China in Africa: Its (Still) the Governance, Stupid

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).