Thursday, October 21, 2010

African Traders in China and Substandard Goods

photo credit: Evan Osnos, The New Yorker

One of the primary complaints I hear on China-in-Africa is the issue of substandard Chinese goods in African markets. Clearly, Chinese traders are bringing in a lot of these goods. But an under reported factor is the role of African traders in the supply chain.

As many as 20,000 African traders and entrepreneurs live, visit, and work in a suburb of the city of Guangzhou (Canton) called by locals "Chocolate City". The suburb is divided into different neighborhoods -- Nigerian, Malian, Benin and so on. From time to time the local police crack down on traders who have overstayed their visas.

A report by Bill Schiller in The Star (Canada) on a crackdown last year caught my eye recently because it contained an illuminating reference to practices of some of the African traders and how substandard goods enter African markets. A Nigerian trader explains:
"My brother came here first to seize the opportunity. So I came, too. Everything is so much cheaper here," he said one recent afternoon.
He and other African buyers tour local factories regularly, he says, looking to buy "seconds" with minor imperfections.
A pair of blue jeans can be had for as little as 15 Chinese yuan, the equivalent of $2.45, he says. These he can sell right here at his stall for 28 yuan, or about $4.60. But back home they can fetch as much as 45 yuan or $7.35, maybe even more.
Other reporting elaborates on these practices. Here's an excerpt from the English translation of an article on Chocolate City that appeared in Southern Weekend (courtesy of
“Every day after noon, “Chocolate City” begins to turn lively. Tens of thousands of black people seem to erupt from the ground in groups of twos and threes. Carrying large black plastic bags or wearing backpacks, they look through the stalls along the street. The stalls are filled with “tail goods” (excess production that did not meet quality standards) from thousands of small factories throughout Guangdong: blue jeans, unbranded television sets, hand-assembled cell phones.”
For more visuals on Africans in China, click here for Evan Osnos's great slide show from the New Yorker.

Complaints about substandard Chinese goods in African markets abound. Here's one way these goods enter, and why. The price differentials also help explain why African manufacturers are having such trouble competing with Chinese firms. In a future post I'll link to a paper on ways in which consumers in one Tanzanian market are successfully dealing with these challenges.

Thursday, October 7, 2010

China, Malawi's Fertilizer Subsidies, and Monsanto

Photo: Intl. Center for Tropical Agriculture
Now that five years have gone by, the success of Malawi in increasing food production through using fertilizer subsidies appears to be pretty well established, and interest in replicating Malawi's experience is growing.

An overview by Yasmine Ryan on the African Agriculture Blog: "Can Fertilizer Subsidies Grow Africa's Green Revolution?" provides interesting insights. What Malawi apparently did was not simply subsidize fertilizer, but hybrid maize seeds. A big beneficiary of this policy turned out to be Monsanto, which had an entree into the hybrid maize markets in Africa. "Is it philanthropy, PR, or simply shrewd business?" asks Ryan.

This made me think of the Chinese effort to boost their own seed companies and their hybrid rice seeds, in part through the 20 agro-technology demonstration centers in Africa that mix China's foreign aid funds and Chinese business incentives. "Is it philanthropy, PR, or simply shrewd business?" Time will tell. 

Wednesday, October 6, 2010

A (More) Transparent Chinese Mining Deal in Mozambique

 Coal mining: Image courtesy of Reuters
Many people (including me) who study China-in-Africa were not well-versed in the standard operating procedures for large commercial deals in mining, power generation, and so on. I've learned a lot about this over the past few years, in particular, about the lack of transparency that is common across the board (ergo the need for organizations like Transparency International).

Several weeks ago I was invited to lunch with staff from a major US oil company with operations in Africa. I asked them what their "standard" practices were in offering signing bonuses, negotiating royalty rates, and so on. They were completely tight-lipped about all of this, citing commercial reasons for confidentiality.

Similarly, someone I know who has been advising on a complex power deal in Africa, in which Chinese banks are involved, told me that no details could be divulged, as it was standard practice on deals like this (not specifically Chinese deals) for all the parties to sign non-disclosure agreements while the deal was being negotiated. 

It was thus interesting to learn some details about an MOU signed between Australian firm Riversdale, and China's Wuhan Iron & Steel Corp (Wisco) and China Communications Construction Company, in Mozambique (Zambeze & Benga). The deal would grant Wisco "the right to buy 40% of the coking coal produced from the Zambeze project ... and at least 10% of the coking coal produced from the nearby Benga coal mine." The $800 million deal would give Wisco 40% of the Zambeze project, and 8% of Riversdale's shares. It would be payable in three tranches:
The first $200-million would be paid upon the completion and signing of a definitive agreement covering the joint venture.

A further $150-million would be payable on the successful completion of a feasibility study for Zambeze, subject to meeting certain milestones, including establishing the commercial viability of developing and operating the Zambeze project to produce no less than 30-million run-of-mine tons of coal a year.

A further $450-million would be payable on the granting of the mining contract, mining licence, final environmental approval and other necessary regulatory approvals required to proceed with the development of the project.
Wisco, CCCC and other Chinese companies will conduct "a comprehensive study of mine-to-ship logistics to enable the export of large tons of coal products from the Zambeze project to ports for export markets." The stages that this deal must pass through are no doubt similar to those for many of the other mining MOUs signed by Chinese companies. (These uncertainties help explain why so many signed MOUs do not result in actual projects.)


Monday, October 4, 2010

China's New Debt Cancellation & Aid Pledges

At the Millennium Development Goals summit in New York about ten days ago, Chinese Premier Wen Jiabao announced the latest figures on China's accumulated debt cancellation so far:  25.6 billion yuan of debt "for the heavily indebted poor countries and the least developed ones". [This comes to about $3.83 billion at an exchange rate of US$1.00 = RMB yuan 6.69.]

He also announced a continuation of China's MDG pledges:  Over the next five years (i.e. before 2015), China will contribute:
  • construction of 200 schools
  • 3000 Chinese medical experts
  • train 5000 medical staff from developing countries
  • provide medical equipment and medicines for the 100 hospitals built earlier
This raises a few questions. What happened to the earlier pledge to train people for the schools being built? Are the Chinese medical experts the same as the teams of doctors traditionally sent to African countries, or is this something different? How are the medical staff going to be trained? Is this a full degree, or M.D. or nursing course being offered? Or simply a few weeks of training? 

More details on all of this would be helpful.