Chinafrica (12) Watching for PRC Influence in Africa

China in Africa: It's (Still) the Governance, Stupid
Akwe Amosu March 9, 2007
Editor: John Feffer, IRC
Foreign Policy In Focus www.fpif.org

Deep inside the tropical forest of Gabon, 500 miles from the coast,
China is going where no other investors dare. A Chinese consortium, led
by the China National Machinery and Equipment Import and Export
Corporation, has won the contract to develop Gabon's massive Belinga
iron ore deposit. In return for purchasing the entire output, Chinese operators
will build not only the extractive infrastructure at Belinga but a
hydro-electric dam to power it, a railway to the coast, and a deepwater
port north of the capital, Libreville, for exporting the ore.

This venture will cost several billion dollars, and China will have to
wait three years before any ore is actually extracted. Since the site
was identified in 1955, no Western investors had stepped forward to
develop it. But with the support of its entire state machine, Chinese
companies are now taking the risk.

China's march into Africa has reminded pundits of those two proverbial
elephants fighting. Evoking the battle between East and West, they
opine that it will be the grass that suffers.

But times have changed. Back in the first colonial scramble, only the
imperialists were at the table to carve up the continent among
themselves. These days, far from being a victim, Africa is at the table
too and cutting deals with enthusiasm. China negotiates with Gabon's
sovereign government over the development of Belinga's iron ore, not with
the former colonial power, France. The debate is no longer about whether
East or West is winning the competition.

The grass may yet suffer, however. Africa's peoples need to be as wary
of being trampled underfoot by their own governments as they are of
foreign powers. There are grave doubts about how well African governments
are representing their stakeholders and whether Africa's negotiating
capacity is up to scratch. The jury is out on whether Africa can convert
Chinese cash into development.

The Scope of Chinese Interest
Few issues have generated as much heat in recent African affairs as
China's engagement in the continent. China has been pushing increased
investment and cheap credit into Africa for at least five years. But
the astonishing levels of expenditure and the breadth of Chinese
involvement reached levels in 2006 that focused minds in the West and provoked
much media hyperbole.

In 1991, Chinese direct investment in Africa was less than five million
dollars a year. By 1994, it was around $25 million and by 1999 just
short of $100 million. Just seven years later, He Wenping, director of
the African Studies division in the Chinese Academy of Social Sciences,
believes that direct Chinese investment in Africa reached $1.25 billion
in 2006. The People's Daily and other analysts suggest a number over $6
billion. China's trade with Africa has followed a similar pattern, rising
from only $12 million in the 1980s to $10 billion in 2000 and then to
as high as $55 billion in 2006. It is surely no coincidence that Africa,
in turn, has seen economic growth. GDP growth was negative on average
from 1975 to 1984, rollercoastered some more in the 1990s, but is now
repeatedly above 5%.

China, meanwhile, has been growing at just short of 10% a year for the
past four years and reached 10.7% in 2006. Such growth, in a country
and an economy that size, generates a huge appetite for inputs. Electricity
demand is so high that last year China added new power capacity "equal to
the entire capacity of the UK and Thailand combined, or about twice the
generating assets of California." China overtook Japan to become the world's
second largest oil consumer in 2003 and now trails only the United States.

In its engagement with Africa, China certainly aims to build a political
constituency for its much-touted "peaceful development." But its primary
interest is petroleum and raw materials. If Beijing's goal of quadrupling
the size of the economy by 2020 is to be met, energy consumption, and
therefore demand, will climb even higher. Africa has resources in abundance
but almost no capacity to process those resources: a perfect opportunity
for a rising economy like China. Africa can supply its raw inputs and also
provide a market for China's manufactured products. Over 800 Chinese
companies, the vast majority of them state-owned, are operating in 49 African
countries. These companies are the forward edge of China's operations,
although they are backed up by frequent visits by top-level officials to seal
deals and smooth their path. China is either drilling or exploring for oil in Nigeria,
Sudan, Angola, Algeria, Chad, Gabon, Mauritania, Kenya, Congo Brazzaville,
Equatorial Guinea, and Ethiopia - and this list is not exhaustive. China
purchases 64% of Sudan's production, which accounts for around 6% of its oil
imports. Angola contributes half of the oil China buys from Africa. Beyond oil,
China is extracting copper and cobalt from Zambia and Congo. It is buying
timber in Gabon, Cameroon, Mozambique, Equatorial Guinea, and Liberia.
It buys platinum and chrome from Zimbabwe and iron ore, coal, nickel,
and aluminum from several other locations.

