China in Africa: The Real Story

Africa's New AU Building: How Many Chinese Workers?

2012-01-30T18:08:00.000-05:00

A couple of days ago, Yoon Jung Park at Howard University forwarded a very thoughtful article by Howard University grad Chika Ezeanya, reacting to the just-opened $200 million African Union headquarters building in Addis Ababa, a "gift" from the dragon. Her mixture of frustration and disgust at the symbolism of the African Union accepting the donation of this building was almost tangible and very nicely phrased.

But one thing about her article caught my eye: the statement that 90% of the labor on the building was Chinese.

I was in Ethiopia in February and November, and both times, it was clear to me that there were a lot of Ethiopian workers on the site. Other construction projects I visited overwhelmingly conformed to the usual pattern of Chinese managers and Ethiopian workers. But if this figure was firm, I wanted to add it to my collection of anecdotes-into-data on Chinese workers in Africa.

So I asked Chika about her source. She had heard the figure on the radio, but she directed me to two other news reports.

One, from The Global Post, said "Construction began three years ago by the China State Construction Engineering Corporation, using building materials largely brought from China, and a mix of Chinese managers and Ethiopian laborers." That's what I would have expected.

The other, from Voice of America, said the exact opposite: "It was built by the China State Construction Engineering Corporation, largely with Chinese labor." (This article also made the comment that "Industry experts say 70 percent of the continent's oil exports go to China." Ahem. The real figure is closer to 13% of African oil going to China (2009), compared with the US and Europe, each about 33%.) This put a twinge of doubt into my mind about the VOA author's credibility.

Agence France Presse said "Construction began in January 2009 and involved 1,200 Chinese and Ethiopian workers." No break down.

An Al Jazeera story that said it was "all" Chinese labor. (hat tip to Michael Lee for that one).

So, next step. What do Chinese sources say? Tang Xiaoyang did a quick search for me, and found two articles in the Chinese press. A Xinhua story of July 2010 said that there were "nearly 200 Ethiopians and over 200 Chinese" in July 2010, and another report in December 2011 said that 900 workers were hired at the peak, and that "the Chinese trained Ethiopian construction workers in a 1:1 ratio (一比一)."

Back to Michael Lee, who unearthed a China Daily story, which includes an interview with Zeng Huacheng, the Chinese project manager. Zeng said at the peak there were 1500 workers, normally they had around 1100, and that it was 1/2 Chinese and 1/2 Ethiopian. You'll see a lot of each on the video.

Why are there more Chinese working here than the norm I've seen, of about 20 Chinese to 80 Africans, on average? I imagine it has something to do with the political importance of the project, and the fact that it was financed as a grant, not a loan. The Chinese wanted to be sure it was done on time, and that it reflected a high standard of quality. And as it was financed by the Chinese as a donation, the Ethiopians probably waived their normally strict work permit requirements. Finally, as an aid project, it has to reflect "mutual benefit". Using Chinese materials and labor (half) provides some benefit to China ... not to mention the longer benefit of having the AU members meet in a stunning modern building donated by Beijing.

China and Conflict Minerals in the DRC

2012-01-24T11:30:00.002-05:00

OK, it's not really all about China, but an excellent analysis, "What's Wrong with Dodd-Frank 1502?" commissioned by the Center for Global Development and written by Laura Sesay, Congo expert, professor, and aka blogger "Texas in Africa" uncovers the pitfalls of (ineptly) trying to legislate good things for the conflict torn eastern Congo. From the abstract:
Although its provisions have yet to be implemented, section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act is already having a profound effect on the Congolese mining sector. Nicknamed “Obama’s Law” by the Congolese, section 1502 has created a de facto ban on Congolese mineral exports, put anywhere from tens of thousands up to 2 million Congolese miners out of work in the eastern Congo, and, despite ending most of the trade in Congolese conflict minerals, done little to improve the security situation or the daily lives of most Congolese.

In this working paper, sponsored by Todd Moss, Laura Seay traces the development of section 1502 with respect to the pursuit of a conflict minerals-based strategy by U.S. advocates, examines the effects of the legislation, and recommends new courses of action to move forward in a way that both promotes accountability and transparency and allows Congolese artisanal miners to earn a living.
H/T to Duncan Green, at Oxfam UK's "From Poverty to Power" blog.

China's Foreign Aid: The Economist still doesn't get it

2012-01-22T13:30:00.002-05:00

credit: Derek Bacon for The Economist

The Economist still doesn't get it on China's foreign aid. They merrily mix apples and lychees in a new special report on state capitalism, writing:

"And government bodies such as Eximbank, China’s foreign-aid bank, have made no bones about their enthusiasm for tying foreign aid to commercial advantage. One of China’s favourite tools is oil for infrastructure. China offers to provide poor countries with schools, hospitals and the like (usually financed by soft loans and built by China’s infrastructure giants) in return for a guaranteed supply of oil or some other raw material. Eximbank supplied a $2 billion low-interest loan to help China’s oil companies build infrastructure in Angola."

What's wrong with this? Nearly all of it.

(1) "...Eximbank, China's foreign-aid bank..."

Eximbank is China's export credit agency, i.e. it finances trade deals like the 2009 deal where my old friend Mort Arntzen's American shipping company OSG bought a handful of Chinese tankers. Yes, China Eximbank also manages China's foreign aid concessional loan program, but this is a small part of Eximbank's total portfolio. Standard & Poor's credit rating review of China Eximbank in 2005 found that the concessional loan portfolio made up only 3% (three percent) of Eximbank's assets.

(2) "...their enthusiasm for tying foreign aid to commercial advantage..."

Yes, China does tie its official foreign aid, while other countries have moved away from this (the UK led this move, but the US is a laggard here). However, tying export credits to your own country's exports is still the norm. Why else would countries have a government instrument to intervene in trade?

(3) "One of China's favorite tools is oil for infrastructure".

Not really. This kind of tool is relatively rare. If you consider all the transactions financed by Chinese banks in Africa, for example, oil-secured infrastructure loans that are unrelated to developing an oil asset (including refinery/pipeline) seem to be limited to Angola, the Congo-Brazzaville, and (in the works) Ghana.* Latin America has seen more deals like this: at very high interest rates. And coming right after a sentence about foreign aid implies that China's oil-secured infrastructure loans are "foreign aid" -- when they're not, by anyone's official definition.

(4) "China offers to provide poor countries with schools, hospitals and the like (usually financed by soft loans and built by China’s infrastructure giants) in return for a guaranteed supply of oil or some other raw material."

This isn't quite how it works. This makes it sound as though the Chinese dangle a few hospitals in front of an African president and then say: you can have this if you guarantee us a supply of your oil!

Here's how it really works. The Chinese bank will offer to provide export-secured finance (these exports can be anything -- as I wrote recently in The Guardian, in Ethiopia, all of the country's exports to China were used to secure a loan). I'm not sure what a "soft loan" is technically, but all of these loans have been at market rates. The "guaranteed supply" of whatever export is already going to China is simply the mechanism for ensuring repayment of the loan (the proceeds are deposited into an escrow account). China doesn't dangle promises of schools, hospitals, etc. -- the proposals about what infrastructure to finance with the loan are made by the borrower. They might include schools, but they usually focus on productive infrastructure: roads, rail, electricity production.

(5) "Eximbank supplied a $2 billion low-interest loan to help China’s oil companies build infrastructure in Angola."

No. First, China's oil companies were not building infrastructure in Angola. The Chinese have world-class construction companies, and that's who got the business. Second, the loan was not "low-interest" but was made at LIBOR (London Interbank Offered Rate) plus a margin of 1.5% (this changed in later tranches). LIBOR is a market rate, and LIBOR plus 1.5% is actually a higher rate than some western commercial bank oil-secured loans given to Angola, as an excellent study by Global Witness makes clear.

