China has invested tens of billions of dollars across the continent, vastly improving the trade and transport infrastructure in many African states, in return for commodity exports that have provided a timely and important trade boost that allowed Africa to emerge from the global financial downturn relatively unscathed.
But signs are emerging that the balance of China’s trade and investment relationship with Africa may be slowly shifting more in Africa’s favour. Observers see a greater willingness among governments and companies to press for better terms from their deals with Chinese partners. There is also the prospect that Chinese companies will now start to adopt better labour practices especially in the wake of political instability in North Africa and a growing backlash against labour conditions at Chinese projects across Africa.
With commodity prices close to all-time highs and growing demand from other emerging nations for African resources, trade experts are urging African governments to seize the moment to extract the best possible deals from their Chinese counterparts –and to ensure that they use today’s investment windfall to guard against any possibly drop in demand.
Sub-Saharan Africa accounted for 14% of overall Chinese investment between 2005 and 2010, according to US thinktank The Heritage Foundation’s China Investment Tracker. In contrast, the Middle East and North Africa together accounted for 16.5%. Official Chinese trade data suggest that bilateral trade with Africa grew more than 43% in 2010 to $115 billion.
Much of this surge in activity has taken the form of Chinese infrastructure loans in return for guaranteed future supply of Africa’s abundant natural resources. This model has proved a tremendous boon for many commodity-producing African states, especially those struggling to access funding from Europe, the US or from multilateral development banks.
GROWING ASSERTIVENESS
Experts say that in recent months African governments have grown increasingly more assertive in their negotiations with Chinese state-owned energy companies.
“There’s a growing recognition among African leaders that they don’t want to trade all the eggs in the Western basket for all the eggs in the Chinese basket, so many African governments are adopting more assertive strategies in their dealings with the Chinese to extract a bit more for African interests,” says Chris Alden, a senior international relations lecturer at the London School of Economics, and an expert on China-Africa relations.
He points to the fact that Chinese energy firms failed to gain access to additional leasing agreements in Angola, Nigeria and Sudan, despite significant investment in infrastructure projects in these countries, as clear examples of this new approach, adding that the reasons behind this were explicitly political.
“These were very deliberate interventions at the top – Angolans and Sudanese national oil companies exercising their rights to deny leasing agreements to Chinese interests.”
But there are questions over whether increase African assertiveness has in fact gone far enough. “There has been an improvement and a greater assertiveness, but there is still more work to do for Africans to negotiate better,” says Mthuli Ncube, chief economist at the African Development Bank.
LEARNING FROM MISTAKES
African governments have raised concerns about being locked into restrictive loans for oil agreements. Angola is perhaps the most obvious example of this. The country had signed up to a number of long-term agreements with China before the financial crisis – receiving loans upfront in return for guaranteed long-term commitments to export millions of barrels of oil to Chinese state-owned companies. Some argue this exacerbated the country’s balance of payments crisis which struck at the time of the global downturn: the government received the loans upfront, but then effectively saw its oil revenues reduced for a number of years as it was locked into shipping millions of barrels of oil to Chinese companies without receiving revenue for it.
“People within Angola were saying that the infrastructure for oil deals with China had shackled their oil revenues to repaying Chinese loans,” says Michal Meidan, China analyst at Eurasia Group. “As a result, the government is looking to limit its exposure to further oil-backed loans, and to ensure more value-added arrangements with the Chinese.”
At the same time, growing interest in African resource investments by other emerging market economies – most notably Brazil and India – has granted African commodity exporters with a viable alternative as well as a stronger hand in bargaining with the Chinese.
Brazil has concluded a number of resource-related investment deals in Portuguese-speaking Angola and Mozambique over the past 18 months, while India is also actively courting resource-rich states across Africa. Indian Prime Minister Manmohan Singh announced at a summit in Addis Ababa in late May that the Indian government was offering $5 billion in credit lines for African governments over the next three years, in a move widely seen as an attempt by the Indian government to present itself as a genuine investment rival to China in Africa.
“Growing investment and interest by Brazil, India and other emerging markets in Africa is allowing African governments to drive a harder bargain,” Meidan adds.
GREATER RISK AWARENESS
Chinese officials may also have cause to review their business practices. The sudden outbreak of unrest in North Africa, and, to a lesser extent political upheaval in Sudan and the Cote d’Ivoire, has forced Chinese state and private-sector investors to confront the political risk of reaching investment deals with elites in potentially unstable regimes. “The events in Libya and North Africa have certainly hammered home the fact that political risk cannot be managed through non-interventionist policies alone,” says Alden. “Assuming that domestic elites are going to look after your interests doesn’t recognize the inherent complications of working within the African context, especially within authoritarian states. So there’s a lot of thinking going on in Beijing, but it’s not fully clear what the policy outcome will be.”
However analysts doubt Chinese companies are less likely to invest in potentially unstable regimes across Africa. “The Chinese invest in Africa through a very different risk lens,” says Martyn Davies, chief executive of South Africa-based Frontier Advisory. “The China train has a long way to run.”