In each of these countries, the Chinese and the government in question
will sign a broad-spectrum "package deal" that gives the African partner a
number of rewards, featuring a mix of cash, investment, cheap credit, technical
expertise and training, and in-kind benefits such as new presidential palaces
and stadiums, or cheap infrastructure such as roads, dams, and railways.
The Chinese agreed to such an aid package involving major infrastructural
investment for Angola, which is Africa's second largest oil producer and the
continent's lead supplier to China. A $2 billion line of credit was announced
in 2004, but since then available finance has risen to a reported $6 billion, over
several years, to finance a raft of different projects such as hospitals, schools,
roads, bridges, housing, office buildings, training programs, and the laying
of fiberoptic cable. China's diplomatic support in international fora has
also proved notoriously handy, for example, for President Bashir of Sudan.
Other, less contentious elements include contributing to Africa's peacekeeping
missions, sending medical aid teams to supplement struggling health services,
and training and education opportunities for African students in China.

China is effectively making Africa an integral part of its economic development
for decades to come. Africa has not seen inward flows of this volume in all the
post-independence years. This is not only a matter of cash but also the linkages,
backward and forward, into Chinese and African markets and into government
policy and planning. To continue arguing about the desirability of the
relationship no longer makes any sense.

China's deep penetration in, and increasing integration with Africa is an
established fact. Much has been made of Washington's decision to announce
its new African Command while Chinese President Hu Jintao was on his
latest tour of Africa -- as if to warn China that the United States will protect
its African interests. But even if China's rivals in the West wanted to roll back
this expansion, there seems little chance that they could do so.

A New Development Model?
For Prime Minister Meles Zenawi of Ethiopia, the inflow of investment from
China is a concrete demonstration that the Western model of development
has failed. He spoke in February 2007 of the need to build "a strong
developmental state" complaining that "neo-liberal reforms" advocated by
the World Bank and others have failed to "generate the kind of growth they
sought." The only kind of good governance that takes root, he suggested, is
home grown, not imposed from outside. The implication is that African
leaders should worry less about meeting demands for transparency,
accountability, rule of law, and other such "neo-liberal" objectives and focus
instead on economic growth. With China in the picture, they will find the
resources they need.

It is true that Africa seems to be bucking conventional Western assumptions
on investment. In a recent review of the determinants of FDI in Africa,
Elizabeth Asiedu claims that "large local markets, natural resource
endowments, good infrastructure, low inflation, an efficient legal system and
a good investment framework promote FDI. In contrast, corruption and
political instability have the opposite effect." Yet China does not seem to
have been deterred from investing in African countries despite large-scale
"corruption and political instability" on the continent.

Indeed, some of China's investments go hand in hand with supporting
such corruption and instability. Chinese negotiators and businesses
routinely pay bribes to secure deals. Transparency International's
International Bribe Payers Index, published in October 2006, found that
China was second most likely, after India, to pay bribes abroad. Civil society
activists have argued that Chinese assistance has saved countries such
as Angola and Kenya from having to comply with pressure from other
international partners to improve performance on transparency and
accountability.

China has also exploited Africa's propensity to engage in civil conflict.
The Congressional Research Service in Washington estimates that
between 2001 and 2004, China was the continent's third largest arms
supplier (after Russia and Germany), supplying nearly 7% of Africa's
military purchases. The impact outweighs the volume, particularly because
of China's willingness to sell weapons to some of the continent's most
repressive rulers, including Bashir of Sudan and Mugabe of Zimbabwe,
and to buyers who then feed them into active conflicts. Light weapons from
China have flooded into the Great Lakes area, where millions have died
as a result of civil conflict.

