China doubles down in Africa

Source: Asia Times Online

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 favouritism 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 ODA; 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. 

Fortunately for China, the DRC - which currently
has only enough foreign exchange
on hand for a few weeks
of import cover - is maintaining
its enthusiasm for the proposed megadeal.

However, neighboring Zambia, which shares in
the immense bounty of copper ore crossing
the southern Congo, presents a greater challenge
for the traditional Chinese way of doing things in Africa.

The wake-up call for China probably came in 2007,
during the flush years of the commodity boom,
when China's President Hu Jintao was met by protesters
in Zambia's capital of Lusaka, and the government
cancelled a trip to a China-run copper mine at

Chambeshi to spare him the embarrassment
of further protests.

For several years, anti-Chinese sentiment has
been central to Zambian opposition leader
Michael Sata's electoral platform.

A July 2008 report quoted Sata as follows:
"It is not only Zambia - it's all
Cape to Cairo where the Chinaman is,"
Sata says. "That's the way they look at us.
They have no regard for us.
They have no regard for our independence.
They have no regard for any black person
as a human being.

Those are very abnormal conditions,
very abnormal conditions. Very abnormal conditions,
which a civilized society, in this century, cannot accept."
Sata came to the United States to play the human-rights
and democracy card at Harvard, and also threatened
to play the nearly-defunct Taiwan card:
"…the Patriotic Front in Zambia finds it
more prudent to cultivate relations with Taiwan,
a democracy and a more advanced country than China,
which can provide high quality investment and
more equitable trading opportunities."
Sata's provocative stance on Taiwan prompted China
to make an exception to its principle of non-interference
in local politics and state.

In 2006 there was a chance of severing relations
if Sata was elected.

China is acutely aware that Sata may gain the presidency
in his fourth try, in 2011, and that his defeat in 2006
occasioned anti-Chinese looting and rioting in one
of Sata's electoral strongholds, the capital of Lusaka.

In the midst of the recession - and undoubtedly
at the prodding of President Hu,
who is accustomed to very friendly and deferential
welcomes in African capitals - China has stepped up
its efforts to repair the damage and ingratiate itself
with public opinion in Zambia.

Beijing is confronting two hot-button issues for
Sata's base: domination of the domestic textile
and garment trade by Chinese traders and imports,
and Chinese abuses in the Copperbelt,
where a combination of generally miserable
working conditions, violent and at times
deadly union-busting at the China-run Chambeshi mine
and Sata's demagoguery have created
a toxic atmosphere of resentment and labor unrest.

A conspicuous political albatross for the pro-Chinese
ruling party has been the closure of
the Zambia-China Mulungushi Textiles enterprise.

Originally a symbol of state-run benevolence,
the Chinese interest was turned over
to the Qingdao Textile Corporation in 1997 and
run along time-tested sweatshop principles,
including demanding, abusive managers who locked
the employees into the plant at night.

The plant closed in 2006 amid intense rancor and
resentment against the Chinese management and
turned into a symbol of
the Zambian government's unwillingness
to protect Zambians against Chinese exploitation.

In March 2009, Zambia's defense minister
(the Ministry of Defense holds Zambia's interest in the plant)
announced that China and Zambia were
jointly studying the re-opening of the plant
and the expected creation of 2,500 presumably desirable jobs:
"The team of experts have so far captured
a comprehensive factor of what we need
to ensure the company is back into
serious business and further strengthened.

For us as government this is
a significant development," said Mr [George] Mpombo.

The defense minister pointed out that Zambia
and China would like to ensure the company
is utilized to its full capacity.

"For the last two years there have been serious
hiccups in operations and a yawning capacity
of that company.

That company has the capacity to export and
do miracles for the country," said Mr Mpombo.
Furthermore, on June 25, it was announced that
China Non-Ferrous Metal Corporation would
take over operation of the Luanshya Copper Mine,
which had been shuttered due to low global copper prices.

The Zambian government was quite frank
about the political background to the transaction:
Minister of Mines and Minerals
Development Maxwell Mwale said at
the official handover in
Zambia's Luanshya District on the Copperbelt
province that the coming of a new investor
was an indication that the government was
committed to bringing development to
the district because the closure of the mine
was turned into a political platform.
China bid $50 million for the controlling foreign interest
in the mine, and promised $400 million in investment,
including the seemingly mandatory hospital, school
and sports facilities infrastructure outlays.

