Doing business in China

Beginning this month and continuing through November, The Atlantic will be running a series of clips from the DVD series "Doing Business in China" - a three year project headed in part by James Fallows. The clips will offer footage from factory floors, peasant villages, CCP headquarters, and the offices of foreign firms which have learned to be financially successful in the Middle Kingdom. The idea is to present the "real China," beyond the hype and the noise. It appears to be a most interesting project, and certainly worthy of your attention.

The following is the project's introductory video:

On China's burgeoning relationship with Francophone Africa and oil-for-infrastructure contracts

The July issue of The China Monitor - a publication of the Centre for Chinese Studies at the University of Stellenbosch - is focused exclusively on the relationship between China and Francophone Africa. I find the focus most interesting, as it seems to suggest that the colonial history of African nations in some way affects the nature of China's engagement with them. Is China's engagement with Francophone Africa different, then, from its engagement with English Africa? Or Portuguese Africa? I admittedly hadn't given such a possibility much previous thought, but it is a hypothesis worth exploring.

Page 7 of this issue also features a piece by a colleague of mine, Dunia P. Zongwe, in which he interestingly writes on China's ore-for-infrastructure contracts, and the economic complementarities between China and Africa. The crux of Dunia's argument suggests that:

[...] the terms of economic exchanges in the mining sector between China and resource-rich African countries should assume, whenever possible, a R4I [resource for infrastructure] form.

In their essence, R4I contracts mirror contrat d'echange (exchange contracts), which do not involve any direct transfer of money to host governments, thereby reducing the risk that governments will mishandle investments. According to Dunia, such contracts carry further positive distributive outcomes, as African countries are able to retain and spread more widely the benefits of FDI than under traditional investment contracts. Such positive externalities are visible in Angola, which was recently lauded for its effectiveness in managing Chinese investment.

The Angolan case indeed seems to suggest that R4I contracts may be a valuable tool by which to optimize China's FDI in Africa if managed accordingly. The case further does well to bring African governance back into the equation; ultimately it is up to African governments to devise appropriate investment policies which optimize Chinese FDI and assist in developing the state and economy. The Chinese are making their moves, and African leaders must make theirs.

"Among the worst employers everywhere"

Via Global Dispatch's Erin Conway-Smith I'm reminded of a report I've been meaning to link to for some time, but have continuously forgotten to do so - apologies! In May, the African Labour Research Network released a great 400+ page report on the labour conditions maintained by Chinese-operated firms in Africa. The report - "Chinese Investments in Africa: A Labour Perspective" - focuses especially on the cases of Angola, Botswana, Ghana, Malawi, Namibia, Nigeria, South Africa, Zambia and Zimbabwe, among the nations where the Chinese presence is most pronounced, and with which trade is particularly high.

Unfortunately for the Chinese, the findings are not at all favorable towards them. Quite generally, the report finds:

Chinese employers tend to be amongst the lowest paying in Africa when compared with other companies in the same sector. In Zambia, for example, the Chinese copper mine paid its workers 30% less than other copper mines in the country. In general, Chinese companies do not grant African workers any meaningful benefits and in some instances ignore even those that are prescribed by law. Wages above the national average were only found at those Chinese companies with a strong trade union presence. Chinese staff members enjoy significantly higher wages and more benefits than their African counterparts.

Collective bargaining hardly takes place in Chinese companies. They resort to union bashing strategies to discourage their workers from joining a trade union. In many instances, Chinese businesses were supported by host governments who defended Chinese investments against the demands of labour. Trade unions see the practices of Chinese companies as a threat to the limited social protection that unions have achieved over the years through collective bargaining.

In Namibia, for instance, some workers are paid $0.55 an hour by a Chinese company that is building the new Works and Transport Ministry headquarters - about half the legal minimum wage of $1.10 per hour for entry-level construction workers. In many cases workers don't wear safety helmets, as they are often required to pay for their own safety equipment - an investment they can ill afford. At a construction company in Malawi, too, workers had to mix cement with their bare hands. Many labour for 12 hours a day, 7 days a week. The general work day in much of Africa is 8 hours.

