Friday, March 5, 2010

Was Guinea Bought by Beijing?

Earlier this week, Chatham House, the British think-tank, published a briefing by Daniel Balint-Kurti entitled "Guinea: Bought by Beijing." Balint-Kirti notes that to the surprise of many, after taking control in a coup and then violently suppressing civil society demonstrators in a stadium massacre, Guinea's military junta formed a transitional government with the opposition, and have scheduled elections for June.

However, Balint-Kirti says, Chinese interests "have come close to taking over Guinea's economy entirely" through, among other things, a reported $7 billion resources-for-infrastructure deal with China International Fund. Other investors are "paralyzed", and he worries that China's engagement in Guinea might yet spoil the transition to democracy.

Several things surprised me about this Chatham House briefing.

(1) The title: "Guinea: Bought by Beijing"
(2) No mention of Hong Kong or Angolan interests, despite evidence that both are at the center of the rumored $7 billion deal.
(3) The contrast between what I've been seeing in reports from Guinea, and what Balint-Kurti has been seeing

Here's what I've been seeing.

Guinea is a terribly poor, unstable country that has barely escaped the wars that have rocked its next-door neighbors Sierra Leone and Liberia. The one time I came close to Conakry (stopping only in the airport, at night, on a rickety Nigerian plane hopping up the coast) there were barely any lights marking the city. US (and now Canadian) multinationals (Alcoa and Alcan) have for nearly 30 years held a majority share of a joint venture company with rights to exploit the world's most productive bauxite mine.

The Australian company Rio Tinto also controls half of an iron ore concession (Simandou) worth an estimated $6 billion, and Russia's giant aluminium conglomerate RusAl has a valuable bauxite concession (the terms of both of these latter concessions have recently been contested by the Guinean government). Mitsubishi, BHP Billiton, Anglo Aluminium, and others have investments in Guinea or hold recent exploration licenses. Just a few weeks ago, on February 18, Anglo Aluminium issued a bullish press release announcing the results of its recent bauxite explorations. For some of these firms, it seems to be business as usual.

Chinese companies have also been negotiating and/or exploring major investments in Guinea for some years, but have not yet invested on any noticeable scale. In November 2005, China Aluminium Corporation (Chinalco) was granted several 3-year bauxite prospecting licenses in Guinea; it began prospecting in May 2006. A Chinese consortium from Henan province, also secured bauxite exploration licenses in Guinea in 2007.

China's huge engineering company Sinohydro was interested in building the 750 megawat Souapiti Dam (processing bauxite into alumina is highly energy intensive). A Chinese resource-backed infrastructure loan was under discussion, This probably would have created a resource-backed infrastructure package that would have financed the dam, and the development of the Chinese bauxite interests. However, a October 2008 report from Africa-Asia Confidential suggested that China Eximbank declined to finance the project out of concerns with political instability, and because Guinea could not guarantee access to the high quality bauxite concessions Eximbank required to secure the project.

The next players to step up were China Development Bank, and Beijing-based China Power Investment (CPI). In February 2008, CPI signed an MOU for a joint venture with Russia's RusAl to build an alumina processing plant in Guinea. In September, CPI was awarded exploration permits for bauxite. It looked as though China Development Bank might finance the plant, or even a large package. A CDB team came to Guinea in July 2008, but then Guinea's long-term president, Lansana Conté, became ill, and in December 2008, he died. Within days, a military junta took power.

Visiting Guinea after the coup, Lydia Polgreen, a New York Times reporter, filed a March 26, 2009 story that ran with the headline: "As Chinese Investment in Africa Drops, Hope Sinks":
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. "The political situation is not very stable," Huo Zhengde, the Chinese ambassador here, said in an interview, explaining the country’s hesitation to invest billions in Guinea, where a junta seized power after the death of the longtime president in December. "The international markets are not favorable." ... China has backed away from what Guinean officials portrayed as a done deal to build a much-needed $1 billion hydroelectric dam. "The dam is not a gift; it is an investment," said Mr. Huo, the Chinese ambassador. "That is what win-win means."
Indeed, in April 2009, Chinalco's overseas acquisitions head told an Australian newspaper that before he died, Conté had offered to give all or part of Rio Tinto's Simandou iron ore mine to Chinalco, but that they had delined the offer as it was "not professional". ) Conté then handed half of Rio Tinto's concession to an Israeli diamond dealer, Beny Steinmetz, who ranks #296 on Forbes' list of billionaires.