In short, corruption and conflict do not seem to deter China; it is hungry
enough for oil and minerals to overlook these factors when making
investment decisions. Still, China's indifference does not mean that
governance and related factors are not important for Africa's economic
development. Unsurprisingly, the top recipients of FDI in Africa are
oil- and mineral-producing nations, with poor governance and stability
records. But also among them is South Africa, which is not a major producer
of petroleum and whose mineral sector is already intensively operated.
South Africa makes it into the top rank of FDI winners because its economy
is well run. The country's governance is of a high standard. There is
accountability and rule of law, corruption is relatively low, and stability
is guaranteed, notwithstanding a serious crime problem. While the bulk
of FDI flows into other African nations are mostly concentrated in the
extractive industries, in South Africa they fuel a diverse array of sectors.
Thus if we remove oil and China's appetite from the picture, we find
South Africa's competitive advantage is supreme and the reforms Prime
Minister Meles rejects are indeed critical to capturing foreign investment.

But Asiedu - with other economists - makes another point equally
significant for Africa's development. She notes that the supply of FDI
does not necessarily trigger the growth that leads to development. Countries
with significant oil and mineral deposits winning high volumes of FDI -
such as Equatorial Guinea and Angola - frequently fail to spread the
benefits. The purchase of goods and services may expand inside
particular enclaves without stimulating employment and services in the broader
economy. Several factors prevent sustainable growth, including high
unemployment and high rates of corruption, low educational levels, low
rates of domestic savings, and low citizen confidence in government; all may
persist despite intense investment in specific resources. Conversely,
countries that invest the windfall profits from petroleum or minerals
in the broader economy, while respecting the rule of law and maintaining
healthy legal and financial systems, do better at promoting equitable
development, even if they attract investment largely into the
extractive sector. Botswana, with its effective use of diamond revenues, is a case
in point.

Some African leaders, such as the ruling party in Angola and perhaps
Ethiopian Prime Minister Meles as well, have seized on the idea of a
Chinese model of development - involving an autocratic and
unaccountable commandist political economy - as an effective alternative to
Western-style reform. Yet the idea that there is no accountability in
China's development model is wrong, even if the lines of accountability do not
look much like the ones advocated by the World Bank. It is not autocracy in
China that has brought development - quite the reverse. China's
transition, while it still relies on its legacy of a commandist system,
is advancing because it is incrementally reducing autocracy and opening
space for choice and diverse approaches.

The truth is that the barriers to Africa's development are to be found
at home not abroad. Africa's fundamental challenge remains - to find a
homegrown model to overcome centuries of lost human and material assets
and build value at home. Indeed, China's investment puts the ball
firmly in Africa's court. Time and again African governments complain
that they cannot deliver development due either to a lack of support or to
interference from the West. But the resources, as Beijing likes to say,
now come with "no strings attached." Any failure to share growth and
put Chinese earnings to work will not be China's fault but that of the
African recipient government.

Some countries are aiming high. Last year, for example, Ghana's
establishment of institutions and conditions favorable to national and
international trade aroused China's interest and led to an increase in
Chinese trade. The Ghanaian government encouraged its private sector to lead in
conducting economic activities with Chinese entrepreneurs.
Ultimately the greatest challenge is not to persuade China to practice
responsible global governance - though this is very important - but to
prevent African leaders from squandering the tremendous opportunities
offered by Chinese capital. To take full advantage, African leaders
need to address two questions; how to cut deals with China that leave
lasting value in Africa and how to empower constituencies at home.
Let's Make a Better Deal Despite Chinese rhetoric about the "win-win" nature of the relationship with Africa, the African side of the table could drive a harder
bargain. It is a common complaint that when China contracts to deliver
infrastructure projects in return for raw materials, it insists on the
use of mostly Chinese labor, even in situations where African labor is
abundant and desperate for opportunities to acquire new skills. The
practice continues, despite the criticism. In another example, the Nigerian
government did not foresee or seek to limit the damage done by cheap
Chinese imports drowning its fledgling plastics and textile industries. And the
Zambian government's failure to require of Chinese employers reasonable
employment standards has resulted in violent confrontation and
political disaffection in the Copperbelt.

An African Union meeting of experts and diplomats in September 2006
warned that the China-Africa relationship should not follow the pattern
of relations with the West. Participants certainly appreciated that
Chinese investment gave Africa new leverage. But there was also
criticism that China was making "no serious effort" to "transfer skills and
knowledge to Africa" and relied excessively on labor from home. In a
list of challenges for both sides, presenters at the meeting stressed the
importance of industrialization and ending Africa's seeming perpetual
reliance on export of raw, unprocessed materials; on improving structure of
trade deals, and preventing an increase in Africa's debt, finding
mechanisms to ensure China pays more attention to environmental damage.
China, it was said, should be encouraged to relocate some of its industries to
Africa "as a reflection of a true spirit of partnership."