Of course it's difficult to expect high standards of working conditions in Chinese firms in Africa when Chinese firms in China don't fare any better. As I noted nearly a year ago, it's quite difficult to expect Chinese employers to improve labour conditions for foreign nationals working in their firms, when they have yet to do so for their own compatriots. For African states, the solution lies in legally regulating working conditions. But as the South African case demonstrates, where in place even such edicts are being circumvented. Thus while Africa stands to benefit from increased Chinese investment as such, it similarly stands to lose if such conditions continue. Change must occur, the lingering question is how.

Don't cry for me Latin America. Yet.

While this blog is mostly devoted to issues surrounding the Sino-African partnership, one must not forget that China is similarly active in other regions of the world, most recently Latin America. China's strategies in Latin America seem to differ little from those employed in Africa, with 'oil-for-infrastructure' deals, tech investments, extensive bilateral trade agreements, and the influx of cheap Chinese goods as the wooing tactics of choice. Trade between China and Latin America soared from $10 billion in 2000 to $140 billion in 2008.

As is true of Africa, Beijing's main interest in Latin America is the guaranteeing of access to the region's raw materials - oil, soybeans, copper, iron ore, etc. - to fuel its continued rapid growth. Yet as is also true in Africa, China's ambitions are also grandly geopolitical. According to Tyler Bridges:

China is beefing up its embassies throughout Latin America, opening Confucian centers to expand Chinese culture, sending high-level trade delegations throughout the region and opening the door for ordinary Chinese to visit Machu Picchu, Rio, and other tourism hot spots.

Aiping Yuan came to Rio de Janeiro from Beijing in 1997 on a lark, fell in love with the city, and decided to stay. She studied Portuguese, and when Brazilian President Luiz Inácio Lula da Silva made his first visit to China in 2004, she opened a small school in Rio to teach Mandarin.

She began with six students and today has 300, including senior executives at Petrobras, the country's biggest oil company, and Vale do Rio Doce, the biggest mineral producer. Both have growing business with China.

"Chinese is the language of the future for Brazil," Yuan said with a big smile.

Chinese will be the language of more than just Brazil if Beijing's leaders have anything to do with it. As Bridges aptly observes, China is buying zinc from Peru, copper from Chile, and iron ore from Brazil. It's shipping equipment to Brazil, buses to Cuba, clothes to Mexico and cars to Peru. Chinese tech giants Huawei and ZTE are likewise grabbing business from established telecom suppliers across the continent, most prominently in Argentina, Chile and Colombia. Yet while China seemingly has a Latin America strategy (or perhaps a 'developing world' strategy more generally; it's hard to tell), Latin America doesn't appear to have a China strategy.

Writing in his excellent blog, Tom Pellman cites David Shambaugh who notes:

Latin America is acting toward China's expansion in the world in a reactive, disorganized or ad hoc fashion. When I asked Itamaraty (Brazil's foreign ministry) about its strategy on China, I got blank stares. There is no strategy.

Such a lack of strategy indubitably works to the detriment of Latin American states - as it does African nations which similarly lack much in the way of a policy of engagement with the eager Chinese - who stand to gain from Chinese investment. In Latin America, as much as in Africa, there are many benefits to be accrued from recent Chinese interest. Yet without a plan of action, it seems that China will walk away as the sole beneficiary when all is said and done.

In the land of the blind, the one-eyed man is king

Business Action for Africa recently released a new report on what businesses can do to sustain the Millennium Development Goals (MDGS) in Africa. The report brings together insights from various business leaders and NGOs, as well as from the likes of Paul Collier, Kofi Annan and Lord Malloch-Brown, among others. Many of the contributions seemingly follow the standard protocol of touting transparency, governance, business environment reforms, effective public-private partnerships, investments in the private sector, and other well-known policy prescriptions. As Richard Laing, Chief Executive of CDC aptly notes:

Much has already been said about the impact of the global downturn on Africa, but a great deal of the talk about solutions has been empty rhetoric full of generalisms that regard Africa as one homogenous place. Any simple prognosis for the continent’s economic future ignores the fact that there are 48 countries in sub-Saharan Africa with differing economies and at varying stages of development. It is action, not talk, that is required.