At this point, we see "Beijing" sitting and waiting for political instability to subside. But something else is quietly going on behind this scene.

In June 2009, the mysterious Hong-Kong based China International Fund (CIF) and Manuel Vicente, the chairman of Sonangol, Angola's state-owned oil company, made a joint visit to Guinea. (CIF has been partnering with Sonangol in Angola since 2004. In a future post, I will pull together the threads of evidence out there about CIF and venture some observations on the nature of this mysterious company. Here, let's trace out the Guinea story.)

CIF and Sonangol pushed their own package combining mineral access -- especially the oil that everyone believes to be offshore -- and infrastructure. Aside from the intrepid Africa-Asia Confidential, which reported in September 2009 that a joint venture worth $1.6 billion was under discussion, little was said in the media about the CIF/Sonangol deal-making in Guinea.

Then, on September 28, 2009, the world recoiled from news that the Guinean government guards had massacred 150 unarmed opposition demonstrators. Just over a week later, the Guineans announced that they had signed a deal with CIF and Sonangol worth, they said, $7 billion. Although the Guineans said that their deal was with a private company, it was reported in The Economist as a deal with "China": "Don't Worry About Killing People: By Coddling Guinea's Dictator, China Again Mocks Human Rights in Africa."

Writing in Foreign Policy's blog, Elizabeth Dickinson raised questions about whether the Chinese government had anything to do with the deal. Some of Guinea's opposition figures also questioned the Chinese government's involvement. The Chinese foreign ministry, and Beijing's ambassador in Conakry denied any connection between the Chinese state (or its banks) and the CIF/Sonangol deal. This uncertainty is also mentioned in the Chatham House piece:
The role of the Chinese state in all this is unclear. While the Chinese government denies having anything to do with the China International Fund, a Chatham House report published last year, Thirst for African Oil, suggests it may have links to the Chinese security services.
The announcement a few weeks ago that the junta and the opposition had come together to form an inclusive government, with elections planned, was unexpected, and very welcome. Since then, we haven't heard much about the CIF deal.

I guess I'm just not a conspiracy theorist. And several things raise doubts in my mind that "China" or "Beijing" (i.e. the Chinese government) is behind the CIF/Sonangol deal.

(1) "Show me the Money". The venture between CIF, Sonangol, and the Guinea government has no visible financier, as opposed to the large Chinese government-backed infrastructure/resource ventures in Angola, Democratic Republic of Congo, Congo Brazzaville and elsewhere, which all appear so far to have been financed by China Eximbank, with China Development Bank also having shown interest in financing deals like this.

Guinean Mines Minister Mahmoud Thiam said vaguely that the deal would be financed through the same banks that had backed CIF's projects in Angola: "a combination of their own funds, private and Chinese state banks" and "international banks" as reported by Africa-Asia Confidential in October 2009. According to the Angolan government, CIF provided credit lines of $2.9 billion to Angola between 2004 and 2009. It's not clear where their financing came from in Angola, but some reports have named French bank Calyon as one of the CIF financiers. (Again, more about this in a subsequent post.)

(2) Intra-Chinese Competition. Given that Sinohydro, Chinalco, China International Power, the Henan province consortium, China Development Bank, China Eximbank, and other Chinese companies all spent a lot of time and resources to develop projects in Guinea, why would Beijing sweep these efforts of its national champions aside and support a Hong Kong/Angolan company's clearly rival venture? It doesn't make sense. If we were to start hearing that these more reputable firms have joined CIF/Sonangal in Guinea as partners, financiers, or contractors, I will buy into the "Beijing buys Guinea" conclusion. But if that doesn't happen, I will remain skeptical about the story line being pushed by Chatham House.