For more detail than you probably want on how China's foreign aid really works, see some of my published papers here.
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* Nigerians proposed using this model, but it apparently never happened. Although there is some evidenced that an early suppliers credit to finance two power plants was secured by oil exports, the loans were never repaid. If this system was used, it broke down. In Sudan, this model was apparently used very early on in the mid-1990s, but I believe it was limited to the construction of a joint-venture oil refinery. In Niger and Chad oil-related construction (refinery /pipeline) is also being financed this way.

What do Africans Think About China?

2012-01-20T12:45:00.001-05:00

Aubrey Matshiqi/CPS

Today I spoke with a reporter from Al Jazeera who asked me, as many do, what "Africans" think about "China". It's always hard to even begin to give an answer to a broad question like that. I tried to break down "Africans" and "China" into subcategories. I spoke about public opinion polls from the BBC and elsewhere. The truth is, there are many, many different views. Where you stand depends on where you sit, as they say.

Right after we hung up, I received an email from Yoon Jung Park with a link to an interview with Aubrey Matshiqi, a senior research associate at the South African Centre for Policy Studies - an independent policy research institution that produces original studies on South Africa's and the rest of Africa's policies, governance and democratisation challenges.

He spoke about China, and this is what he had to say:

In December, I was part of a discussion during which an American warned that developing countries such as South Africa should be wary of China. He argued that China is a hegemon and that its narrow political and economic interests are the centre of its universe. Well, he did not put it this well, but I am certain you get my drift.

There is nothing original about these warnings. People warn us dim-witted Africans about China all the time.

What I find amusing – I no longer have the energy for anger – is the fact that these words of wisdom always come from Europeans and Americans and South Africans who are part of the Western sphere of influence. There are many ironies that are lost on these people. Because they are too numerous to mention, I will share just a few.

Firstly, it is extremely problematic that, as a man who has spent almost half a cen-tury on this planet, I thought, for most of that time, that the English-speaking parts of the West were the philosophical, cultural and economic centre of the universe. This is a product of centuries of cultural and economic domination which, in many cases, was imposed violently.

Secondly, I did not experience China as a hegemon. It is America and Europe that imposed themselves and their ways on us.

Thirdly, my experience of the hegemony of the West has largely been that of a gap between its liberal democratic aesthetic and the moral content of its relations with the ‘Third World’.

That said, as a democrat, I recognise the gap between China’s economic resurgence and its very deep democratic deficits. This article is, therefore, not about waving the Chinese flag in your face. As I have said before, the global economic crisis and shifts in the global system from West to East constitute an opportunity for us to reconfigure the content of global economic relations and work towards a less unethical or more ethical global cultural, environmental and economic order. If this does not happen, it is highly unlikely that sub- stantive democracy will become a reality for most people on this planet.

To continue reading, or to see the video interview, click here. H/T to Yoon Jung Park.

Making Sense of China's Development Finance and Aid

2012-01-18T12:14:00.000-05:00

Below is a short article of mine published on Christmas Day when a lot of people were actively reading online, no doubt. It appeared in East Asia Forum (Crawford School, Australia National University), December 25th, 2011. Thanks to Denis Chainey for summarizing this out of a longer chapter.

Chinese Development Finance in Africa

Author: Deborah Brautigam, American University

Chinese development finance in Africa is unusual in that much of the financial flows from China do not constitute official development aid (ODA).

Instead, much of it comes in the form of export credits and strategic lines of credit to Chinese-related companies, among other mechanisms. In this sense, it is very similar to Japanese financial flows to China several decades ago, when Japan began its outward march with a large line of credit to China, which, at the time, was not credit-worthy either. Looking at the nature of Chinese development aid — and non-aid — to Africa provides insights into China’s strategic approach to outward investment and economic diplomacy, even if exact figures and strategies are not easily ascertained.

Chinese development finance in Africa involves two distinct types of financial flow: ODA and ‘other official flows’ (OOF). ODA as defined by the OECD refers to concessionary funding given to developing countries and multilateral institutions primarily for the purpose of promoting welfare and economic development in the recipient country. Funding must be ‘concessional in character’ (i.e. involving government subsidies) and loans must have a grant element of at least 25 per cent, using a 10 per cent discount rate.

While only concessional loans and grants qualify as ODA, governments also offer other official flows: funds for the donor country’s firms to subsidise or guarantee their private investment in recipient countries, military aid and export credits. These funds are reported as OOF. This category includes loans that are not concessionary in character, and official bilateral transactions — whatever their grant element — that are primarily export-facilitating in purpose.

China provides the equivalent of ODA through three instruments: grants, zero-interest loans and concessional (you hui dai kuan, or fixed-rate, low-interest) loans. These instruments finance Chinese government scholarships for African students; Chinese medical teams; ‘turn-key’ construction of stadiums, government buildings, telecommunications networks and other infrastructure; technical assistance teams in agriculture and other sectors; short-term training programs; youth volunteers; and material aid (the export of Chinese goods).

Grants and zero-interest loans were the primary instruments of China’s ODA until 1995, when concessional loans were introduced. According to the Chinese white paper on aid released in April this year, approximately 40 per cent of China’s aid is financed through grants. Zero-interest loans are also a mainstay of China’s aid. The debt-relief program launched by Beijing in 2000 targeted overdue zero-interest loans for cancellation, with RMB25.58 billion worth (US$3.76 billion) cancelled, and of this, RMB18.96 billion (US$2.79 billion) was cancelled in Africa.

Only large projects with a value of at least US$2.4 million, and that make a minimum 50 per cent use of Chinese goods and services, may be funded with concessional loans. China’s concessional-loan program in Africa has grown rapidly. At the end of 2005, China Export-Import Bank had cumulatively funded only about US$800 million in concessional loans in Africa, for 55 projects. Two years later, the number of African projects had risen to 87, and the cumulative value was about US$1.5 billion. And the government recently pledged US$10 billion in concessional /preferential credits for Africa, to be committed by 2012.

China also supplies other official funds that do not qualify as ODA. Three categories of loans are relevant here: export buyers’ credits, including preferential buyers’ credits (you hui mai fan xin dai) and commercial-rate, export commodity-secured or ‘mutual-benefit’ credits (hu hui dai kuan); official loans at commercial rates; and strategic lines of credit to Chinese companies.

For Africa, the OOF category provided by OECD members has normally been well below the level of funds provided on ODA terms. But this is not the case for China. China’s government-provided finance to Africa falls primarily into the OOF category, rather than ODA. As noted above, China’s official finance in Africa consists of grants, zero-interest loans, debt relief and concessional loans (which would all qualify as ODA), as well as preferential export credits, market-rate export buyers’ credits and commercial loans from Chinese banks (none of which would qualify as ODA).

In Africa, as elsewhere, Chinese aid agreements seem to follow diplomatic ties. China’s ODA does not appear to be given in larger amounts to resource-rich countries, as can be seen in flows to Nigeria and the Democratic Republic of Congo. Grants and zero-interest loans are distributed fairly evenly around the continent, while concessional loans fit a country’s ability to pay, either because it is middle income or because it will finance an income-generating project.

China’s economic push to ‘go global’ is coordinated by many policy instruments, including development aid. In this way, China’s strategy resembles Japan’s outward march more than it resembles the experience of other OECD countries. Chinese banks have developed instruments they believe can link Africa’s riches — its natural resources — to its development. Because they regard these resources as a source of wealth, they generally do not offer mutual-benefit loans (hu hui dai kuan) at concessional rates. And to the Chinese, even resource-poor countries like Ethiopia — whose balance sheets might not look good — sometimes have untapped capacity to service a future debt, if borrowed funds go toward productive projects. It remains to be seen whether fears about the sustainability of this debt are borne out.