That said, there is one particularly worthwhile analysis, written by Dr. Peter Eigen, Chairman of the Extractive Industries Transparency Initiative. Eigen writes:

In the land of the blind, the one-eyed man is king. When it comes to knowing how the global financial crisis will affect Africa we are all living in the land of the blind. Usually we can rely on the IMF to be the one-eyed man, but the IMF’s growth predictions for 2009 give such a mixture of signals that it is impossible to form a clear overall picture. We do know, however, that 2009 will see a series of difficult social and political changes in Africa: elections, strikes, civil unrest, rising fuel and food prices, and a more challenging environment for exports. Because of Africa’s unique finance and liquidity circumstances, and due to volatile exchange rates and commodities prices, it is safe to assume that the financial crisis will be felt differently in Africa than elsewhere.

Eigen's acknowledgment of the uncertain is quite refreshing; for as much as we think we may know about Africa's future trajectory and development needs, there is indeed that much more than we don't. Eigen is also particularly prudent in his discussions of EITI - the very organization of which he is Chairman: "The Extractive Industries Transparency Initiative (EITI) has long been held up as a shining example of how multi-stakeholder initiatives can address these kinds of challenges. But much of this praise has been premature. The initiative is still young." Such rhetoric comes in stark contrast to others in the development field who proclaim with overwhelming conclusiveness the merits of their formulaic approaches to poverty alleviation/aid/whatever, embryonic though these approaches may still be. Every now and again it's nice to be reminded that there are people in the field who are guided not by grandiose visions but by practical, thought-out solutions to given problems. Thank you, Mr. Eigen

In any event, do read the report; it will surely be worth your while.

More on international land purchases (and what to do about them)

Further to last week's post on international land purchases in developing countries (mainly in Africa, really), an interesting piece in today's VoxEU suggests that such purchases could be good news "if the objectives of the land purchasers are reconciled with the investment needs of developing countries." Quite an obvious statement, really, but how does one go about ensuring that this is the case?

According to authors Denis Drechsler and David Hallam:

Apart from improving the conditions of land deals, several looser contractual arrangements should also be considered. In fact, the purchase and direct use of land resources is only one strategic response to the food security problems of countries with limited land and water. A variety of other mechanisms can offer just as much – or even higher – security of supply, such as contract farming and out-grower schemes, bilateral agreements including counter-trade, and improvement of international food market information systems.

Investment could be in much-needed infrastructure and institutions that currently constrain agriculture in developing countries, especially in Sub-Saharan Africa. This, together with efforts to improve the efficiency and reliability of world markets as sources of food could raise food security for all concerned through an expansion of production and trade possibilities.

What Drechsler and Hallam are effectively proposing is a "binding code of conduct" which would govern land purchases, as well as a thorough search for alternatives, as noted above. What neither they nor anyone else have been able to tease out, however, is what a regulatory framework will look like, should there be one. Will each recipient state have the authority to establish its own guidelines, or will they be enforced through an agency like the UN FAO, for instance?

While many questions abound, it's heartening to see that the debate on land purchases and food security is finally being brought to the forefront, where it arguably should have been several years ago.

Chinese language newspaper launched in Botswana

The Oriental Post, a Chinese-language newspaper, was launched in Gaborone, Botswana last week.

Man Niles, president of the Oriental Post, said he hopes the newspaper will enable better communication between service providers, product developers and the Chinese community in Botswana. Since "most of the Chinese do not understand English and speak very little Setswana," there presently exists a rather sizable information gap and communications barrier for the Chinese resident in the country. The newspaper is the first attempt aimed at closing this gap.

China is a major actor in both the rural and urban areas in Botswana. Just this April China agreed to establish a major textile industrial park in Phakalane, and is quite eagerly investing in the country's diamond industry.