Tang, Xiaoyang said...

In a Chinese report, a Chinalco manager said that the deal was feasible from the perspective of business, but the Chinese government urged Chinalco not to accept this deal because of concerns about bad international influence.
It's strange that Chatham House published this report without mentioning CIF's Angolan background. Actually Chatham House's Alex Vines has written several reports on this company.

Deborah Brautigam said...

Interesting example -- thanks for the contribution. Yes, Alex Vines at Chatham House has co-authored several great studies of Chinese and Asian firms in Angola and Nigeria, and there is a lot of information in these about CIF's Angola connection. I think the tantalizing issue here is: what connection does CIF have with Beijing? I'm going to open this question up in a post soon & hope to get a discussion going.

Deborah Brautigam said...

Just looked at the link you posted, Tang Xiaoyang. It seems to be the same report that originated in the Australian newspaper, The Age (I have a link to that in my post). The Age story also notes something else interesting from Chinalco's representative: "He also said China might not be so accommodating of Australia's international interests if Chinalco's investment in Rio was not approved by the Australian Government." And in fact, Chinalco's proposal to increase its investment in Rio Tinto fell through when Rio Tinto and rival BHP Billiton joined forces. (Some suspect that the Australian government helped foster this, but there was no official confirmation). What this might mean with regard to the situation in Guinea is an interesting question.

Tang, Xiaoyang said...

Yes, they are the same report, except that the Chinese version says the deal would work and should not be canceled from professional perspective, whereas the English version seems to mean differently.

Anonymous said...

To be honest, I've got used to see when China has anything, yes anything, not only deals, to do with African countries, the west media pops up immediately criticize China for this and that. What I am surprised is when browsing news and debates about China engaging Africa, especially reading comments from African people, it's amazing how much ordinary Africans buy into these accusation against China. IMHO, Chinese cannot blame west media for demonizing China, it's competition between old power and the new rising anyways (at least in the west media's eyes). China should blame its extremely slow response to these charges and inability to correct mistakes promptly (yes, there are problems on Chinese side). I also blame the Chinese foreign affair officials, because they haven't show their ability to defend their motherland's foreign policy.


Anonymous said...

In today's Asia Times, Peter Lee has an article about China DRC's deal:

It's interesting how US gov squeezed DRC to accept a deal (Tenke Fungurume) twice the size copper concession ceded to Chinese, with $100b given only 17.5% of share to DRC, while China's $350b given 32% to DRC deal is questioned by IMF.


Anonymous said...

sorry, the above figure should be in million USD not in billion USD


Deborah Brautigam said...

Wei -- Thanks for the link to the Peter Lee article. I'd just point out that the IMF's questioning of the DRC deal was mainly based on the associated debt ($6 to $9 billion) and the requirement that the debt be guaranteed by the DRC government. I will be doing a post later to update this story, but it seems that the guarantee has now been removed from the debt associated with the mining venture, making it more in line with private investments.
Deborah Brautigam

Anonymous said...

Question: the confusion over the contents of the reports and feasibility of the deal from the perspective of business in my opinion calls into question the coordination that exist or might be lacking between public and private Chinese investments in Africa, is that idea far fetched?
Thanks, Margot

stuart said...

I'm just curious, DB, but have you ever found cause to criticise Beijing for her African policies?

Sure, we need some balance in the debate, but presenting China as Africa's unconditional friend is a bit far-fetched and a fundamental misunderstanding of CCP global strategising.

Btw, "While the Chinese government denies having anything to do with the China International Fund" is a clear sign that the opposite is true.

Deborah Brautigam said...