It appears that China's posture in Zambia has quickly
evolved from old-style socialist solidarity to unfettered
Wild West capitalism run by entrepreneurial
Chinese enterprises to adult supervision
- strategic engagement directed by the Chinese government.

It remains to be seen if Beijing's public relations
and financial efforts are enough to stem the Sata tide in 2011.

China also displayed its commitment to strategic
engagement in Angola, site of its most
conspicuous triumph in its post 9/11 drive into Africa.

The basic objective of the $6 billion oil-for-infrastructure
deal has been met; as Angola has joined Saudi Arabia
and Iran as one of China's three biggest suppliers of crude.

The notoriously independent and
prickly Angolan government is determined to keep
channels to the West open, and recently
denied China's Sinopec petrochemical corporation
the opportunity to invest in an $8 billion
new refinery at Lobito;
instead Angola decided to come up with
the money itself and give the design and
build contracts to
former US vice president Dick Cheney's old outfit, KBR.

Nevertheless, since the global recession
and the drop in international oil prices has
punched a hole in Angola's balance sheet,
China has stepped forward with
new credits: $1 billion from its Export-Import Bank
in December 2008, and another $1 billion
from the China Development Bank in March of this year.

Additionally, China purchased almost one million
barrels of oil from Angola for
its strategic petroleum reserve,
which can be interpreted simultaneously
as an opportunistic move to take advantage
of low prices, an attempt to find
a better home for its bloated forex reserves
than US T-bills, and an expansion of
oil imports in tough times that Angola would appreciate.

Nancy Corkin of South Africa's Center
for Chinese Studies at Stellenbosch University
writes in the March 2009 China Monitor
that the new credit appears to illustrate
Beijing's efforts to develop policy-driven
engagement with Angola beyond
the narrower self-interest
that drove the original oil-backed loans:
"The size of the loans and the eagerness
of several Chinese financial institutions
to lend to Angola signify the strategic importance
with which Beijing views Luanda as
Chinese banks vie to engage
with Angola to curry favor
with the Chinese State Council."
In a sign that China is interested in promoting
indigenous financial development and integration,
and not just writing checks to interested governments,
on June 16 the ICBC/Standard Bank joint venture
concluded the largest Chinese investment banking
transaction to date in Africa - an $825 million loan
(plus $140 million in bridge financing)
to finance the expansion of Botswana's Marupule power station.

Not unsurprisingly, supply and build for the project
will be handled by China National Electric
Equipment Corporation.

Jiang Jianqing, the president of ICBC - which now
bills itself as the largest bank in the world
in terms of market capitalization - flew out
from Beijing for the signing ceremony
to emphasize that China was open
for business to Africa in these tough times:
"Africa is a huge market with massive potential,"
Jianqing said. "Africa needs urgent foreign investment,
especially after the impact of the global crisis,
so we will look at more projects to invest [in]."

"The financing of the Morupule B Power Station
is just one of 65 projects that the ICBC
is currently funding on the African continent and
is evidence of China's strong appetite
for African investment opportunities," said Jiang.
Hu Jintao's 2009 tour of Africa - which covered
the distinctly non-strategic states of Senegal, Mali,
Tanzania and Mauritius - was apparently
designed to demonstrate that China was not just
in Africa for the oil, cobalt and copper,
as Peking University's Zha Daojiang told Reuters:
"The itinerary appears intended to show
that we treat all the African countries,
big and small, equally," said Zha.

"There's also the implicit message that
China's relationship with Africa isn't solely
defined by resource and energy investments."
It appears that China hopes to emerge from
the global recession not only with
its economic standing intact; it intends
to enhance its position and present itself
in Africa as the responsible, perhaps
indispensable stakeholder that the West
has claimed to yearn for but
is perhaps not anxious to see materialize.

Source: Asia Times Online

China doubles down in Africa

By Peter Lee

Peter Lee
writes on East and South Asian affairs and
their intersection with US foreign policy.

(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved.
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