New research on Sino-Timorese relations

A new report on China's relations with East Timor by Loro Horta has recently been published by France's Institut de Recherche sur l'Asie du Sud-Est Contemporaine (Research Institute on Contemporary Southeast Asia). The report traces the alleged successes and limitations of China's strategy in East Timor and hopes to:

[...] shed some light not only on the intricacies of relations between the two countries, but also on China’s relations with other small, poor but resource rich countries like Timor-Leste. Finally it is the hoped by the author that the current article may give a modest contribution to the study of China’s foreign relations and its diplomacy in the developing world.

The report is written from quite an IR realist perspective, though does well to highlight several consistencies in China's "go out" policy and the nature of its bilateral relations with developing states, particularly insofar as its oil and energy, infrastructure, and technology investments are concerned.

More on contemporary land grabs: the case of the DRC

A brief follow-up on my previous post, if I may.

While it is true that the vast majority of farmland investments in Africa are those of foreign entities, this is not always the case as an interesting piece in the WSJ makes clear:

[South African farmers] are scrambling to get on board an ambitious venture to reclaim farmland in Congo's interior and help relieve that country of a reliance on food imports. Already some 70 farmers have booked a Congo tour and more than 3,000 have expressed interest, said Agri-SA, the South African farming group organizing the venture.

... According to a draft memorandum of understanding, Congo is willing to sign long-term leases and provide tax breaks and waivers on duties of imported supplies for approved projects. The South Africans in turn would build infrastructure, employ locals and instruct them in modern farming techniques. People familiar with the matter say the initial focus will be on restarting state-owned farms abandoned in 1992.

... South African commercial farmers, mostly the descendants of Dutch and French pioneers who began settling the continent's southern tip centuries ago, are renowned for their ability to coax food out of African soil. Eager for their expertise and capital, African countries from Ghana to Nigeria have offered them incentives to set up shop. South African farmers have turned Mozambique into a banana powerhouse. Zambia became self-sufficient in maize after welcoming farmers from Zimbabwe and from South Africa.

As with foreign (i.e. non African) land investments/grabs, such programs are equally controversial, as they raise the very same issues of land tenure, colonialism, and eviction as do those by China, the United States, Saudi Arabia or any other countries. According to the contract governing the investment, South African farmers will enjoy a five-year holiday on corporate tax and the dismantling of taxes on the import of agricultural inputs such as seeds, fertilizer and machines. The farmers will be allowed to take all their profits out of the country and are under no obligation to sell their output on the domestic market. Oh dear.

[HT: The Meaningfulness of Little Things]

Land grabs in poor countries: blessing or curse?

Apologies for my recent absence: I dashed off to Nantucket for the Memorial Day weekend and - to be perfectly frank - postponed my return to the 'real world' (for me part of which entails blogging) for as long as humanly possible thereafter. It was such a lovely time! Alas, one can only put off the inevitable for so long, so here I am: back at long last.

While doing a bit of sunbathing on the beach over the weekend, I happened to stumble across an excellent overview of the issues surrounding present-day land grabs (or "outsourcing's third wave") in last week's Economist. I wrote about this matter earlier this month when a similar story appeared in Canada's Globe & Mail, though I feel the Economist does a much better job of teasing out the issues at stake.

As the Economist piece aptly observes, land grabs are particularly common among countries that export capital but import food (think the U.S. and China, for instance). Countries such as these outsource their farm production to countries that need capital but have land to spare; the vast majority of which are found in Africa (see map). And while investments in foreign farms are not a new phenomenon, there are several factors that differentiate today's 'land grabs' from those of the past, foremost among which is the scale (in Sudan, for instance, South Korea has signed deals for 690, 000 hectares! Before, a 'big' land deal use to be around 100,000 hectares) and the fact that the investors are no longer private entities alone: governments (and their state-run enterprises) have now likewise taken to investing in global farmland. China, for instance, has set up 11 research stations in Africa to boost yields of staple crops, and has secured several large deals across the African continent.

Duncan Green writes: 

The obvious motives for the deals are the spike in food prices and the subsequent decision of governments in several key producer countries to restrict their exports, threatening the food security of food importing countries such as the Gulf states, China and South Korea (the main participants in the deals). However, water shortages are another, hidden driver. Peter Brabeck-Letmathe, the chairman of Nestlé, claims: “The purchases weren’t about land, but water. For with the land comes the right to withdraw the water linked to it, in most countries essentially a freebie that increasingly could be the most valuable part of the deal.” He calls it “the great water grab”.