The report from this meeting concluded that "the African Union should
be the fulcrum of the emerging Strategic Partnership and should be able
to define the continent's interest more coherently and clearly." Africa
needs a strategy for China just as China has a strategy for Africa.
To succeed, that strategy might rely on collective bargaining. All
China's deals on the continent have been negotiated with governments
bilaterally, and the details are not made public. But at a pan-African
level, China is perceived to have acquired too much power and leverage in its
bilateral deals to the extent that disadvantageous agreements are being
concluded. It is hard to imagine China accepting the target proposed in
the report of 70% of all Africa's raw materials to be processed on
African soil, or even that joint ventures should use 80% African labor.
But even progress toward such targets is hard to achieve without increasing
leverage. Several commentators, notably economist Chris Alden, have
outlined new, potentially fruitful approaches for African negotiators;
such inputs are likely to be pushed to the fore as the pan-African
leadership advocates its strategies.

So far, China has proved ready to adjust as Africa begins to flex its
muscle. South Africa's president Mbeki warned late in 2006 of the risk
that Africa could fall into a colonial relationship with China. In
February 2007, during his eight-nation African tour, President Hu
Jintao went out of his way to promise that China would work to make the trade
relationship more balanced. He also said Chinese companies would be
encouraged "to increase investment, provide technical and management
training and help Africa develop processing and manufacturing industries so as
to ease employment pressure and enhance competitiveness of its
exports."

The key vehicle for that encouragement, the China-Africa Development
Fund will direct $5 billion toward encouraging Chinese companies to
invest in Africa.

China may lose some negotiating advantage if African countries can
start to collaborate and cut better deals, but there could be benefits
as well; Beijing might find it easier to deal with Africa "in bulk."
Chinese policy analysts in Beijing in November 2006 told a visiting
delegation from Washington, D.C. that managing relations and
obligations with dozens of countries bilaterally was proving cumbersome. They were
looking to the Africans to establish a joint body that might coordinate and
bundle African needs and concerns.

Holding China and Africa Accountable
To maximize the benefits of the Chinese windfall, as argued above,
Africa needs to deepen its commitment to better governance and cut a
more advantageous deal with Beijing. But there is a third major shift in
attitude that is critical for Africa's future. Non-governmental
stakeholders need to be empowered and encouraged to hold both the
Chinese and their own governments to account. Ultimately this will improve both the
quality of governance and of the relationship with China.

This is critical for African governments but it could help China too.
China is most comfortable dealing state-to-state with Africa. Its
engagement in Africa has been remarkable for its focus on government
officials and avoidance of less formal contacts. As a result, Chinese
diplomats and officials in Africa have missed out on learning from two key
constituencies: business and civil society. They too need to pay more
attention to non-governmental voices.

Many African businesspeople have good reason to rue China's impact on
their lives While the benefits of Chinese investment have spread only
partially to the rest of the economy, trade has brought Chinese
manufactures into the markets at prices too low for African
manufacturers to beat. Nascent African industry making plasticware and textiles, for
example, face competition from a player with deeper pockets than they
and no aversion to producing counterfeit goods. Similarly, Chinese firms are
able to bid for building contracts and other service provision at lower
prices than African competitors can manage. African trade unions and
others have collected extensive evidence that hundreds of thousands of
African jobs have been lost as a result. And in South Africa, it was
protests by these same trade unions that galvanized President Mbeki to
warn China, late in 2006, that dumping of goods had to stop. In a similar
vein, protests from Zambia's civil society, given powerful voice by
opposition party leader Michael Sata, have exposed Chinese labor
practices in its extractive sector businesses.

The views of African populations find expression not only through
government but through their non-governmental representatives.
Governments like that of Ethiopia's Meles, which brushed away criticism over its
shooting of 82 defenseless civilians in 2005 for protesting in the
streets, are apparently puzzled by the suggestion that they need to be
more accountable. But others less preoccupied with keeping themselves in
power at all costs will find, if they allow non-governmental voices to be
heard, that they can be allies in the relationship with China.
Neither business nor civil society takes a rigidly anti-China view. The
former, rather than rejecting Chinese investment, has mostly complained
about not having sufficient opportunity to take advantage of the
capital inflow. African civil society voices who advocate better
government and civil and political rights at home have applauded the Chinese for
investing in infrastructure, a no-go area for Western donors for
decades, and recognized the qualitative contrast between the hands-on pragmatism
of Chinese expatriates and Western development efforts from inside the
air-conditioned Land cruiser.