Hi Stuart -- I hope you get a chance to read my book. My goal is to provide an evidence-based analysis of the threats and opportunities in Chinese engagement in Africa. In the current climate -- where much analysis rests on rumors, myths, and headlines -- this seems to me the best place to begin.

Deborah Brautigam said...

Margot, I think you're right to point out the issue of coordination. Many believe in the idea of "China, Inc." in Africa -- that major Chinese companies operate under the tight control of Beijing. But as China has moved to the market and globalized, state controls have gotten much weaker. The principle-agent problems associated with attempts to influence/control company behavior from Beijing are intense. There is a great article on this by Bates Gill and James Reilly: That's not to say that avenues of influence and direction don't exist -- just that we're not talking about the command economy anymore.

Rongkun said...

I just found the original article about "Why Rio's Guinea iron ore was an offer Beijing could refuse." that Tan Xiaoyang mentioned.

Professor Zha Daojiong of Peking Uni. said China has reached a turning point in Africa, out of self-interest. He pointed to the conflict-ridden mess of Chinese oil investments in Angola and Sudan with Angola - China's single largest oil supplier - so problematic that "it's just not worth it".

"It's not because China wants to be nice to other international governments … but because China is learning that African governments are pretty good at milking the cow."

African governments become sly and they know how to deal with sophisticated Western companies and cash-ful China.

"China is getting better aware of the practices of African governments to divide and rule among Chinese companies and foreign powers," said Zha Daojiong, professor of international relations at Peking University.

Deborah Brautigam said...

Thanks, Rongkun. Professor Zha is a very astute observer of China's overseas engagement. This is particularly interesting in view of the new developments in Guinea discussed in my posting from March 19th. said...

Sorry I did not walk you through when we met last year at CTA, in Mozambique, mainly because you seem to be busy and I felt you already had preconceived conclusions about your topic at the time.
For some personal and not exactly political reasons I am more interested in Taiwan, where I was educated by the way, therefore my opinions on some matters might sound biased, but next time you are in Mozambique we can sit and I could shed some light on some of your assessments, for academic purpose only.
One thing is for sure, I will buy your book.

Deborah Brautigam said...

Hi Dino, Nice to hear from you. I'm sorry that you felt I was too busy when we met or that I had preconceived notions. As I recall, we met at 4:30 and spoke until it was dark. I learned a lot about your studies in Zimbabwe and your experiences in Taiwan and China. I remember our meeting very well, with great warmth, particularly as we shared the experience of living in Taiwan. You did tell me some interesting things about Mozambican hopes for Chinese finance for the Zambezi valley. I also interviewed many other people, including Sergio Vieira, Laura Nhancale, Paul Fauvet, Anabela Lemos, Carlos Nuno Castel-Branco, Carlos Serra Jr., Liu Gengsheng, Fernando Lima, Daniel Clemente, Prakesh Ratilal, Alda Salomao, Bruno Nhancale, and others about the "Zambezi project" that was reported in the media. I stand by my conclusions from this research, that there is little Chinese interest in turning Mozambique into a "rice bowl" for exports to China. But it would be very interesting to know more about all the negotiations!

Anonymous said...

About 3 years ago all the heads of State in Africa were invited to China. China had about 50 billion dollars to give away. It was paid out to the various heads of state. No one ever questioned the heads of state as to how much they received or where the money went. Work permits in any African country are issued over night to the Chinese. The Chinese Government is sending out thousands of convicts to work in the mines eg Zambia. In Zimbabwe the Chinese government has been given many of the farms that were taken away from the white farmers supposedly to be given to the local population and are now being worked by Chinese convicts. The Chinese do not employ any local laborers in the countries they do projects in, they supply all their own material and Chinese laborers. In Zambia they have been given permission to cut down large areas of forest to make gun buts to be sent back to China. The only people benefiting from china going into Africa is a small handful of corrupt officials and the chinese. Britain colonized Australia with convicts and china is doing the same in Africa. The leaders of africa have sold Africa to China for 50 billion Dollars!