According to a newly released report by the International Fund for Agricultural Development and the Food and Agriculture Organization of the UN, farmland investments in the past five years total approximately 2.5m hectares - equal to about half the arable land of the UK. Other estimates posit the total farmland investments in Africa, Latin America and Asia at over 15m hectares, about half the size of Italy. While supporters of such deals argue that they are a tool for development, providing new seeds, techniques and money for agriculture, mounting evidence suggests they produce quite the opposite effect, driving out local farmers and in many cases depriving poor people of access to land, water and other resources.

Among the many underlying problems is that of the conflict between customary and statutory laws in the countries where the investments are transpiring. Writes the Economist:

Host governments usually claim that the land they are offering for sale or lease is vacant or owned by the state. That is not always true. “Empty” land often supports herders who graze animals on it. Land may be formally owned by the state but contain people who have farmed it for generations. Their customary rights are recognised locally, but often not accepted in law, or in the terms of a foreign-investment deal.

So the deals frequently set one group against another in host countries and the question is how those conflicts get resolved. “If you want people to invest in your country, you have to make concessions,” says the spokesman for Kenya’s president. (He was referring to a deal in which Qatar offered to build a new port in exchange for growing crops in the Tana river delta, something opposed by local farmers and conservationists.) The trouble is that the concessions are frequently one-sided. Customary owners are thrown off land they think of as theirs. Smallholders have their arms twisted to sign away their rights for a pittance.

The mechanisms for averting such losses would entail measures such as respect for customary laws, stable property rights, and increased transparency surrounding the land deals (among countless others, to be sure!). The trouble is that the majority of the countries which are party to today's land investments lack these very mechanisms and have been struggling with them for quite some time; in many cases decades. A potential solution might be the formulation of some international code, though I'm not quite sure as to what that would look like or what, exactly, it would entail. It would appear that our best option presently remains one of 'wait and see.'

P.S.  I doubt that this falls into the category of 'land grabs,' but the story does speak to the increased prevalence of the phenomenon of giving away land: touched by Biden's speech to the Bosnian parliament last week, a local farmer and war veteran offered Biden a piece of his land as a gift. Go figure.

Dear Africa, We would like to invest. Sincerely, the U.S.A. (P.S. Just fix some things, first...)

The U.S. Chamber of Commerce today launched the Africa Business Initiative (ABI) intended to help bridge the investment gap between the United States and Africa. Together with Baird's Communications Management Consultants, ABI today also released a report entitled The Conversation Behind the Boardroom: How Corporate America Really Views Africa. Driving the study is the ever-perplexing question of why Africa has not attracted more attention from the U.S. business community.

The answer, it seems, is that Africa is attracting the attention of U.S. businessmen - particularly in the technology sectors, and particularly now more than ever - but the costs of investment (political instability, a general lack of a business-conducive framework, and a poorly defined rule of law, among others) continue to outweigh the potential profits to be reaped.

What would it take for corporate America to fully take the African plunge? In short: a stable political environment; an educated (African) workforce; a fair business environment; and improved infrastructure. Goodness! If this is, indeed, the wish list then any such investment may be a lonnng way off! Given that the Chinese seem to have little trouble with the continent's current state of affairs, too, many African states now have little incentive to reform so as to accommodate U.S. desires. If nothing else, such U.S. demands may well result in more African leaders 'looking East,' much to the disadvantage of American corporations.

Regardless, the report itself is quite interesting and forms the first part of a two-party study. Part two, The Public Sector Conversation, will be conducted over the next several months and will focus on African government responses to the corporate American responses put forward in the currently available study. This may be quite telling, indeed!

Rwanda: mHealth pioneer?

Rwanda has been in the news quite a bit lately, and appears to in many ways be emerging as a model for African development (ironic, isn't it?). Indeed, Kagame's mantra of entrepreneurship over aid has seemingly lead to a significant upturn in the country's development, and Rwanda appears to be rising.

