will
mean infrastructure investments in electricity,
broadband Internet, roads and ports. It may also
mean funding for legal and administrative reform
or the hiring of foreign expertise including
commercial judges.
Third, while they
should ensure the conditions for business are
increasingly easy and competitive through better
policy and fewer bureaucratic encumbrances,
African governments should seek to make technology
transfer and value addition a condition in their
contract and concession negotiations with foreign
firms. This will help to ensure that more value
stays in Africa, creating employment and
delivering development.
Notes * The Brenthurst
Foundation in Johannesburg which, along with the
New York-based Council on Foreign Relations, the
Leon H Sullivan Foundation and the Chinese Academy
for Social Science (CASS), hosted the three
meetings in the Africa-China-U.S. Trilateral
Dialogue in South Africa, Beijing and Washington
D.C. in August 2006, and February and September
2007 respectively. 1. See Martyn Davies, SA
Exporter, Business Day, December 2006. Print
version. 2. See Sudha Ramachandran, India pushes people power in
Africa,” Asia Times Online, July 13,
2007. 3. At present, most Chinese investment is
directed at Asia (53%) and Latin American
(37%). 4. These figures were cited during the
African Development Bank meetings held in May 2007
unusually in Shanghai. 5. Just as China did in
the 1970s and 1980s when it negotiated access to
the country with foreign companies, African
governments should - without overplaying their
hand - seek to make technology transfer and value
addition a condition in their contract and
concession negotiations with foreign firms. 6.
See Paul Collier, Anke Hoeffler and Catherine A
Pattillo, "Flight capital as a portfolio choice",
World Bank Policy Research Working Paper No 2066,
February 1999. 7. These areas were
promoted by the African delegation at the
aforementioned trilateral meeting in Washington.
See also Lopo do Nascimento, William Lyakurwa,
Patrick Mazimhaka, Greg Mills, Joe Mollo, Sydney
Mufamadi, Michael Spicer, "Business Principles for
a Strong Africa", Brenthurst Discussion Paper
6/2007, September 2007.
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