But such groups have also criticized their governments for the lack of
transparency in deals made with China and asked hard questions about
the payment of bribes, colonial-style attitudes and the lack of jobs
for Africans. As Zainab Bangura of Sierra Leone's National Accountability
Group commented recently: "We've spent 15 years working on conventions
against corruption and now the Chinese come in and they haven't signed
any of it. They're secretive and will only deal with governments, they
don't consult civil society or anyone." On a broader agenda, civil
society coalitions like the Darfur Consortium that represent over 50
organizations have shown leadership in protesting the carnage and human
rights abuse in Darfur, Sudan, and added their voices to international calls
on China to use its leverage with Khartoum.

By listening to and acknowledging such critiques, African governments
and their sub-regional and regional organizations can gain leverage in
their negotiations with China. Beijing likes to be seen in Africa as a
"brother" nation, in solidarity with Africans. It will take African
critiques more seriously than Western complaints. Some African
governments, particularly those worst affected by the resource curse, clearly have
no intention or desire to become more accountable or push back in their
relations with China. These arguments will cut no ice with them. But
China may choose to seek out and get to know African civil society
anyway. China's new integration into African economies is proving to
carry some alarming risks. Investment and operation in the Niger Delta have
put Chinese oil workers in harm's way, making them suddenly vulnerable to
militants and hostage-takers. In Darfur, Chinese oil installations have
been attacked. China cannot afford to put all its eggs in government
baskets.

Inevitably, regardless of official attitudes, informal non-governmental
encounters between China and Africa will increase. Hundreds of
thousands of Chinese citizens have moved, legally or illegally, to
African countries. Some 24 African countries are now approved as destinations
for Chinese holidaymakers, not only a good source of revenue for African
tourism industries but a guarantee of an unprecedented level of
person-to-person contact. In addition, with three Confucius Institutes
in South Africa, Kenya, and Rwanda, many more Africans will learn about Chinese
culture and study Chinese language. China's ministry of education
believes 8,000 Africans are currently learning Chinese. With five more
Confucius Institutes projected, that number will rise sharply, with a
potentially lubricant impact on cooperation.

At some point in the future Chinese citizens too might grow more
concerned about China's role in Africa. At the recent World Social
Forum in Nairobi, Chinese groups focused on domestic Chinese issues found
themselves assailed by Western NGOs and, to a lesser extent, African
groups, over Chinese government and corporate practices in Africa. In a
shrinking world, we are only just beginning to see the consequences of
China's opening up to other cultures and communities.

For non-governmental Africa in these new times, the choice is not
between China and the West. The important choice must be made closer to
home. On one side are the rulers who are too lazy, incompetent, or
venal to take the necessary steps to share the benefits of investment and give
Africa's populations the chance to build a viable economic future. On
the other side is the real leadership of presidents, business leaders,
and legislatures who have the self-discipline, honesty, and commitment
to set a new course and use the unprecedented benefits of Chinese
investment to achieve some real development.

Don't focus so much on the elephants. The future of Africa lies with
the grass.

Akwe Amosu is a senior policy analyst for Africa at the Washington
Office of the Open Society Institute and a contributor to Foreign
Policy In
Focus (www.fpif.org).
World Beat
--------------------------------------------------------------------------------
Published by Foreign Policy In Focus (FPIF), a joint project of the
International Relations Center (IRC, online at www.irc-online.org) and
the Institute for Policy Studies (IPS, online at www.ips-dc.org).
©Creative Commons - some rights reserved.

Recommended citation:
Akwe Amosu, "China in Africa: It's (Still) the Governance, Stupid,"
(Silver City, NM and Washington, DC: Foreign Policy In Focus, March 9,
2007).
Web location:
http://fpif.org/fpiftxt/4068
Production Information:
Author(s): Akwe Amosu
Editor(s): John Feffer, IRC
Production: John Feffer, IRC