Writing in the UN-Vodafone Foundation Technology Partnership blog (the Foundation is the leader in the mHealth field), Claire Thwaites reports that Rwanda is on the leading edge of the mHealth frontier:

Supported by the Rwandan Ministry of Health, Voxiva, and the Treatment Research and AIDS Centre (TRAC), TRACnet is an electronic records system that can be uploaded to mobile phones. In Masaka it is being used to track and record the distribution of anti-retroviral medications, ensure drug adherence, electronically create and submit patient reports, and access the most up-to-date information about HIV/AIDS care and treatment.

[...] In Masaka, I was guided through the health clinic by the local program manager, Hareuhana Diaedonne. During the tour, Hareuhana spoke at length about the simple but significant benefits that have been brought about by the introduction of mobile phones to the local healthcare system. Using TRACnet, he reported, data entry that used to take months to record and aggregate now can be collected in just 5 minutes.

A booming mHealth industry may not only be the ticket for improved public healthcare in Rwanda, but may also be the perfect opportunity to attract more investments into the country, in turn continuing to fuel Rwanda's rise.

Chinatown, Angola

A superb video from Current TV examining the growing presence of Chinese in Angola. While the video's focus remains largely on China's infrastructure projects across the country, it nevertheless does a great job touching upon the variety of sectors in which the Chinese have become quite active. The video itself is somewhat lengthy, but certainly worth a viewing for those seeking to gain a better sense of 'China in Africa' (or Angola, as the case may be):

HT: Africa is a Country

An overstated withdrawal

The New York Times ran a story last week touting the steady decline of Chinese investment across the African continent:

As global commodity prices have plummeted and several of China's African partners have stumbled deeper into chaos, China has backed away from some of its riskiest and most aggressive plans, looking for the same guarantees that Western companies have long sought for their investments: economic and political stability.

Though I've touched on this issue before, it appears that it is one worth returning to. While the economic crisis has, indeed, adversely affected Chinese exports and subsequently many key African sectors, this does not spell doom for the continent anymore than it signals a mass withdrawal of Chinese investments, as the NYTimes appears to suggest.

The most recent issue of Africa-Asia Confidential does an especially brilliant job of driving this point home:

Anecdotal evidence suggests that some firms could be trying to shift unwanted goods to new markets in Africa. That might mean more choice and lower prices for African consumers. 'We don't see so many African traders coming in as before but demand for Chinese corporations is extraordinary. We see so many Chinese merchants and small companies sending people to Africa, many for the first time,' said Lily Tang, China Manager for Kenya Airways, which flies from Guangzhou to the continent.

Indeed, while some Chinese companies might be fleeing, the general trend is seemingly one of firm restructuring. China is continuing to invest in natural resource sectors across the continent, with projects picking up now that the weather is improving. Small-scale entrepreneurs are likewise continuing to pursue independent ventures in states across the region, peddling cheap goods in African markets. Though we may be witnessing a slowdown in such trends, it is hardly the end of 'China in Africa,' as such.

An additional point worth mentioning, one initially observed by Africa Works, is that the NYTimes story is based solely on the country of Guinea:

a country that has little going for it economically or socially. In more robust countries such as Kenya, Ghana and Zambia, Chinese investment is part of a mix of foreign capital. With growing cities, many African countries represent a rare opportunity to take advantage of new consumer demand.

It will, of course, be curious to observe how things unfold as the economic crisis progresses, but for the time being there really is no need for dramatic tales of complete Chinese withdrawal. Really.

[Photo credit: NYTimes]

Smart power in U.S-China (and Africa) relations

The Center for Strategic and International Studies (CSIS) has released a report entitled 'Chinese Soft Power and Its Implications for the United States,' which argues against zero-sum analyses of China's activities on the global stage (that is, perceiving China as either healthy competition or a strategic threat) and for increased U.S-China cooperation in the developing world. After taking stock of China and America's global soft power initiatives, the report concludes that:

The United States can do more to collaborate with China in the developing world, particularly in the areas of energy, health, agriculture, and peacekeeping. If such collaboration were to take place, the United States and China would find themselves working toward a greater global public good.