Isolated but widely-reported protests against Chinese labour practices in a number of African states are also prompting a greater emphasis on risk assessment, corporate social responsibility and environmental awareness.
A rash of disputes at the Chinese-owned Collum coal mine in Zambia over the past 18 months have seen a Zambian miner jailed for murdering his Chinese boss; a series of strikes and protests; and two Chinese mine managers standing trial accused of firing live ammunition into a violent protest. In Zimbabwe, local unions have launched a spate of rolling strikes against Chinese construction companies in the last year following alleged poor employment conditions and unfair dismissals.
Work at almost 100 Chinese-owned garment factories in South Africa’s KwaZulu Natal province has been repeatedly halted since last summer due to strikes by local workers campaigning for minimum wage pay, while violent protests by workers against Chinese managers and workers have been reported from Algeria to the Democratic Republic of Congo. These disputes have been reported both in the African, and in some cases, the Chinese media as well.
Alden believes that as Chinese interests in Africa have deepened beyond elite-to-elite resource deals, both state- and private-sector actors are increasingly having to pay more attention to cultivating a positive image among the local African communities in which they operate.
“There is a groundswell of concern which doesn’t necessarily translate into anti-Chinese fever but it’s more one of questioning what Africa is gaining from the relationship,” he adds.
Increased press coverage of labour disputes at Chinese-run projects across the continent could help to tilt the balance of negotiations more greatly in Africa’s favour, says Ncube. “These write-ups in the media are a good thing, they are shining a torch on the issue. This should hopefully compel new trading partners to negotiate more fairly for these resources in the future,” he says.
THE NEED FOR CHANGE
China may also now have to rethink the investment model that has served it so well in Africa to date. “The Chinese are going to have to tweak their modus operandi,” says Meidan. “The infrastructure-for-oil model hasn’t worked in Nigeria and is no longer working in Angola. So while the resource for infrastructure model is going to remain very much de rigeur in less mature states, they are going to have to change what they are doing in more sophisticated states.”
The need for greater corporate social responsibility and attention to worker rights would also likely increase the investment costs for Chinese state and private sector firms investing in Africa, Meidan adds.
Recent events have underlined the need to move beyond a “one size fits all” Chinese investment model in Africa. “China went into Africa with a template, but they’re increasingly having to tailor their approach more specifically to individual circumstances in each country,” says Alden.
Future investment patterns in larger African economies are likely to become increasingly diversified, analysts say. Recent investments in financial services, renewable energy and technology companies are all evidence that the China investment story is now much broader than natural resources.
Roughly 20-30,000 private Chinese firms have already invested in the more developed consumer economies such as Kenya, Egypt and Ghana, Alden points out - evidence of the new face of Chinese investment in Africa.
“We are seeing changes in the structure of the trading relationship in certain African economies with sufficient demand for Chinese products,” Alden says. “This doesn’t negate the resource story, but it’s drawing in different kinds of investors; private firms that believe they make money marketing to the domestic African markets or exporting to third-country markets from Africa.”
Yet despite such trends, some say it’s unlikely that China ditches its traditional investment approach to Africa - or that African governments’ attitudes to Chinese investment change dramatically.
Davies has worked on a number of Chinese investment deals across the region. “Reports of an African pushback against Chinese investment are nonsense,” he says. “I travel all over the continent, in China, and I’m not detecting any sort of pushback.”
STRIKING A BETTER DEAL
The upshot, says Alden, is that Africa ought to get a better bargain from Chinese investment deals. “China will be willing to be more forthcoming and respond to any African pushback because they need the resources. Africa remains a friendlier environment and has greater potential than Australia, Canada and the Middle East,” he says. The Chinese are also likely to be more receptive to African demands for more favourable terms. Says Meidan: “The Chinese are pretty responsive to African government pushback and governments that have an alternative will definitely try and play each party off against the other.”
But African governments and companies must take advantage of today’s favourable environment – buoyant commodity demand and high prices – to negotiate a better deal with the Chinese, says Ncube. “They should do it now, as commodity prices go up and down. Once you’ve mined it out of the ground, you never get it back, so if you don’t position yourself carefully, you’ll never recover,” he says.
While they’re at it, experts say, African authorities should also step up efforts to use today’s windfalls from Chinese investment to diversify their economies and build up buffers against an eventual commodities downturn.
Razeen Sally, director of the European Centre for International Political Economy and senior lecturer at the London School of Economics, says: “I don’t know of any serious examples of African countries doing a Chile or Norway – parking some of this resource windfall into a stabilization fund that can be used for a rainy day
“If we have a commodity downturn triggered by a Chinese hard-landing, it would hit Africa very hard.”
Says Shanta Devarajan, the World Bank’s chief Africa economist: “There’s a general recognition among governments that many of the problems in the past have been due to the mismanagement of resource revenues. The public are demanding that governments don’t make the same mistake again.”