At the South Africa-China Economic and Trade Co-operation Forum Signing Ceremony, held on March 31, 2010 in Pretoria, Rob Davies, the SA Minister of Trade and Industry, toasted to the signing of a monumental, multibillion dollar, strategic business partnership between the two countries.

“Our relationship with the People’s Republic of China is deeply rooted, historical and we enjoy excellent relations at political and people-to-people level. Our economic relationship is underpinned by a bilateral Trade and Economic Cooperation MOU, Reciprocal Encouragement and Protection of Investments agreement and the record of understanding between the DIT (Department of Trade and Industry) and the China-Africa Development Fund,” he said.

The occasion cemented contracts that would see Chinese companies sourcing over R2 billion worth South Africa products (such as wine, copper and granite blocks) and marked the strengthening of mutually beneficial economic relations between the China and Africa, on the whole. The partnering has immediate benefits for Africa in terms of economic injection and trade, but the initial enthusiasm that has greeted Chinese investments in continental Africa is not universally shared.

Fuelling China

China is hungry for food, land, and energy; it accounts for one-fifth of the world’s population, and its consumption needs are growing exponentially at a rate that it cannot internally meet. Take, for example, China’s oil consumption; in the past decade, it has shot up 35 per cent. The city of Beijing singularly accounts for 80 per cent of the world’s supply of steel, copper and aluminum.

In its search for resources and new export markets, China has turned to Africa, which has vast natural resources, including oil and gas, metal ores and cotton. So the trade partnership seems a natural one; China needs land and resources, of which Africa is abundant. China needs to secure oil to supply its economic growth, and many new oil fields are being developed across Africa.

China’s net is cast wide over the African continent. It has spent billions of dollars securing drilling rights in Angola, Nigeria, Sudan and Angola, and has exploration or extraction deals with Chad, Gabon, Mauritania, Kenya, the Democratic Republic of Congo, Equatorial Guinea and Ethiopia, as well as a large stake in the copper industry in Zambia and Congo (China is the world’s largest consumer of copper and has invested US$170 million in the Zambian copper mining sector). It is also buying timber in Gabon, Cameroon, Mozambique, Equatorial Guinea and Liberia. In fact, China’s overall trade with Africa rose from $10.6 billion in 2000 to $106.5 billion in 2009.

Infrastructure development

For Africa, this investment boom, in particular, has manifested in the essential rebuilding of its decrepit infrastructure. In November 2009, the World Bank Report articulated the economic reality of Africa’s infrastructure, saying “The poor state of infrastructure in Sub-Saharan Africa—its electricity, water, roads and information and communications technology (ICT)—cuts national economic growth by two percentage points every year and reduces productivity by as much as 40 per cent.” Thus, Chinese investment in Africa’s infrastructure plays a massive role in closing the infrastructure gap.

And the trend is only picking up. Across Africa, Chinese companies are beating out Western and other foreign companies, winning major infrastructure contracts, thereby paving highways, building hydroelectric dams, upgrading ports and building pipelines that are vastly underfunded. In November 2009, China pledged to offer African countries $10 billion in low-interest loans over the next three years, to set up a $1-billion loan facility for small- and medium-size firms, and to forgive debt on some interest-free loans. The pledge is nearly 10 per cent of the total trade between the two blocs, and is mostly to secure raw materials for China, the world’s fastest-growing large economy. According to a Wall Street Journal report, Chinese companies have paved more than 80 per cent of the main roads in Rwanda. For a continent with poor infrastructure and limited interregional trade, investments like these constitute a significant development, and it is no wonder why they are welcomed.

Chinese roots

China’s presence in Africa is becoming more and more rooted. Since worldwide food shortages and a boom in bio-fuels in 2008, investors have been turning their sites to farming. Given this economic light, Africa is looking quite attractive to investors who are coming in droves to lease some of the cheapest arable land on the planet, at approximately $800 per hectare. A conservative estimation postulates that at least 20 million hectares of African land has been leased by foreigners, the majority of whom are Chinese companies.