Perhaps of particular interest to readers of this blog will be the chapter on 'China's Soft Power in Africa,' written by Jennifer Cooke. Though much of Cooke's analysis has now been relegated to mere common knowledge (e.g. the Chinese are foremost interested in access to resources; much of China's loan money is given in the form of concessional loans; the Chinese government emphasizes the 'win-win' nature of Sino-African partnerships, etc.), she does an interesting job of comparing Chinese engagements in the continent with current U.S. engagements.

Of particular note is her observation that while U.S. soft-power programs in Africa have increased, the U.S. still exerts considerable hard power across the continent which, coupled with the stigma often borne by Western humanitarian assistance, often hinders the advancement of effective energy, health, agriculture and other development programs. For this reason (as well as several others which I won't go into - read the report!), Cooke concludes that there are areas in which the U.S. should emulate China's approach to Africa, and likewise sufficient common ground between the states so as to engender effective cooperation. Hers is an interesting and refreshing perspective few have yet been willing to offer. I'm not certain how likely such cooperation may be in the short-term, but it certainly is an objective to work towards going forward as it may, indeed, bring about the positive developments Africa needs. 

But enough of my rambling. Read the report and let me know what you think.

It's only the beginning, indeed.

Further to Monday's post in which I debunked (successfully or not) myths of China's waning role in, and need for, Africa in the face of the current global economic crisis, the BBC has a brief dossier on China's quest for a broader role in Africa. And if the BBC says it's true, then it really must be true. :) 

The beginning of the end of 'China in Africa'? Hardly.

I received an email from a friend yesterday directing me to this publication in the Jamestown Foundation's China Brief, and enquiring as to whether the end of 'China in Africa' (the phenomenon, not the blog!) might be on the horizon. I've opted to respond publicly, as this is not the first time that the question has crossed my desk.

The short answer is: no. 

In the Jamestown piece, Jeffrey Herbst and Greg Mills argue that the commodity price decline has adversely affected African export prices and growth, and subsequently African relations with China. They cite the withdrawal of Chinese entrepreneurs from Zambia and the Congo, and an overall Chinese strategic retreat from the continent, in turn suggesting that the market - and not grand strategy - is the main Chinese motivation in Africa. 

While this may be true to an extent, I fear that Herbst and Mills are overstating their claim. While some Chinese entrepreneurs have migrated out of Africa, Beijing continues to aggressively pursue its African relations, regarding the reality of a now waning West as the ideal opportunity to strengthen its influence across the continent. In the last month alone China has:

• Signed a $280 million deal with Mauritania to extend the port at Nouakchott 
• Agreed to build a hospital in Nairobi
• Offered $77 million to Uganda in a renewed bid to boost the East African country's development
• Installed government internet in Senegal
• Signed an aid and cooperation agreement to further ties with Rwanda
• Signed a 2.6 billion agreement to develop Liberia's iron ore mine, the biggest ever investment in the West African nation
• Signed another agreement (the Chinese do love their agreements!) with Nigerian Communications Satellite Limited to replace the nation's first communications satellite, which failed in orbit in November 2008
• Secured a $1 billion loan to Angola
• And built a national radio and television broadcast building in Congo

What's more, the floundering China-Congo deal Herbst and Mills cite is faltering not because of declining growth and commodity prices, as they suggest, but rather because western donors are threatening to renege on their promises of relief on the country's historic debt of $11bn if the Congo accepts Chinese financing on commercial terms. According to Barney Jopson in today's FT:

The focus of concern, according to western diplomats in Kinshasa, is that the deal would give the Chinese consortium unprecedented state financial guarantees, including some that earmark government revenues and make China a privileged creditor[...]

Trade between China and Africa is at an all time high. Hu Jintao is touring the continent this week, stressing the importance of Sino-African ties and shoring up African good sentiment. Deals continue to be signed. And this is meant to be the end? No, I'm afraid this is only the beginning.

