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China in Africa: The Ups and the Downs

August 23, 2007


Anyone who has scanned international headlines over the past couple of years knows that China has made big inroads on the African continent. Many of its efforts have been in search of oil. Chinese companies have shown a willingness to go where companies from other developed nations have not. Such a place is Chad. Howard W. French, Lydia Polgreen, and Fan Wenxin, in a New York Times article, discuss China’s efforts in Chad and elsewhere in Africa  [“China, Filling a Void, Drills for Riches in Chad,” 13 August 2007].

“Chad is as geographically isolated as places come in Africa. It is also among the continent’s poorest and least stable countries, the scene of recurrent civil wars and foreign invasions since it gained independence from France in 1960. None of that has put off the Chinese, though. In January, they bought the rights to a vast exploration zone that surrounds this rural village, making the baked wilderness here, without roads, electricity or telephones, the latest frontier for their thirsty oil industry and increasingly global ambitions. The same is happening in one African country after another. In large oil-exporting countries like Angola and Nigeria, China is building or fixing railroads, and landing giant exploration contracts in Congo and Guinea.”

The article points out that oil isn’t the only natural resource on which China has its eye.

“In mineral-rich countries that had been all but abandoned by foreign investors because of unrest and corruption, Chinese companies are reviving output of cobalt and bauxite. China has even become the new mover and shaker in agricultural countries like Ivory Coast, once the crown jewel in France’s postcolonial African empire, where Chinese companies are building a new capital, in Yamoussoukro, paid for by Chinese loans. Surging Chinese interest in this continent has helped bring about what many Africans believe is the most important moment since the end of the cold war, when democracy was spreading in Africa and Western nations spoke of a ‘peace dividend’ that might ease African poverty.”

The authors indicate that Western interest in Africa has waned. Although they don’t indicate why there was a precipitous fall in the interest given to Africa, perhaps it was a result of the conflict in Iraq. Certainly the amount of resources being poured into Iraq has affected how much the U.S. Government believes it can spend in Africa. Without Western government interest and pressure on African leaders to reform, investors have turned a blind eye on most African countries.

“Westerners complain about chronic corruption and ineffective government, while Africans lament broken promises on aid and a hostile international economic system. The Chinese have stepped into this picture, coming to struggling countries like Chad with deep pockets, fewer demands on how African governments should behave and an avowed faith in everyone’s ability to prosper. To help make that happen, China plans to build the country’s first oil refinery, lay new roads, provide irrigation and erect a mobile telephone network, for starters. With such intensive efforts across the continent, China’s trade with Africa topped $55 billion in 2006, up from less than $10 million in the 1980s. To achieve this growth, it has bypassed multinational institutions like the World Bank and the International Monetary Fund and flouted many of their lending criteria, including minimum standards of transparency, open bidding for contracts, environmental impact studies and assessments of overall debt and fiscal policies.”

While corrupt governments welcome investment with few strings, as the article notes, not everyone in the development community believes it is a good thing [see my post on Rogue Aid]. Many critics are asking, “Are we seeing the future or the past?”

“In some ways, the new Chinese model of doing business in Africa is a throwback to an earlier era of Western involvement that is now widely seen as disastrous. In that era, borrowing countries typically had to work with companies from the lending nation, limiting competition and giving priority to business over development. Today, China takes things even further, signing long-term deals for rights to natural resources that allow countries otherwise unworthy of credit to repay their debt in oil or mineral output. ‘In what manner has Africa progressed, in what sector?’ said the Chadian president, Idriss Déby, referring to decades of close ties to the West. ‘Whatever the good will of Africa’s old friends and the old partners in its development, it has not progressed at all.’ Still, major doubts hang heavily in the air. Will China’s hunger for raw materials enable this continent to take off? Or will Beijing’s willingness to spend whatever it needs in Africa, without regard to fiscal prudence, democracy, honest business practices and human rights, produce a replay of booms past, enriching local elites but leaving the continent poorer, its environment despoiled and its natural resources depleted?”

The article notes that Chad is a test case. It is already at the bottom of the pyramid and has nowhere to go but up. Chad is still rife with all the problems that have beset so many African countries and kept them entrenched in grinding poverty.

“There are few better places than Chad to watch for signs of how China’s African gambit will pay off. Chad ranks just four places from the bottom on the United Nations scale of human development, yet it is emerging as a critical piece in China’s economic push in a broad swath of sub-Saharan Africa, beginning with Sudan and extending in virtually every direction. Despite advanced prospecting by French and other Western firms dating back to the 1970s, Chad’s oil had never been tapped. The nation was simply too unstable and the price of oil too low to justify investing much here. The oil that had been found was of low quality, and there was no practical way to get it out. That changed in 2000, when the World Bank agreed to help finance a $4.2 billion, 665-mile pipeline connecting Chad to Cameroon on the condition that oil revenues be used to fight poverty. Chad’s revenues quickly outstripped expectations, but have not gone into quelling its immense poverty. Mismanagement and fraud have beset the World Bank plan from the start. Beyond that, Chadian rebels with bases in Sudan have been trying to depose Mr. Déby, so he pressed the World Bank to relax its rules on how to spend the country’s oil money. A compromise was reached, and he went on a military spending spree, buying guns, aircraft and armored vehicles for his troops, along with a fleet of armored Humvees that stop traffic as they zoom about Ndjamena’s dusty, potholed streets.”

