Saturday, April 30, 2016

China-Zimbabwe Conflict Heats Up

Photo credit:
Great analysis by SAIS Ph.D. student Yun Sun, non-resident analyst at Brookings: "China’s pains over Zimbabwe’s indigenization plan,"April 26, 2016.

The announcement that Zimbabwe would require 51 percent indigenous ownership for all foreign investments was made some time ago, and since then, the issue has been debated in the courts and policy circles. As I noted in a 2014 story in this blog: "China: Exempt from Zimbabwe's Indigenization Policy?" many believed that Chinese companies were exempt but this was never the case, as I pointed out then, and as we are seeing now.

One Chinese company, Tian Ze, active in the tobacco sector working with local black tobacco farmers, was exempted from the requirement due to its extensive involvement in propping up the local farming effort.

Yun Sun makes another important observation:
Zimbabwe’s indigenization is yet another case of China’s lack of preparedness toward local sovereign risks and a lesson in how to operate in less developed, authoritarian countries with poor investment environment. 
I would add to this that Zimbabwe (like Sudan/South Sudan) remains an important case where we continue to clearly see multiple examples of diplomatic efforts aimed at changing/influencing domestic policies (and politics). As these cases suggest, just what "non-interference in internal affairs" means continues to change, and Africa may be where we can see this most clearly.  


Kai Xue said...

China Tobacco (parent of Tian Ze) and Export Import Bank saved the Zimbabwe economy. Please see a column I wrote on this subject a year ago.

There's a rarely asked question in Sino-African scholarship. This is a bilateral relationship that really prompts it: Is so much business interest in Africa a mistake?

Loan defaults and expropriation can be the end result of an investment and lending wave by China that has saved the economy. And this is despite how enormous the political goodwill is in this relationship. After all who armed Mugabe while he was fighting the Rhodesians. Yet somehow this looks like a big disaster with few dividends.

Granted favored countries to lend and invest in like Ghana and Zambia are in no way Zimbabwe but most African countries have bad investment environments or future macroeconomic situations.

Part of the explanation for why China-Africa is at such an advanced stage is not grounded in good reasons (from China's point of view) and may well be that pursuing it at this scale was a costly mistake.

Deborah Brautigam said...

You have a lot of experience in this area, Kai Xue. Of course Zimbabwe is not very representative of all of Africa, and Chinese lenders like Eximbank have been very wary of loan defaults, given Zimbabwe's history of default on earlier Eximbank loans, defaults that had to be covered by Sinosure:

Kai Xue said...

Yes, but the countries with good investment environments that have also attracted a lot of lending on top of investment will have bad macroeconomic situations (Ghana and Zambia). And there is now over the last 16 years 100 billion dollars in lending, most of the loans are outstanding. I have a bad feeling that future FOCAC summits will be dominated by large groups of countries demanding concessions on repayment of those loans so these trouble spots will go beyond a few countries and gather into a continent sized force. This relationship will not look very win-win in such circumstances. Africa Wins, China Loses.

Unknown said...

Being a citizen of Zimbabwe myself, I have recently noticed a number of Chinese would-be investors visiting to inquire on the country's indigenisation regulations. However, in the past this was not the case since the government clearly gave the idea that the Chinese were exempt from the regulations of this policy. Please read the following Even today, it is not very clear whether Chinese investors are fully complying or are given favourable treatment of some sort. The government of Zimbabwe itself has not been very clear as well on whether Chinese investors are treated the same as Western or South African investors under this law. So I think it is very difficult to come to a conclusive position regarding this issue.

Deborah Brautigam said...

Thanks Ronald for your comment -- the link you provide only gives the example of Tian Ze, which (as I note above) has long been known to have been exempted from the indigenization decree. This is also what I was told when I inquired about this around the Chinese investor community. Most were very uneasy about how this was going to unfold.