John Rocha sets out to answer two questions related to China’s role in Africa: To what extent would China’s growing influence in Africa either advance or undermine the African agenda? And what are the challenges and implications that these hold for African governments, the private sector and the international community?

Introduction

China’s burgeoning influence around the globe has captured the attention of governments, the private sector and civil society. With a large population and recent high economic growth rates, estimated at 9.5 per cent, China now comes only second to the United States of America (USA) in its consumption of oil.

Based on current projections, Chinese demand and consumption for mineral resources is expected to grow exponentially in the foreseeable future, so in an attempt to diversify its source of supply, China has set its sight on Africa as a natural partner.

Within Africa towards the beginning of the 21st century, African leaders adopted NEPAD and transformed the erstwhile Organisation of African Unity (OAU) into a more vibrant African Union (AU). The need to end the continued marginalisation of Africa and reverse the development chasm between Africa and the rest of the world was a core objective. From China’s viewpoint, it was adopting the prevailing global strategy aimed at opening opportunities for foreign investment in China as well as creating new markets for Chinese investments abroad. A key feature of both initiatives is an ardent desire to improve South–South relations in order to strengthen the role of developing countries in international affairs.

Notwithstanding the international communities’ commitment to double total overseas development assistance to Africa by an additional US$25 billion by 2010, the composition, scale and slow pace of delivery is generating a certain level of disillusionment with Africa’s traditional development partners.

There is also a growing realisation that traditional relations and partnerships with the West have not helped Africa overcome the structural obstacles to eradicating poverty and reversing its economic marginalisation. Rather than develop, Africa is haemorrhaging while the rest of the world accumulates wealth at its expense through the unbalanced exploitation of its natural resources and the enforcement of a distorted international economic system. Logically, strengthened cooperation with China is seen as a way of addressing some of these structural imbalances.

Current status and trends in China–Africa cooperation

According to the Chinese Ministry of Land and Natural Resources, there were 158 minerals with identified resources and reserves in China in 2004. However, these resources are insufficient to meet an ever-increasing domestic demand and to sustain China’s dramatic economic growth. For instance, based on projections by the Ministry of Land and Natural Resources, by 2010 domestic crude oil production will be able to meet 51–55 per cent of demand and only 34–40 per cent by 2020; while domestic iron production will be able to meet 38 per cent of demand by 2010 and only 29 per cent by 2020. It is estimated that by 2010 and 2020 the shortage of coal will reach 250 million and 700 million tons respectively. So China is looking to Africa to address some of its short- to long-term needs.

Historically, the availability of cheap raw materials and the prospects for huge returns on investments, particularly from the exploitation of natural resources, has always provided an incentive for the expansion and deepening of political and economic ties with Africa. Africa is blessed with an impressive endowment of mineral wealth, including near-global monopolies of platinum, chromium and diamonds; a high proportion of the world’s gold, cobalt and manganese reserves; and extensive reserves of bauxite, coal, uranium, copper and nickel. Of the proved oil reserves currently estimated, Africa accounts for 7 per cent of the global total. New oil discoveries have been made in Madagascar, Zambia and Uganda while extensive exploration is ongoing in Ethiopia, Kenya and Tanzania. It is estimated that by 2010, the Gulf of Guinea will contribute at least one out of every five new barrels onto the global market.

Currently, China derives a quarter of its oil imports from Africa through its oil interests in Algeria, Angola, Chad, Sudan and increasing stakes in Equatorial Guinea, Gabon and Nigeria. Oil exploration rights were established in Sudan in 1995 by the China National Petroleum Corporation (CNPC) through ownership of a 40 per cent stake in the Greater Nile Petroleum Operating Company where it is pumping over 300,000 barrels per day. Another Chinese firm, Sinopec, is constructing a 1,500-kilometre (932 miles) pipeline to Port Sudan on the Red Sea, where China's Petroleum Engineering Construction Group is building a tanker terminal. China has invested more than US$8 billion worth of oil exploration contracts in the Sudan. In Nigeria, the China National Offshore Oil Corporation (CNOOC) acquired a 45 per cent working interest in an offshore oil mining licence, OML 130, for US$2.268 billion cash; CNPC invested in the Port Harcourt refinery while Petro-China is interested in the Kaduna refinery. ONGC Mittal Energy Ltd (OMEL), the joint venture between the Oil and Natural Gas Corporation and the L. N. Mittal Group, will invest US$6 billion in railways, oil refining and power in exchange for oil drilling rights.

Similar investments have been made in Gabon by Sinopec and Unipec through a joint venture with Total while Pan-Ocean exploits the Tsiengui on-shore basin and is associated with Shell to explore Awokou-1. Gabon is now selling one-fifth of its annual oil output to China.

While Chinese oil deals have captured the attention of the world, much less is being said about China’s demand for the main base metals such as aluminium, copper, iron ore, nickel, zinc and other minerals. In the DRC, Feza Mining, a joint venture between the Chinese company Wambao Resources Corporation and some Congolese businessmen, is finishing a pyrometallurgic plant which, according to the DRC’s Ministry of Mines, should produce 1,000 tonnes of pure cobalt per year.