The article contains an assessment by Dou Lirong, the general manager of China National Petroleum Company International in Chad, that the Chinese presence in Chad is a win-win situation. The article concludes, however:

“Chinese officials almost invariably describe their relationship with African countries as a win-win — based on mutual respect, aimed at joint prosperity and free of the overtones of exploitation and paternalism that critics worldwide say have governed much of the West’s postcolonial relationship with Africa.”

Not all African countries see China’s presence as a win-win situation. In a more recent article, Polgreen and French report how a flood of low cost Chinese products has affected the African manufacturing sector [“China’s Trade in Africa Carries a Price Tag,” New York Times, 21 August 2007]. They begin their story in the courtyard in front of the once bustling Zambia China Mulungushi Textiles factory.

“The factory used to roar. From the day it opened more than 20 years ago, the vast compound had shuddered to the whir of rollers and the clatter of mechanical weaving machines spooling out millions of yards of brightly colored African cloth. Today, only the cotton gin still runs, with the company’s Chinese managers buying raw cotton for export to China’s humming textile industry. Nobody can say when or even if the factory here will reopen. ‘We are back where we started,’ said Wilfred Collins Wonani, who leads the Chamber of Commerce here, sighing at the loss of one of the city’s biggest employers. ‘Sending raw materials out, bringing cheap manufactured goods in. This isn’t progress. It is colonialism.'”

The article does reaffirm that China is spending lots of money in Africa, including Zambia, but the basic point is that China is primarily pursuing raw materials to keep its own factories open.

“China is also exporting huge volumes of finished, manufactured goods — T-shirts, flashlights, radios and socks, just to name a few — to those same countries, hampering Africa’s ability to make its own products and develop healthy, diverse economies.”

African countries will not experience sustainable economic growth by relying on the export of natural resources. One of the reasons that Tom Barnett and I came up with the idea for Development-in-a-Box™ was to break this cycle of reliance and help countries develop the diverse economic base and create the jobs they need to prosper. Until China understands which of their programs are helpful and which are harmful, their ventures in Africa will continue to bear the rogue label.

“On the one hand, Chinese imports give Africans access to goods and amenities that developed countries take for granted but that most people here could not have dreamed of affording just a few years ago — cellular telephones, televisions, washing machines, refrigerators, computers. And cheaper prices on more basic items, like clothing, light bulbs and shoes, mean people have more money in their pockets. … But across Africa, and especially in the relatively robust economies of southern Africa, there are clear winners and losers. Textile mills and other factories here in Zambia have suffered and even closed as cheap Chinese goods flood the world market, eliminating jobs in a country that sorely needs them. The Chinese investment in copper mining here has left a trail of heartbreak and recrimination after one of the worst industrial accidents in Zambian history, a blast at a Chinese-owned explosives factory in Chambishi in 2005 that killed 46 people, most of them in their 20s.”

While China points to the creation of jobs, many of them are driven by China’s need for resources to fuel its own economic boom. If China’s demand for resources decreases, many, if not most of those jobs could disappear. In the meantime, the manufacturing sector continues to suffer. China has learned that Africa, despite its poverty, can be a good market. Hopefully, China’s investment strategy in Africa will help create middle classes in countries that now lack them and their rise will help stimulate a more sustainable economic pattern. The debate will continue to rage.

“Many African scholars and political leaders say Africa has no need for the colonial baggage and paternalism of the West, and they welcome the Chinese approach of cowboy capitalism. ‘Let the Chinese come,’ said Mahamat Hassan Abakar, a lawyer in Chad, a former French colony in central Africa with deepening ties to China. ‘What Africa needs is investment. It needs partners. All of these years we have been tied to France. Look what it has brought us.’ In South Africa, dozens of clothing and textile companies closed, according to trade organizations representing manufacturers. Tens of thousands of jobs were lost because of Chinese imports, and in response the government negotiated temporary voluntary restraints on some items. But Iqbal Meer-Sharma, deputy director of South Africa’s Department of Trade and Industry, said that the clothing industry was ultimately less valuable to South Africa than the other benefits of its growing relationship with China.”

Regardless of which way Chinese/African relations turn, it is clear that the West is missing an opportunity to help develop the continent. Western countries lament how China is pursuing its African strategy, but they have offered little to counter China’s approach and help countries develop much needed infrastructure. To be sure, African leadership has a long way to go to rid their administrations of graft and corruption and establish conditions necessary to help attract investment from other countries. It can be done, and there are several good examples sitting “across the pond” in Latin America. Chile, Brazil and Mexico are undergoing economic booms and creating middle classes that will help sustain their future economic growth. More on those countries in a later post.

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