Besides leasing land, China is more dependent on Africa for its oil and has many stakes in African oil production. Through the three major state-owned Chinese corporations—the China National Petroleum Corporation (CNPC), the Chinese Petroleum and Chemical Corporation (Sinopec) and the China National Offshore Oil Corporation (CNOOC)—China has been securing strategic assets and rights for exploration, development and production in Africa’s petroleum industry, which is greatly needed to fuel China’s energy demands.

As recently as April, a Chinese mining company signed a contract to buy 100,000 tonnes of coal a year from Namibia, and, to sweeten the deal, also promised to buy up all the marble produced by a local stone plant that was struggling to stay afloat. The applications to Namibia’s ministry of mines and energy reveal that Chinese mining interests have applied for 70 per cent of exclusive prospecting rights in the country for iron, magnesium, copper, lithium and uranium. All of this is in keeping with China’s quest to keep raw materials flowing to China.

Proceed with caution

China’s presence in Africa is incontestable. Chinese companies have interest and, more importantly, influence, ostensibly in every major industry sector. Nevertheless, China’s engagement is increasingly being seen as odious and rapacious. In Namibia, for example, local mining executives can be very speculative of China’s mining interests, and cannot ignore that the country has the world’s worst record of mining accidents, environmental degradation and little experience in mining anything but coal. Unfortunately, Namibia’s dependency on mining activity to fuel its economy is not greater than its ability to pick and choose between customers.

In this sense, Namibia is a microcosm for the greater issue. The injection of mining activity will have short-term gain, but whether this will be in Namibia’s long-term interest remains to be seen. There has been a general lack of transparency in these business relationships, which has generated suspicion over Chinese presence in Africa.

The concerns have been compounded by China’s close association with African regimes that have been singled out for human rights violations. A telling example is that China buys the vast majority of Sudan’s oil and is also their majority partner in the consortiums extracting the oil; nevertheless, to date, it has refused to open its records or participate in debate on whether their payments are reaching the intended destinations.

The Brussels-based International Crisis Group (ICG) accused China of having a vested interest in the continuation of “a low level of security” in the war-ravaged Darfur region of Sudan as it “enhanced its business opportunities.” The report alleged the Chinese government of having “an almost total disregard for the human rights implications of their investments.”

Chinese companies have a reputation of predatory dealings elsewhere in Africa, and have been involved in illegal business practises, such as engaging in the illegal export of precious minerals from the eastern Democratic Republic of Congo. Chinese companies do not seem averse to dealing in corruption and bribery, as well. In a recent report, Transparency International said Chinese businesses are the world’s second-biggest bribe-payers, after their Indian counterparts.

China’s only declared condition to prospective partners is the recognition of its “one-China” policy, by which African governments are expected to break off diplomatic relations with Taiwan. One-third of the countries that recognised Taiwan were African, including South Africa. But in return for development assistance from Beijing, many African countries have severed diplomatic links with Taipei.

The future of Sino-African relations

Reactions from the international community are mixed, but a pervasive view is that China, by agreeing to work with corrupt government and rebel groups, could stem the progression in economic and political sanity to impoverished and conflict-ridden communities in Africa. There are also concerns that China’s success in reducing hunger for millions of its population in the last three decades without an electoral democracy and a free press may offer a model of development for African governments that differ from Western governments.

What Chinese investment will mean for the future of Africa is a complex question. As we have seen, many African countries are thriving under China’s participation. What does Africa get in return? Some of the benefits are obvious. A boom in trade with China provides the push that some African countries need to grow their economies (Zambia’s copper industry and the DRC’s cobalt industry are examples).

Something that we must watch, however, is an inextricable entrenchment in trade with a country whose interests do not lay in the advancement of Africa so much as their own interests. At a time when African countries are experiencing more elections and democracy than in the past 100 years, caution must be exercised when dealing with a non-democratic country as huge and influential as China, who, thus far, has not hesitated to work with rebel groups and regimes. Attention must be paid to the ethical actions of all companies who wish to come and do business in Africa. The pattern must be established early that only companies who work with democratic, elected governments will be rewarded with contracts. Due diligence must be paid on our part in enforcing local rules and regulations. And once that has been done, companies who wish to work in Africa should be welcomed. TABJ

by Anna Guy

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