Features of Chinese investments in Africa

China’s approach to Africa has several distinct characteristics. For example, a key feature of Chinese cooperation with Africa is the strong links between the Chinese government’s foreign policy objectives and the role played by Chinese enterprises. By the end of June 2003, the Chinese Ministry of Commerce had given approval to 602 Chinese enterprises to invest a total of US$1.173 billion in Africa. This had risen to 715 by the end of 2004. The range of activities that these companies are engaged in varies from trade, processing, manufacture, communication, transportation, roads and agriculture, to resources development.

For example in Angola, the US$2bn deal has lead to the rebuilding of national roads, the building of a new airport in the outskirts of Luanda and other major infrastructure development projects. In addition, a US$69 million agreement was signed between Angola's MundoStartel and China's ZTE Corporation and the Angolan Council of Ministers approved broader ZTE operations. These which will see ZTE invest US$400 million, of which US$300 million will be used to modernise and expand Angola Telekom to develop telephone networks in Angola. According to the Angolan government, the remaining US$100 million is to be invested in military communications, the development of a mobile telephone factory and the creation of a telecommunications training institute for Angolan employees. It is the multifaceted character of Chinese involvement in Africa that seems to be a major draw for African countries.

On a positive note, there is no doubt that Chinese investments in Africa are having and could continue to have some positive impacts. China is helping African countries to rebuild their infrastructure and providing other types of assistance to agriculture, water, health, education and other sectors. This could have very positive spin-offs in lowering transaction costs and assisting African governments to address social calamities such as poor health services, energy crisis, skills development, etc. Increased Chinese demand for raw materials has seen an upsurge in commodity prices, putting extra cash in the coffers of many resource-dependent economies. However, African countries should use this windfall to make provision for the future by investing heavily in education and training, diversifying the economy and strengthening the administrative and governance systems – political, economic and corporate – in order to be better able to maintain and sustain the current economic boom throughout the continent.

On a pessimistic note, the NEPAD framework extols the virtues of African self-reliance, ownership and leadership as well as good economic, political and corporate governance as the bedrock of its development agenda. The emergence of China as a key player in Africa could undermine the NEPAD vision since it could make African countries increasingly reliant on China rather than on their own domestic resources and the resourcefulness of their people. At present, China and not NEPAD or the domestic market is being seen as a more reliable source for resource mobilisation. There are also concerns about Chinese funded projects where in some cases, the ratio of Chinese expatriates (labour and enterprises) to locals contracted is as high as 70 per cent Chinese and 30 per cent local. This practice does not help Africa in addressing the problems of high unemployment and the scourge of poverty. Nor does it assist Africa’s private sector to grow both technically and financially. Instead it could entrench African dependence on external assistance.

The emergence of China has raised fears that China’s non-adherence to the West’s approach of imposing aid conditionalities has the potential to nullify all the progress made in fighting corruption and improving governance in Africa – implying that the problem of corruption in Africa is solely an African problem. There is a one-dimensional focus on Africa as the source of the problem whilst ignoring its global character. This brings us to the broader debate on capital flight. While it is correct that the revenue pilfered from Africa by its elites represents a major challenge to the economic growth and sustainable development of the continent, the haemorrhaging of money away from the continent also takes place in other forms. According to Raymond Baker, a renowned researcher on these matters, mispricing and transfer pricing are some of the tricks used to move money out of developing countries.

In my view, the effective and efficient management of public revenue and assets should not be limited to the public declaration of the proceeds accrued by African governments from the exploitation of natural resources. It should also entail ensuring that these transactions produce optimal benefits to the African people. For instance, there are issues related to the repatriation of profits, mispricing and transfer pricing which include but are not limited to the extractive industries. These practices are major contributors to increased corruption and have served as useful conduits for corrupt practices as well as capital flight. In addition, Africa is not only losing money through corruption and other money laundering activities but it is also the victim of a distorted international economic system.

Raising the stakes and the new scramble for Africa

The emergence of China as a dominant player in Africa raises two critical challenges for Africa and the international community. The first one pertains to Africa’s weak administrative systems (poor revenue generation, management and disbursement capacity), the absence of the rule of law and heavy dependence on natural resources. This situation is compounded by the lack of adequately skilled personnel and technological know-how, all of which are necessary ingredients for translating Africa’s natural resources into the development of the continent and its people. It is these acute weaknesses that make Africa susceptible to what is commonly known as the resources curse.

Second, it is abundantly clear that increased economic development over the next few decades, regardless of regional variations, will have a significant impact on increasing demand for vital resources. Consumption, in Africa as elsewhere, is bound to increase with improved standards of living.

Consequently, the dynamics of increased economic growth and development, growing populations, increasing consumption and dwindling resources will generate intense competition over access and control of natural resources. The impact of these developments will be particularly severe in Africa given the acute weaknesses described above.

