Wednesday, 15 July 2009


China doubles down in Africa

By Peter Lee
Asia Times Online

"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

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

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

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

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

"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]

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

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

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

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

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

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

"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

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

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.

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

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