Deborah Brautigam is Professor at the School of International Service, American University, and Adjunct Professor at the Department of Comparative Politics, University of Bergen. Professor Brautigam’s research was presented at China Update 2011. The annual China Update conference is hosted by the China Economy Program, in collaboration with the East Asia Forum, at the ANU in July. This article is a digest of a Professor Brautigam’s chapter ‘Chinese Development Aid in Africa’, in Jane Golley and Ligang Song (eds.) Rising China: Global Challenges and Opportunities. This book is the latest publication in the China Update Book Series, launched at the China Update conference every year.

"The Zambezi Valley: China's First Agricultural Colony?" Fiction or Fact?

2012-01-12T18:40:00.002-05:00

More than four years ago, Loro Horta, then a Ph.D. candidate at the S. Rajaratnam School of International Studies (RSIS) in Singapore, posted a series of stories including "The Zambezi Valley: China's First Agricultural Colony?" (1) on the website of the Center for Strategic International Studies (CSIS), repeated in "Food Security in Africa: China's New Rice Bowl," at the Jamestown Foundation China Brief (2) making strong claims about Chinese interests in Mozambique agriculture: "China" wanted to grow rice in Mozambique to ship back to China, use Chinese farmers to do it, and had pledged $800 million toward this goal.

I read that commentary, as did many other people. It is regularly cited as a key example of Chinese interest in "land grabbing". It appears in an oft-cited review of land-grabbing published by the International Food Policy Research Institute (3) and was cited by an authoritative study of land-grabbing in Africa by a joint FAO-IFAD-IIED (4) team and a new study by two Standard Bank researchers (5). It is a major contributor to the belief that "China" wants to grow food in Africa to ship back home.

The problem: very little of what was written in this sensational commentary appears to be real.

Intrigued by the story, I made sure to include Mozambique in my field research for The Dragon's Gift. I went to Mozambique in the summer of 2009. Apparently, Horta did no fieldwork for this research (and mentions none in his references). None of the Mozambique experts I interviewed had been contacted by him. Horta provided no references to interviews in Mozambique or any news stories supporting these claims. I later wrote to Horta and asked him if he could provide any actual evidence for his claims. He replied that he couldn't find his source material or notes.

After I returned from Mozambique, I wrote about the lack of evidence for Horta's claims in a 2009 article for China Quarterly, and in The Dragon's Gift (6) Sigrid Ekman, a Norwegian researcher, later went to Mozambique to research this story for her master's thesis (7). She came up with the same conclusions: a lot of this story appears to have been fabricated -- or to put it more kindly, woven together out of rumors, mistakes, and a grain of interest.

Yet myths created in the internet age have a life of their own. Today, I received peer review comments on a small piece I wrote for IFPRI on China's agricultural engagement in Africa. One reviewer wanted me to be sure to take account of "Horta's research" in my piece. I only wish I had enough space to do so adequately in an IFPRI publication.

It's embarassing to take apart a student's paper in public. Usually we have the chance to do peer review in a more professional and discrete way before something makes its way to print. CSIS never had the Horta paper peer-reviewed. Nevertheless, this blog posting is way overdue.

First, Horta comments on China's "growing demand for food stuffs from Africa," providing as evidence China's increased general consumption of "seafood, rice, soybeans, sugar, cereals and other crops." However, between 2000 and 2009, no African country exported rice, soybeans, sugar or cereals to China (some did export seafood and sesame seeds). This doesn't seem to be very robust evidence of China's demand for food from Africa.

"China’s search for new land has led Beijing to aggressively seek large land leases in Mozambique over the past two years, particularly in its most fertile areas, such as the Zambezi valley in the north and the Limpopo valley in the south."

Did this really happen? Sigrid Ekman's study, summarized in a recent Mozambique political bulletin by Joseph Hanlon (8), "notes that the now abolished Zambeze valley office (Gabinete de Promoção do Vale de Zambêze, GPZ) tried hard to get Chinese investment and failed." So rather than China "aggressively" seeking large land leases, the Zambeze valley investment promotion office was aggressively courting Chinese investment.

"Chinese interest in the Zambezi valley started in mid-2006, when the Chinese state owned Exibank [sic] granted $2 billion in soft loans to the Mozambican government to build the Mpanda Nkua mega-dam on the stretch of the Zambezi in Tete province."

In fact, although discussions were underway on Chinese financing (China Eximbank) for the Mpanda Nkua dam, this project did not go forward. No Chinese bank has ever granted a loan for Mpanda Nkua.

"Since then, China has been requesting large land leases to establish Chinese-run mega-farms and cattle ranches. A memorandum of understanding was reported to have been signed in June 2007, allowing an initial 3,000 Chinese settlers to move to Zambezia and Tete provinces to run farms along the valley. A Mozambican official said the number could eventually grow to up to 10,000. However, the reports of this deal caused such an uproar that the Mozambique government was forced to dismiss the whole story as false."

Maybe it was false. In a 2007 story, Horta put the figure at 20,000. I tried to find out more about this in Mozambique. However, no one I interviewed in Mozambique recalled such an uproar. I could find no reports on the alleged memorandum of understanding or an "uproar" in the press (I hired a university student to go through four years of newspapers looking for any stories on Chinese engagement in land or agriculture) or in the memories of the dozens of people I interviewed across civil society, think tanks, journalists, the donors, and academia. The whole story began to sound fishy to me.

If Chinese investors wanted large land leases, they clearly could have signed some. After all, as a 2012 Oakland Institute study (9) showed, "Mozambique granted concessions to investors for more than 2.5 million hectares (ha) of land between 2004 and the end of 2009" almost entirely to European and South African investors -- there were no Chinese investors in their list.

"One thing seems to be certain: China is committed to transforming Mozambique into one of its main food suppliers, particularly for rice, the basic element of Chinese diet. An analysis of China’s activities in the valley in the past two years provides some strong indication of China’s long term intentions.

Following this statement, Horta has put together real facts about China's aid program and interest in building dams, roads, and modernizing harbors, and surmises that this interest "is clearly designed to maximize production and facilitate the rapid export of foodstuffs to China".

That's quite a leap. Chinese are interested in building infrastructure all around the continent, but I don't think one can conclude that this is evidence of a masterplan to feed China!

Horta then makes what I believe to be his most egregious claim:

"In early 2008, the Chinese government pledged to invest $800 million in modernizing Mozambican agriculture ..."

I have seen no evidence, anywhere, in Mozambique or outside, of this pledge. People were baffled when I asked about it. No one knew anything about it, even as a rumor. While I can often find the source of big mistakes, I haven't been able to track this down (11). The trail starts with Horta.

"...with the goal of boosting rice production from 100 000 tons to 500 000 tons a year in the next five years."

The goal of boosting rice production was Mozambique's goal, not China's. The amount mentioned here represents the gap between local demand and local production, at the time filled by imports. Which makes Horta's next statement all the more surprising:

"Mozambique’s increased rice production is clearly destined for export to the Chinese market, since the staple accounts for just a tiny fraction of the Mozambican diet."

Clearly, Horta didn't look up consumption and import statistics for rice in Mozambique (12).

"With this objective in mind, China is funding the establishment of an Advanced Crop Research Institute and several other small agricultural schools throughout the country."

Horta here uses as "evidence" for Chinese plans to make Mozambique into its rice bowl a real project -- the Umbeluzi/Boane agro-technology research and demonstration center, one of 20 China is building across Africa as part of its aid program.

"Over 100 Chinese agricultural specialists are currently in Mozambique, including teams from the Hunan Hybrid Rice Institute, China’s top institution in the field."

There is no evidence that I could find that China ever sent 100 agricultural specialists to Mozambique. I suspect Horta was mixing up China's pledge to send 100 agricultural specialists to Africa. It’s true that the Hunan Hybrid Rice Institute did send a team to Mozambique (13). They later decided to bid to run China's foreign-aid funded agro-technology demonstration center in Liberia, not Mozambique (14). I suspect their visit was connected to a decision about which project to bid on.