The way forward

There is a general agreement that Africa’s wide variety of natural resources could be an essential tool in the fight against poverty, underdevelopment and marginalisation. The recent discovery of oil in Madagascar, Zambia and Uganda also demonstrates that Africa’s potential mineral resources are still a mystery to Africa and the world. Africa is a continent yet to be fully explored and its latent economic potential unleashed. However, there is a need for a paradigm shift on the part of Africa’s leadership both within the public and private sectors. The community at large and civil society organisations are crucial in ensuring that Africa’s natural resources are exploited and managed in a manner that contributes to the eradication of poverty as well as sustainable economic growth and development.

First, there is a need to place the broader national interest above short-term personal gain. In most African countries the state or the head of state are the custodians of natural resources on behalf of the people. The constitution enjoins them to exploit and manage these resources for the benefit of the nation. It is imperative that these constitutional provisions are strictly adhered to and implemented with vigour. The institutional, legislative, regulatory and enforcement capacity of the state must be strengthened so that it serves as a deterrent against unscrupulous and opportunistic behaviour. In order to ensure that Chinese or other multinational enterprises investing in Africa conduct their business in manner that enhances social cohesion and economic growth, the conduct of Africa’s leaders, public institutions, businesses and citizens need to be exemplary and beyond reproach.

Second, there currently seems to be no clear regional or continental strategy to deal effectively with the myriad of actors. This is resulting in a fragmented approach which weakens Africa’s bargaining position. In stark contrast, China and all the other actors are coming into Africa with well thought out and packaged proposals that enable them to maximise the benefits from any relationship with African countries. China, in particular, seems to have a purposeful strategy and is successfully delivering on all its objectives vis-à-vis Africa. The question is what is the driving force behind Africa’s sudden economic interest in China? Is it part of a well-calculated approach to unlock the continent’s true economic potential or is it merely a meek response to an unfolding development. Given Africa’s experience with the West before and after independence, the English saying ‘once bitten, twice shy’ is of particular relevance.

Further, while the super cycle of increasing demand for commodities and high prices is undoubtedly generating enormous benefits for African countries and is set to continue, the continent must guard against the Dutch Disease syndrome. Diversifying its economy and export base should be a key priority for Africa. By developing secondary and tertiary industries Africa would generate additional employment opportunities, bolster revenue for the state and enhance economic growth. Despite its major contribution as a supplier of raw materials, Africa’s development prospects are constrained by its heavy reliance on the primary sector as the dominant element in its economies. This situation is compounded by a distorted international system that facilitates the export of raw materials but inhibits and restricts the trade in processed goods from Africa. So far, China does not show any meaningful deviation from this well entrenched international practice.

However, as mentioned earlier, increasing international demand for commodities has resulted in a shift from a buyer’s market to a seller’s market. This is likely to continue for the foreseeable future, driven principally by the Asian boom under the leadership of China as well as India. Essentially, the emergence of new players provides an opportunity for resource endowed countries since they are now in a position of strength and spoilt for choice in trade negotiations.

This opportunity must be fully exploited and maximised if Africa is to extricate itself from the periphery and take centre stage in the global economy. For example, Africa must diversify its economy by identifying strategic niches and insisting on local beneficiation; negotiating better terms of trade at a bilateral and multilateral level as well as using its natural resources endowment as leverage in political and economic negotiations with international partners. However, for this to be effective Africa needs to adopt a more coordinated and integrated approach in its dealings, whether at bilateral or multilateral level. Unlike the Chinese and other major economies of this world that are backed up by strong political and economic clout, Africa’s ability and capacity to leverage is rather limited.

There is also room for enhanced civil society cooperation across Africa. At present community participation in the exploitation and management of natural resources is rather limited. Where it happens, the conduct and practices employed by communities can sometimes be self-destructive, as with the garimpeiros in Angola or the rebels in the Niger Delta. Another major opportunity for civil society is in the area of research and knowledge management. There is an information vacuum and this is having a negative impact on policy development and implementation.

The bottom-line is to ensure that the dialogue between the international community and Africa becomes more constructive and reinforces the NEPAD principles of partnership, mutual respect and benefit. The overarching objective of such a process should be to ensure that Africa’s natural resources are managed in an effective and sustainable manner for the benefit of the continent and the global economy. In other words, continental and global sustainable peace, security, stability and sustainable development should constitute the pillars for future cooperation in this vital sector.

• John Rocha is a senior analyst within the Peace and Security Programme at SaferAfrica where he is leading a process towards the development of minimum standards for the exploitation and management of natural resources in Africa. Rocha has a BA in human and social studies with specialisation in government, administration and development.

• This is a shortened version of an article by John Rocha . The full version, including references, will be available in a forthcoming book to be published in January by Fahamu and called ‘African perspectives on China in Africa’. The full articles will also be made available as .PDF files on the Pambazuka News website.

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