Saturday, January 26, 2013

Eastern Promise (and Eastern Errors) in Little Africa

Kit Gillett at The Global Mail interviewed me for a January 25, 2013 feature story on Africans in China, "Eastern Promise in Little Africa." The article is extremely well-written. Kit took a lot of care, and created a fascinating piece of work, with a number of interviews and photos. It looks like a good, balanced human interest story. However, even a careful reporter like this can get things wrong in presenting the big picture that frames the story. 

credit: Jeffrey Lau           Guangzhou's Little Africa
Early in the article, Kit writes "In recent years China has invested heavily in infrastructure projects across Africa, often in exchange for subsidies on natural resources." Yes, many Chinese companies have been building infrastructure projects, some $35 billion per year, but these are rarely Chinese "investments" -- they're construction contracts. Only about 20 to 25 percent are financed by Chinese banks or the Chinese government. As for the idea that this is "often" done "in exchange for subsidies on natural resources", I have yet to see a case where a Chinese firm got a subsidy on natural resources in exchange for building infrastructure. (If anyone has seen such a case, please comment). When natural resource exports enter into a construction deal (and this is quite rare) they enter in as a way to secure the loan with an export stream. In the cases I have seen, the exports are priced by the market**. We can't call this an off-take arrangement, as often there is no relation between the export stream and the construction project. But it operates in a parallel manner.

Toward the end of the article, Kit makes another error, in saying that "China has made efforts to promote friendship. China directly invested USD45 billion in the region in the first six months of 2012 alone."

Anyone who tracks FDI figures knows this is way wrong. In all of 2012, according to official figures at MOFCOM, China's entire overseas investment to the world amounted to USD77 billion:
 In 2012, Chinese investors made direct investment overseas in 4,425 enterprises in 141 countries and regions. Direct investment overseas amounted to US$ 77.22 billion, up by 28.6% year-on-year. Of which equity investments and other investments were US$ 62.82 billion, accounting for 81.4%, and earnings reinvested were US$ 14.4 billion, accounting for 18.6%.
As I noted in a recent presentation at New York University, Chinese direct investment in Africa is generally only a small fraction of that in the rest of the world: on average, maybe 5 percent. The total stock of Chinese FDI in Africa amounts to about USD14.5 billion, by official figures (unofficially it is likely higher, but not enormously so). I don't know where Kit got the preposterous figure of USD45 billion for just six months of flows. Possibly it was in Foreign Policy Journal, where a similar figure was posted. But it's a reminder that even when doing great micro-level research, it's important to make equal effort to present the big picture correctly.

A hat-tip to Yanyin Zi.
**Angola presents an exception, where from what I can tell, CIF, a Hong Kong-based broker enjoying a joint venture with Sonangol, Angola's state-owned oil company, seems to have gotten oil cheaply and sold it on at market rates to the Chinese -- but that's not "China" getting a subsidy)


Gregor Kneussel said...

Dear Professor Brautigam,

I guess you are aware of this study published in the Proceedings of the National Academy of Science:

Global land and water grabbing
by Maria Cristina Rullia, Antonio Savioria, and Paolo D’Odoricob

As a side note: this has also received some attention in Israel, because Israel is listed as one of the countries disproportionally involved:

ישראל בין המובילות בניצול כלכלי של קרקע במדינות עניות
Study: Israel ranks among world's most harmful land-grabbers (Haaretz) /'s+most+harmful+land-grabbers+!gn
"Altogether, the study said, more than 400 million dunams of land have been bought in this way - more than 10 times the entire territory of Israel. A large portion of this land was bought in the last four years. ... The leading land grabbers are the United States, Britain and China. But smaller countries also make the list, among them Israel. Israel makes the list due to large-scale purchases of agricultural lands in Colombia, where sugar cane for biofuel is grown, and in the Democratic Republic of Congo, where jatropha, another plant used in biofuel, is grown."

What do you think of the PNAS article, is the data and conclusions on China reliable? I'm looking forward to your comments.

Best regards,
Gregor Kneussel

Anonymous said...

Dear Deborah,

I tried to link to the links provided by Mr. Gregor Kneussel but unfortunately I couldn't get anywhere.

Is there any way to obtain the study as outlined by Mr. Kneussel so that at least some of us can take a look over the figures?

Thanks !!

Deborah Brautigam said...

@Anonymous and Gregor Kneussel: I looked at the study (sorry that it is gated, and not available). It wasn't terribly useful. They are using the same "land matrix" data that others have used. (I haven't been back to see the land matrix data, but when it was first published, it was quite problematic.) One of the problems with data that continues to be revised is that it's not clear which version of the data people are using. The authors of this study summarize the data but don't provide "raw data". As with other studies, they generally assume that all the cases in the matrix are actually underway, even though the land matrix people stress that there are several different levels of confidence in the data.