"Other major projects include the construction of numerous irrigation and canal networks in the valley."

I’m not sure what Horta was referring to here, but possibly it is the modest project in Gaza province operated by Hubei province (15), which also provided the company associated with China’s foreign aid-funded agro-technology demonstration center (see below). Hubei province has a twinning arrangement with Gaza province to develop 300 hectares to demonstrate the potential of irrigated rice to Mozambicans. As of 2009/2010 they had developed 35-40 hectares, and in 2010 they applied for more land (16).

"The lifting by the Chinese government of import tariffs for 400 Mozambican agricultural products, including rice, will further facilitate food exports to China."

China has lifted import tariffs on 400 products not for Mozambique alone but for all of Africa's low income countries. Rice is not on the list (17).

"The idea of moving thousands of Chinese settlers into the valley has caused great outrage locally, with many fearing the repetition of the dias negros (black days of oppression)."

Again, my research assistant and I could not find any Mozambican news reports on this "great outrage" nor did people I interviewed during my fieldwork recall any.

"The Chinese are now linking the implementation of major projects such as dam construction and the funding for the Catembe Bridge – an important project that will link the capital, Maputo, to the district of Catembe across the bay – to concessions on the land lease issue ... Instead of thousands of Chinese settlers, it’s now more probable that a few hundred or perhaps 1,000 Chinese will move into the valley in coming years. The Chinese will manage the large farms, operate and maintain the advanced agricultural equipment, and maintain the canals, while Mozambican labor will do most of the manual work."

These appear to be pure conjecture. No evidence is provided or references to interviews or new stories that would support these claims. And so on.

My point in writing this is not to argue that there has been no Chinese interest in Mozambican agricultural investment. There has been. In March 2006 a delegation from China did tour agricultural areas of Mozambique, although it’s not clear whether this was to look for investment or to find a suitable site for a promised agro-technology demonstration center (18). Maybe both.

The authors of the 2009 FAO/IIED/IFAD report (4) interviewed Chinese state-owned grain and oilseed trading company, COFCO, who told them they were "involved in discussions for a major land concession to grow rice and soybeans in Mozambique, though at present this deal has not progressed." This interest was real, if far more modest and ordinary than it appears in Horta’s writings. Another Mozambican researcher, Sergio Chichava, showed that between 2000 and 2009, five Chinese agricultural investment projects received approval from the Mozambique authorities (19). Among these was the aborted COFCO project, approved in 2005 at $6 million. The average size of the other four approved projects was only $615,000, and one of these was Hubei Lianfeng’s approved project, for just over $1 million (20).

None of this, however, supports the idea that “China” was intending to create an agricultural colony in Mozambique, or make the Zambezi Valley into China’s rice bowl. My take on this is that Horta, who was then a student, wove his paper out of bits of real things on the internet, spiced up by rumors. But if anyone has another take on this, or evidence (either way), please post. I'm interested in seeing it.

update: This blog post has been translated into Flemish on the Chinasquare.be website and appears also at the Flemish site Mondiaal Nieuws. H/T to Frank Willems.

Notes:

(1) http://csis.org/publication/zambezi-valley-chinas-first-agricultural-colony May 2008. Horta first made some of these claims in 2007: http://www.isn.ethz.ch/isn/Current-Affairs/Security-Watch-Archive/Detail/?id=53470&lng=en. Then, he said that "up to 20,000 Chinese" might move to the Zambezi Valley.

(2) http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=35042 May 2009.

(3) http://www.ifpri.org/sites/default/files/bp013Table01.pdf April 2009.

(4) http://www.ifad.org/pub/land/land_grab.pdf 2009.

(5) https://m.research.standardbank.com/DocumentReader?docId=1671-E1AFB8F7AF0747A98326A4419C169FE0-1 November 2010.

(6) http://www.american.edu/sis/faculty/upload/Brautigam-Tang-CQ-final.pdf December 2009.

(7) Sigrid-Marianella Stensrud Ekman, “Leasing Land Overseas: A Viable Strategy for Chinese Food Security?” unpublished master’s thesis, Department of Economics, Fudan University, Shanghai, 2010.

(8) http://www.gg.rhul.ac.uk/Simon/GG3072/2011-67-3.pdf February 11, 2011.

(9)http://www.oaklandinstitute.org/sites/oaklandinstitute.org/files/OI_country_report_mozambique_0.pdf December 2011.

(10) I’ve often seen a figure of $55 million associated with the Chinese agrotechnology demonstration center in Mozambique. According to a copy of the contract given to me by the Ministry of Agriculture in Mozambique in June 2009, China's agricultural center in Mozambique would cost 55 million RMB (about US$6 - 9 million depending on the exchange rate), not dollars. Such a typical mistake, but an important one. China is building 20 centers around Africa, all at the request of local governments that will be using them for their own agricultural purposes. Mozambique’s was the first built. All the centers I've seen have a big agricultural training component (labs and dormitories, for example). All the centers appear to have been budgeted at around 40-55 million RMB. They follow in the footsteps of China’s failed projects in the past. See http://www.american.edu/sis/faculty/upload/Brautigam-Tang-CQ-final.pdf December 2009.

(11) Could it be related to a request the Mozambicans made for China to help fund the Moambe Science and Technology Park, a pet project of the Minister of Science and Technology? Together with the agricultural research center in Umbeluzi/Boane, the two projects would have cost $700 million (the Chinese agricultural center itself was projected to cost 55 million RMB, about US$9 million) (10). The Chinese did say they would help out with Moambe, but not fund the entire thing. Mozambique later received a mixed grant/credit of $15.8 million from China to support distance education and "science and technology" See: http://www.clubofmozambique.com/solutions1/sectionnews.php? secao=social_development&id=22558&tipo=one

(12) http://www.riceforafrica.org/card-countries/g1/mozambique/353-mozambiques-rice-statistics

(13) http://www.macauhub.com.mo/en/2006/03/31/786/

(14) http://www.american.edu/sis/faculty/upload/Brautigam-Tang-CQ-final.pdf December 2009.

(15) http://allafrica.com/stories/201112272506.html

(16) http://www.macauhub.com.mo/en/2010/05/14/9086/

(17) http://www.chinaafricarealstory.com/2010/04/list-of-zero-tariff-products-is-now.html

(18) http://www.agroportal.pt/x/agronoticias/2006/03/24.htm

(19) http://www.iese.ac.mz/lib/noticias/2010/China%20in%20Mozambique_09.2010_SC.pdf

(20) I haven’t been to Mozambique since 2009, but in 2010, I interviewed a Chinese agricultural specialist who knew about Chinese engagement in Mozambique. She told me that Hubei Liangfeng, the company from Hubei province that is managing China's foreign aid research station in Umbeluzi, Boane, Mozambique experimented with growing hybrid rice and soybeans for profit. "They experimented first on a small scale, but found many problems. The land was too dry. They needed to water two or three times a day. It was very costly. Also, mice destroyed the plants."

Ethiopia's Partnership with China: Feedback

2012-01-04T17:55:00.001-05:00

Chinese-built Ring Road, Addis: Flicker-Pougala

On December 30, The Guardian's Global Development, Poverty Matters blog published a short article they had requested from me on China and Africa as part of their end of the year wrap up of development news. I decided to write on China and Ethiopia. Having just spent several weeks there looking into Chinese engagement for an IFPRI study, I was fascinated by how many different instruments shape the activities in this cooperation. And how different it is from the West's engagement in Ethiopia, most of which is based on aid and NGOs. To read the article, click here.