Baaaad Chinese construction firms. Bad, bad [insert finger wagging here]

It would appear that the China Road and Bridge Corporation and China Wu Yi - firms that control a significant share of the Kenyan construction market - are in a bit of trouble: 

Four Chinese contractors have become the latest casualties of a global purge on corruption in World Bank-funded projects with a huge impact on Kenya’s construction scene. 

Caught in a corruption muddle that was instigated by a construction tender award scandal in the Philippines are two Chinese companies — China Road and Bridge Corporation and China Wu Yi — that control a significant share of the Kenyan construction market [...]

A statement from the World Bank said China Road and Bridge Corporation has been disbarred from taking part in Bank-financed projects for eight years with an offer to cut the period to five years if the firm puts in place a satisfactory compliance programme.

China Wu Yi Company Limited has been debarred for six years with an offer to terminate the ban in four years should the firm put in place a satisfactory compliance programme.

Both companies are currently undertaking major infrastructure projects in Kenya, among them the rehabilitation of the Jomo Kenyatta International Airport and the rebuilding of roads as part of the Northern Corridor Transport Improvement project. The companies are likewise overseeing a host of other Bank-financed projects across Africa which, by the sound of things, may be their last for the next several years. 

Will this really make much of a difference for the companies? I'm not sure. My guess is that they will continue to secure projects beyond the parameters of the Bank, and much to the chagrin of African and Western firms which continue to lose bids to the Chinese. Even if a decrease in China Road and Bridge and Wu Yi activity will occur, I wouldn't be surprised if new firms didn't suddenly pop up on the construction horizon, or other existing Chinese firms merely move in. Given all the other scandals that plague Chinese construction (and oil! and mining!) firms in Africa (shady contracts, God-awful labor conditions, generally horrible pay annnnd usually a human rights violation or two squeezed in there), this likely is more a bump in the road than a serious defeat as far as the Chinese are concerned. Several years in 'time out' is mere child's play. 

Collier, infrastructure and the Chinese in Africa... a formula for success?

While (re)reading through Collier's Bottom Billion last night, a thought occurred to me: maybe the Chinese have it ('it' being part of the solution to Africa's development woes) right. Bear with me as I wade through my thoughts....

Collier places much emphasis on the importance of transport infrastructure - particularly among landlocked states - as one of  the key engines for economic growth. Landlocked states are in a dubious position as without their own access to ports, for instance, they are reliant on those of their coastal neighbors. Yet, if your coastal neighbor is Sudan, or Nigeria, or Angola, chances are your goods aren't going to get very far - not only because of the rather, let's say, questionable political realities there, but also because their infrastructure is also, well, questionable. 

Infrastructure development has become 'so last season' among many development agencies, who are instead focused on more fashionable objectives like HIV/AIDS research, education, women's rights, etc. While of course important (very important in most cases) and worth pursuing, exclusive emphasis on objectives such as these has blinded some donors to the need for infrastructure development. Not the Chinese.  A report put out by the Center for Chinese Studies at the University of Stellenbosch tracks the Chinese interests in Africa's construction and infrastructure projects. The Chinese are rebuilding a stretch of road connecting landlocked Ethiopian farms to ports in Kenya, and have generally taken to building roads, bridges, tunnels - you name it - left and right. 

Of course questions abound over the percentage of local vs. imported labor, labor conditions, and the ultimate (or ulterior?) motives behind China's enthusiasm for construction in Africa (I have a few guesses). Placing those aside for a moment, I must admit that (re)reading Collier's arguments left me wondering whether Chinese investment in the form of construction may just be the ticket. Do the Chinese have it right after all? 

They've got the power

Last week, Botswana’s energy utility, Botswana Power Corporation, signed a contract with Chinese firms for the development of a 600 megawatts (MW) power station. The contract was concluded with China's construction consortium, China National Electric Equipment Corporation and Shenyang Blower Works Electro-Mechanics Import and Export Co. Ltd (the CNEEC-SBW Consortium), to build the Morupule B power station. With this investment, Botswana aims to expand its generating capacity and eventually reduce dependency on energy imports. 

From, Doing Business Blog