In my article I noted that Chinese state-owned oil companies had explored for oil but left empty-handed. I'd concluded this, as "everyone knows" that "China" was exploring for oil in the Ogaden in 2007 when they were attacked by the ONLF. Here's a comment I received from the Ethiopian chairman & CEO of a Hong Kong-registered company, Southwest Energy (HK) Ltd.

I thoroughly enjoyed reading your blog in the Guardian about Ethiopia’s Partnership with China. I have also purchased your book and I am looking forward to reading it.

Regarding your comment on China exploring for oil in Ethiopia and leaving empty handed, that is not entirely accurate. Until recently, no Chinese companies have actually acquired exploration licenses in Ethiopia. They have only worked as sub-contractors for other oil companies. I know because we were one of the companies which hired them.

In general, I very much agree with your thesis.

It's great to have first-hand feedback on the real story from participants.

China's "Checkbook Diplomacy" and Overseas Investment Reconsidered

2011-12-23T05:17:00.000-05:00

A reader recently sent me a link to a design website that profiled Chinese overseas FDI projects, collected by Derek Scissors at the Heritage Foundation. But the website host, Cliff Kuang, uses Derek's great infographics to makes his own, inexpert analysis that perpetuates some of the Cold War frames commonly used to discuss China's emerging global role: FDI as "checkbook diplomacy."

For example, Kuang writes "... you'll notice that [sic] majority of China's trading partners aren't in Europe or America: They're in Asia and Africa and South America. In other words, precisely those countries which have always spoken last on the world stage. China is using its economic relationships to create an alternative bloc of power, which can directly compete with the political might of the E.U. and America." and "China has neutralized our power to oppose it by holding so much of our debt. And it has simultaneously drawn other countries closer to its bloc of power by offering them a taste of its rocketing economy."

Here, obviously, Kuang is mixing up trade with FDI. The charts he is illustrating have no trade data (and if they did, they would show that China's major trading partners are precisely Europe and America, not Africa and Latin America). So if Kuang had used trade graphs, he would have to make a different kind of argument. And the idea that China has 'neutralized' our power by holding our debt? The fact that our defense budget accounts for 48 percent of total global military spending is, I suppose, of no account ...?! As for China's alternative bloc of power, just what is this supposed to mean? Australia, Chile, and Japan? Hello Cold War II?

On the other hand, I think that Derek Scissors at Heritage is doing a great service by collecting and publishing (and continually refining) this project-level data. However, users of this data need to be careful, because it is not truly comparable with other countries' FDI data published by the OECD or other sources.

Why not? Two major reasons.

First, Derek is only tracking investments of $100 million and higher. This is going to leave out literally thousands of smaller investments that might be going into manufacturing, services, or agriculture. The kind of small and medium sized factories that are the first to start up overseas simply won't be captured by this database, and that creates a distorted sense of the sectors to which Chinese investment is going. In 2010, for example, Chinese overseas FDI in mining was $5.7 billion, and manufacturing $4.7 billion. Most of the latter will be in other developing countries. (For the reason why, see World Bank chief economist Justin Yifu Lin's 2011 WIDER Lecture: "From Flying Geese to Leading Dragons" or my 2008 book chapter on "Flying Geese or 'Hidden Dragon'?")

Second, Derek is collecting and recording FDI commitments, not actual flows. So if a project is expected to cost $3 billion over a number of years, he is putting the entire $3 billion in as "Chinese FDI". However, this is only accurate in a merger or acquisition, when the entire amount is actually being paid up front. And it is not how FDI flows are recorded in the OECD countries -- they record actual flows in the year that they actually happen. Mining and other large-scale investments take place over a number of years. Sometimes they don't take place at all (although Derek is doing a good job of adjusting his database to account for this failed projects, from what I can see).

A hat tip to Lisa Guetzkow.

China in Africa: Global Health and Foreign Aid

2011-12-15T08:47:00.000-05:00

In print just in time for the holidays -- a new Center for Strategic International Studies book on China's Emerging Global Health and Foreign Aid Engagement in Africa, available for free downloading on the internet in English and Chinese versions. It includes a paper of mine commissioned for the volume: "U.S. and Chinese Efforts in Africa in Global Health and Foreign Aid: Objectives, Impact, and Potential Conflicts of Interest" (no, I didn't pick the title...)

Here's the official description from CSIS:

This volume is a compilation of papers that were written for the Conference on China’s Emerging Global Health and Foreign Aid Engagement, sponsored by the Center for Strategic and International Studies (CSIS) and the China Institute of International Studies (CIIS), in Beijing on May 24, 2011, as part of a larger CSIS initiative to examine the global health engagement of the BRIC countries (Brazil, Russia, India, and China). Focusing specifically on China’s health and foreign aid engagement in Africa, the volume includes contributions by U.S. and Chinese experts.

London Debate on the Motion: "Beware the Dragon: Africa Should Not Look to China"

2011-12-09T13:02:00.001-05:00

SOAS Dean Stephen Chan at the Intelligence Squared Debate

I spent my birthday (!) last week debating the motion: "Beware the Dragon: Africa Should Not Look to China" at an Intelligence Squared event at Cadogan Hall in London.

For the motion: Ghanaian intellectual George Ayittey and Ana Maria Gomez, European Parliamentarian from Portugal. Against the motion: myself and Stephen Chan, Dean of Arts and Sciences at SOAS (School of Oriental and African Studies).

What struck me most was the large number of people who were undecided about this issue, and how hearing actual evidence and research -- instead of what passes for that in much of the media -- can swing public opinion. The audience vote before we started the debate was For the Motion: 154. Against 106, and Undecided 126. When the debate was over, the audience was polled again. For the Motion: 149. Against 212 and Undecided 25. Our side picked up 106 new votes. To understand why, you have to watch the debate. Don't miss Stephen Chan, he was superb!

The entire debate went from 6:45 until 8:30. It's all on Youtube. But you can also watch short pieces of it on Intelligence Squared's website, including each debater's starting presentations, about 10 minutes each. Here's the link to mine and the others are on the same page.

US Eximbank versus China Eximbank

2011-12-07T16:44:00.001-05:00

photo credit: Agence France Press

The head of the U.S. Export-Import Bank, Fred Hochberg, has responded in an open letter (November 4, 2011) to suggestions made by Stephen Hayes, president of the Corporate Council on Africa in his November 1, 2011 testimony before the Senate Foreign Relations Committee that we could do better in supporting our companies' business efforts in Africa. I've just stumbled on this while looking (in vain) for data on the terms of loans for specific transactions that U.S. Ex-Im Bank has supported.

While I appreciate Hochberg's valient defense of his bank's performance in Africa, his characterization of Chinese large infrastructure transactions in Africa as "subsidized by the Chinese government ... at every level" is simply incorrect.

Hochberg mixes up apples and oranges. The large infrastructure transactions that are secured through commodity exports to China (not the same as "secured through resources for Chinese state owned companies") are not concessional. China Eximbank does have a small subset of concessional loans at fixed interest rates of 2 or 3 percent and repayment over 20 years. This interest rate is subsidized, but these are not the loans that finance the large, resource-secured transactions. Worldwide, between 1995 and 2009, China Eximbank committed $11 billion in concessional loans, total, whereas its commitments of non-concessional credits to Angola alone came to $10 billion during that period.

Hochberg states that his bank would need to provide "taxpayer subsidized loans if we were to compete toe to toe with the financing being provided by the Chinese." But this isn't exactly true, as we can see if we look at the rates for U.S. Ex-Im Bank's loans.

Forgive me if I get a bit technical now. U.S. Ex-Im Bank's fixed rates (CIRR) for loans in early November 2011 ranged from 1.47 percent to 3.35 percent depending on the term of the loan (repayment period). But the U.S. Ex-Im Bank's major business involves providing guarantees or "cover" for private bank loans. Quoting U.S. Ex-Im Bank: "Generally, a floating rate pure cover interest rate will be based on LIBOR [London Interbank Offered Rate] and have a spread in the range of 0 to 100 basis points (for larger transactions) or 20 to 400 basis points (for smaller transactions)."

One hundred basis points = 1 percent. So our Ex-Im Bank will guarantee floating rate loans based on LIBOR plus a margin (spread) of 0 to 4 percent. Similarly, China Eximbank's large infrastructure export credits are at floating rates based on LIBOR plus a margin of 100 to 300 basis points (1 to 3 percent) or even higher. They usually need to be repaid over a period of 13 to 17 years. There is no indication that these large Chinese infrastructure loans are subsidized. So the loans that we guarantee can be cheaper than China Eximbank's export credits, or they can be more expensive. Or so it looks to me. But I'd be interested in how it looks to readers of this post.

Finally, I was pleased to see data in Hochberg's letter to show that U.S. Export-Import Bank support to projects in sub-Saharan Africa has gone up from an average of $455 million annually (FY2006-FY2009) to $800 million (FY2010), and $1.4 billion (FY2011). At this rate of growth, we may stand a chance of catching up to China Eximbank... which is probably putting in around $6 billion annually.

Addendum on December 8, 2011: Thanks to Dr. Helmut Reisen, head of research at the OECD's Development Centre, here are links to the approved current export credit rates for most OECD currencies:
http://www.oecd.org/dataoecd/15/47/39085836.pdf
http://www.oecd.org/dataoecd/13/59/39787191.pdf
More generally:
http://www.oecd.org/statisticsdata/0,3381,en_2649_34169_1_119656_1_1_37431,00.html

Creative Destruction: Chinese Competition and the Rebirth of Ethiopia's Shoe Industry

2011-11-30T20:19:00.000-05:00

Ethiopian brand Sole Rebels targets the export market

I returned from Ethiopia about a week ago. Leather is a big deal in the country (and several Chinese firms are investing large amounts in tanneries and shoes). Around 2001, Ethiopia's shoe industry was severely hit by competition from cheap Chinese imports. Omar Redi of Fortune (Addis) reports on the shoe industry's remarkable recovery over the past decade. Originally serving only the local market, Ethiopian companies like Peacock are now exporting to Italy. "The industry," Redi says, "has survived the onslaught from Chinese competition and prospered."

Highlights of the Ethiopian shoe story:

The history of leather industry in Ethiopia dates back to 1928, but focused only on the local market. Chinese imports began to swamp local markets around 2000.
In an unexpected twist of fortune, the Chinese challenge presented an opportunity for Ethiopian shoe manufacturers by pushing them to focus on the quality, design and durability of their products so that they can win the hearts of, at least, the local users.
For Peacock Shoes, the pinnacle of the problem was a wake up call; they realised that if they did not compete with better quality and price, their business in the shoe manufacturing sector would crumble.
"It was at the height of the challenge around 2001 that we imported our first huge machineries from Europe," Elias said.
A leather training institute also helped. Since January 2009, the institute began benchmarking work, under which best practices in the industry from across the world are implemented at Peacock and Anbessa Shoe Share Company.
Peacock Shoes now earns around $4 million a year from exports to Europe. Read more here.

Human Rights Watch Report on Chinese-Owned Mines in Zambia

2011-11-11T15:12:00.001-05:00

Zambian Miners Salim Henry: Reuters

I'm currently doing fieldwork in Ethiopia (where, by the way, internet blocking, if it exists, has not stopped me from accessing my blog). I've been getting a lot of emails about Human Rights Watch's new report on China Non-Ferrous Mining Corporation (CNMC)'s copper mines in Zambia.

The report details a climate of systematic violation of Zambian labor regulations, particularly regarding safety. Some people have noted that I am credited as having read a draft and "provided helpful suggestions". What do I think about the report?

First, I have a lot of respect for Human Rights Watch and their methodology: it is a deep, participant-observation, research-oriented approach to improving the human rights situation worldwide. The researcher for this report, Matt Wells, is an incredibly talented, conscientious, and careful researcher who triangulated his findings and went back again and again to check and double-check. This was not a quick and dirty job. HRW also published the response of the Chinese parent company CNMC -- the large Chinese company that owns and runs four copper mines -- which was defensive, but took the report seriously.

Here are some of my comments to HRW on the draft:

This is an excellent piece of work, obvious due diligence and care taken to get facts right, and to provide a comparative perspective with other employers in the Zambian copper mines. It’s a harrowing catalog of poor safety practices, endemic suspicion on all sides, cutting corners and wasteful, short-sighted approaches to worker relations.

The paper leaves a bit of a feeling that the rest of the mining sector is far better run and organized than CNMC’s part. No doubt that’s generally true, but workers have also complained of “serious human rights violations” at KCM (see the article below), with wildcat strikes, people being fired, and a general “chaotic” labor situation in the mines in general.

The fatality figures also suggest that the Chinese are by no means the only mines with safety problems. Matt hasn’t put fatality figures in – they are dated, but some do exist (see my blog post on The Economist article for a link to these figures.

I think the paper would be/would have been even more powerful with more direct comparisons. Chinese factories have been able to raise their standards to US standards in South Carolina (problematic as those may be from some perspectives) and Chinese mines should be able to meet Zambian standards! Dan Haglund has pointed out that the short-term mentality of a lot of the Chinese managers meant they weren't invested in the long-term relationships, training, safety, good labor relations that would be a win for everyone.

There is some context missing from the report. I didn't think it showed that Zambian copper mines are in general places with a lot of labor relations problems and where workers do not trust management to promote their interests. I sent along a link to a story of wildcat strikes at KCM, another of the large (non-Chinese) mines, which provides...

...further evidence of the chaotic nature of labour relations in Zambia's copper mines. It seems barely a single pay round can proceed without a wildcat strike, police intervention and a round of contested sackings of rank and file workers operating beyond the control of trade union leaders. The latest trouble has been at Vedanta Resources' Konkola Copper Mines, the largest of all Zambia's mining companies, and the pacesetter for all other pay settlements. Negotiations seem finally to have concluded with the two mining unions with management enforcing a15% deal after a wildcat strike and protests sufficiently serious to close the plant temporarily and lead to the deployment of riot police as workers refused to trust their own union representatives, let alone management.

In another demonstration of the reliance of the companies on the physical force of the Zambian state to maintain order, Miners were temporarily excluded from the plant and their gate passes confiscated. Police officers then picked a number of workers up from their homes at midnight. They were taken to the plant, where they were interrogated. [Twelve workers were fired.] ... KCM spokesperson Sam Equamo claimed the workers were disciplined because they disrupted operations without giving chance to their union leaders to brief them on what had been negotiated with KCM management. The workers themselves described their treatment as a serious violation of their human rights and urged the government to intervene.

In responding to me, Matt Wells acknowledged worker complaints at the other companies but said that his research still shows pretty conclusively that CNMC is consistently the worst of what can be a pretty bad bunch. A lot of the miners working for CNMC had been laid off from other mines during the global financial crisis, and were in a position to make specific comparisons on safety issues.

CNFC is actually viewed by Chinese leaders and officials as a model company (for China), and many aspects of its work in Zambia reflect this: the decision not to let workers go during the global downturn; the decision to purchase other risky mines that had gone bankrupt, even, as Dan Haglund has pointed out, their improvements since the early years of running Chambishi mines. Their prompt written response to HRW's criticisms, while formulaic, also shows that they want to be seen as a responsible actor.

With Michael Sata elected, it is possible (though not guaranteed) that Zambia may start to put money into its mines inspections and safety departments, that the abuses laid out in HRW's report will become exceptions rather than daily violations, and that there will be accountability in this dangerous and lucrative sector. I'm sure there will be multiple points of view on this, however, and I welcome a discussion here.

Senate Testimony on China and Africa

2011-11-02T20:07:00.001-04:00

This isn't me. But this is surprisingly close to how it looked.

Yesterday together with Amb. David Shinn and Stephen Hayes of the Corporate Council on Africa, I walked through the hallowed halls of the Dirksen Office building to testify in front of the Senate Foreign Relations Committee (text and video here) on China's engagement in Africa. I was impressed by Senator Coons (who organized the meeting). Kudos to his staff; they did a great job briefing him. The other senators (naturally) varied in their level of understanding of this issue. Few got beyond the headlines.

The invitation to speak to the Committee arrived late last week while I was in Bergen, Norway, for a packed week in residence at the University of Bergen -- preparing and delivering three lectures on China (including one on China's impact on governance in Africa at Chr. Michelsen Institute). I probably should have skipped Seun Kuti's concert in Bergen on Saturday night and stayed in my hotel to write my testimony. It was tempting to enter The Dragon's Gift into the record ... in its entirety. But I refrained.

China International Fund in Africa: Caixin's New Revelations

2011-10-19T18:15:00.002-04:00

Dar es Salaam Airport, Sept. 2011 photo: Tang Xiaoyang

Entering and leaving the airport in Dar es Salaam, it's hard to miss the massive fence around a piece of ground that the Tanzanian government hopes will become Terminal III. On the fence in bold letters one can read "Investor: China International Fund, Ltd." But peek behind the fence, as I did earlier this month, and you will see ... nothing: an empty piece of land without a hint of construction or machinery. Another example of the "talks big but doesn't deliver" style that frequently characterizes the deals signed by this sleazy Hong Kong company.

Two days ago, the Chinese newspaper Caixin published an investigative report on China International Fund (CIF) done by a group of journalism students at Columbia University. Accompanying the report are two other articles in Chinese, and an introduction by Caixin. (hat tip to Wei, and thanks to Tang Xiaoyang.)

The first of the Chinese language articles focuses on CIF's complicated oil deals in Angola, and the second on problems Chinese contractors have faced when they've gotten involved with CIF contracts.

This latter issue is one that arouses intense feeling on Chinese blogs. One blogger commented about the headaches inexperienced Chinese contractors had after they jumped at the chance to carry out construction projects for CIF (usually after being enticed with a promise of getting work without having to go through a tender): "Dancing with wolves is not fun ... you might think you're going to eat wolf meat, but you turn out to be the wolf's snack."

Caixin notes, tantalizingly, that their own reporters were able to access a "previously undisclosed Ministry of Commerce study [about CIF] with surprising conclusions." Unfortunately, Caixin is no Wikileaks. They included no links to the MOFCOM study. But we learn some details, including the "surprising conclusions": MOFCOM accused Xu Jinghua (Sam Pa) of essentially hijacking China's economic diplomacy in 2003 and 2004 by presenting himself in Venezuela and Argentina as an official representative of the Chinese government. (This was strenuously and publicly denied by China's Ministry of Foreign Affairs, which has also warned about the quality of CIF's work.)

What did the journalism students discover? They write extremely well and they had some great interviews. Choice new details emerge of the personal appearance of CIF's head, the rogue businessman Xu Jinghua or "Sam Pa". He has a toothbrush moustache. He and associate Lo Fung Hung were "dressed like street people" for a meeting with Israeli diamond dealer Lev Leviev (Lo wore a diamond tiara; Sam wore "cheap-looking pants"). We learn more sordid details of multiple lawsuits against Sam Pa, and some new details about CIF's real estate purchases in Manhattan (what a great choice for money laundering!), and bungled deals in Madagascar. There's a great quote from a lengthy interview the students snared with investment banker Mahmoud Thiam who was Guinea's mining minister when the CIF arrived in Guinea:

"When a new government comes into power, especially an inexperienced one, there's one phenomenon that never fails: every crook on Earth shows up. And every crook on Earth has the biggest promises, has access to billions of dollars of lines of credits, of loans."

This quote is followed later by another gem, from one of the participants in the meeting between a CIF subsidiary and Lev Leviev, where a deal was signed but came to naught: "The letter may as well have been written on toilet paper."

Overall, this is a very helpful step in the effort to shed light on a very murky outfit and overall provides new details as well as a fine summary of the important earlier work on the 88 Queensway Group by the U.S.-China Economic & Security Review Commission. The students are to be commended.

Just two things trouble me in Caixin's introduction and the students' report.

First: Caixin's introduction says that CIF has "demonstrated unparalleled power". I don't see that at all. CIF talks big, but frequently it can't walk the walk. Outside of Angola, I see a series of bungled and failed deals where CIF has not been able to secure financing, or has provided a "down payment" but little more.

But second, and more importantly, the students say: "CIF has introduced a new model for doing business in Africa [emphasis added]. A private Hong Kong company would provide loans from Chinese government banks to help resource-rich African countries build their infrastructure. In exchange, it would get oil and minerals to sell to China."

I don't buy most of this. First, the overall model of oil-backed loans is far from new, as I discuss in The Dragon's Gift and in my blog post October 17. Second, loans-for-infrastructure secured with resources are also not new in Africa. China Eximbank had been doing this before Angola, and even in Angola, China Eximbank's oil-backed infrastructure line of credit preceded the CIF deals.

Third, very little infrastructure appears to actually have been built by CIF. We've read about the collapse of projects even in Angola, and the fact that the Angolan government had to issue bonds to pay for some of the projects when CIF couldn't raise funds. Finally, the statement "loans from Chinese government banks" implies that somehow CIF is linked into the big deals (totaling to date -- in Angola -- $14.5 billion) financed by China's official policy banks: China Eximbank or China Development Bank. They are not. Or at least I don't see any evidence for this.

In Angola, it's possible CIF could have acted as a broker in one (maybe more) oil-backed deals in which commercial banks -- including commercial Chinese banks -- participated. Here is how the 88 Queensway study described CIF's financing (pp. 14-15; 35):

Financial documents from the Hong Kong Company Registry indicate that CIFL took out four loans over the course of three years in order to pay for its infrastructure projects, although financial documents do not contain exact figures for the amount of money for each loan. The banks providing these loans include the following: Bank of China (branch in Hong Kong) Limited; Calyon* (a French bank); and Wing Hang Bank, Limited (based in Hong Kong). ... [CIF claims to have received finance from French bank Société Generale but not necessarily for projects in Angola]. ...

This implies that CIF was the borrower, as opposed to the Angolan government. In any case, this doesn't look like "loans from Chinese government banks". If the students have better information, bring it on.

-------------
*We also know that Calyon was lead arranger for the proposed $3 billion 2005 syndicated loan deal which according to Sonangol, was "secured by a long-term offtake agreement between [Sinopec subsidiary] Unipec and China Sonangol with the oil destined for the Chinese market." These are the participating banks: Banco BPI; BNPP; Deutsche; DZ Bank; Fortis; HSH Nordbank; KBC Bank; Natexis; Nedbank; RBS; Société Générale; Standard Bank; Sumitomo; UFJ; WestLB. China Development Bank has also participated in a syndicated loan to Angola.

China and Oil-backed Loans in Angola: The Real Story

2011-10-17T17:12:00.000-04:00

The story of China in Angola has been told so often, and almost always those telling the story neglect the larger context of how Chinese banks fit into a pre-existing system whereby Angolans financed so much of their government spending for so long: through oil-backed loans from Western banks. What was really going on between 2003 and 2005 when China's first oil-backed loan was signed in Angola? Below, an excerpt from The Dragon's Gift (pp. 273-277) where I answer that question. Tomorrow I will refer back to this excerpt when I comment on a new report on China International Fund.

Oil-rich Angola is a country deeply cursed with natural resources -- a tropical paradise laced with landmines and hemorrhagic fever, bauxite and gold. Angola also features as one of the prime exhibits in the chorus of condemnation about China’s engagement in Africa. We start this chapter with a closer look at this relationship. Unpeeling its many layers can lay bare some of the myths and realities of China’s engagement in Africa.

First, a brief history. Angola’s war for independence became an East--West conflict after Portugal abruptly gave up power in 1975. The Soviet Union and Cuba stepped in to support the new socialist government. The United States and apartheid South Africa aided the rebels. With the end of the Cold War, Angola’s proxy struggle morphed into a fight for control over blood diamonds, natural gas, and oil. The death in battle of the sixty-seven-year-old rebel leader Jonas Savimbi in 2002 finally allowed Angolans to end more than forty years of war and limp toward something resembling normalcy.

The Angolan government financed the war with a shadowy system of off-budget accounts that sometimes sloshed with oil revenues and sometimes ran dry. Over the years, the once Marxist leadership grew wealthy on a toxic diet of oil money and kickbacks from weapon sales. “Corruption is widespread throughout society,” the IMF wrote in a report leaked to the press./1 Ten out of every fifty infants born in Angola died before reaching their fifth birthday.

As the war drew to an end, Angola was badly behind on its debts. They owed more than two billion dollars to the Paris Club, nineteen wealthy creditor nations that meet informally to decide on bilateral debt issues. But they also owed more than eight billion to other creditors, some (such as a group of Russians) even shadier than the Angolan government itself. These moneylenders were clamoring for payment; some tried to seize government assets outside the country.

Enter China. The story that follows has some of the flavor of the classic 1950 film Rashomon, in which an encounter in the woods is retold, very differently, through the eyes of each participant./2 The conventional wisdom goes something like this. After the war, the IMF and the West decide to clean up Angola. The IMF insists that Angola improve oil revenue transparency and open its tangled accounts for inspection. Backed into a corner by 2004, the Angolans are about to agree, when China steps in, offering Angola billions of dollars of aid. Flush with cash, Angola turns its back on the IMF, taking China’s offer, which comes with no strings attached. “Angola is avoiding pressure to clean up corruption thanks to aid from China,” concludes a typical news item./3 Reports on China in Africa rarely fail to mention this cautionary tale. It is always obvious who plays the villain.

Rashomon is a film about truth and perception. Let us complicate this simple tale by telling it again, from a different point of view. In this story, José Eduardo dos Santos, Angola’s president since 1979, begins using the state-owned oil company Sonangol as a “cash cow” to finance the war, political payoffs, and other state expenses. By the end of the war, Angola has taken out an estimated forty-eight oil-backed loans, nearly all arranged, very profitably, by respectable Western banks: BNP Paribas of France, Standard Chartered of the UK, Commerzbank of Germany, and so on.

The IMF tries to wean Angola off its risky diet of expensive short-term loans. They ask Angola to commit to a host of reforms. For example, Angola’s April 2000 reform program contains forty-four conditions and benchmarks, including raising income taxes and liberalizing trade. If they keep on track for six months, they earn a seal of approval that could then make them eligible for debt rescheduling through the Paris Club, and international aid.

Angola negotiates at least four IMF programs between 1995 and 2004, but fails to stick with any of them. In 2001, with the war still ongoing, Angola again promises the IMF it will reform: create greater transparency in oil revenues, turn over customs management to a British firm (Crown Agents), reduce fuel subsidies, raise water rates, rein in borrowing, and privatize several money-losing enterprises.

However, Angola again fails the test -- not only on the transparency issue (which the IMF agrees is improving but still has far to go), but on the other conditions, particularly its unwillingness to stop borrowing. The international watchdog group Global Witness estimates that between September 2000 and October 2001 alone, international banks provided Angola up to $3.55 billion in seven secretive, high-cost, oil-backed loans.

For a while the Paris Club continues to present a united front to Angola’s attempts to get relief on its overdue loans. They want Angola to successfully complete at least one IMF program. But then in 2003 the Germans break rank, settling a debt reduction deal unilaterally. This allows Germany’s companies to return to Angola, and Germany to extend new export credits. Meanwhile, the French bank Société Générale helps Angola out with another large oil-backed loan for $1.15 billion.

Now we see China enter this crowded room with an oil-backed loan of its own. The $2 billion line of credit offered by China Eximbank in 2004 is unlike most other oil-backed loans, however. First, it costs less. Angola, a relatively high-risk country, has been borrowing at a premium of up to 2.5 percent over LIBOR (the London Inter-Bank Offered Rate, the benchmark interest rate for international finance). The Chinese loan is at LIBOR plus 1.5 percent. Second, it has a grace period of five years, with payment over a further twelve years, far longer than the European banks’ normal term of four or five years, without any grace period. “This is not foreign aid,” a senior Chinese diplomat tells me. “But it is a very good rate.”

As we already know, the most unusual feature of the line of credit is that it will be used entirely for infrastructure projects, the same oil-for-infrastructure model Japan used in China three decades before./4 Four decades of war left Angola’s road system “in a shocking state of disrepair,” a World Bank team reports./5 Bombs destroyed more than 300 bridges. Rural roads and farming fields were planted with landmines. Urban infrastructure “dramatically deteriorated,” streets were “in a state of virtual collapse.” Raw sewage spilled out of the open gutters during heavy rains and ran down the alleys of chaotic shanty towns. Angolans badly need infrastructure. To get aid funding from the West, their leaders are being asked, not unreasonably, to end the cozy system of oil finance that served as a substitute for a proper budget and a central bank all these years./6 The negotiations with the IMF were not even about finance. “We are not looking for money,” the Angolan Finance Minister said about the IMF. “We are looking for a seal of approval that we can present to creditors in order to reschedule our debt.”/7

This alternative story is more complicated, but this brings it closer to reality than the first story, with its shadow play of good and evil. The first story also misses something else. There is a second act. Within months of the Chinese loan, a group of Western banks, including Barclays and Royal Bank of Scotland, arrange an even larger oil-backed loan for $2.35 billion, at 2.5 percent over LIBOR, with repayment over five years. “We were very excited,” one of the bankers told a trade magazine, which called the deal “the largest oil backed transaction in the entire history of the structured trade finance market.”/8 In late 2005, Angola asks the French group Crédit Agricole (Calyon) to arrange another $2 billion loan; sixteen international banks participate. The United States Eximbank provides credits of $800 million for Angola to buy six Boeing aircraft./9 China Eximbank makes two more oil-for-infrastructure loans, of $2 billion and $500 million, between 2005 and 2007. Again, out of the crowd, only the Chinese loans make headlines.

Then, to the surprise of the Paris Club, the Angolans decide to simply pay off their debts with their booming oil revenues. Transparency improves, even without the conditionality of the Western donors: with technical assistance from the IMF, the Angolans finally begin to publish a fairly complete account of their oil revenues and expenditures on the website of their Ministry of Finance./10 There is still enormous corruption, but roads, clinics, and schools are being built. Although some believed the Chinese loans arrived in cash, they were wrong, as we have seen from our study of China’s unusual resource-backed infrastructure loans. A second look reveals that it was Western banks that gave loans without requiring transparency, and Western companies that exported Angolan oil, providing cash flows for the ruling party. The Chinese deal was not without risks, but it was also revolutionary for the country: for the first time, there was a hope that some of Angola’s riches might actually be translated directly into development projects.

Endnotes:

1/Henri E. Cauvin, “I.M.F. Skewers Corruption in Angola,” The New York Times, November 30, 2002.

2/Rashomon was directed by the legendary Akira Kurosawa. This tale of Angola is based on author’s interviews with IMF staff, Washington DC, November 2008; China Eximbank, Beijing, November 2008; and interviews conducted in Angola in 2007 by Tang Xiaoyang, who generously agreed to share summaries with me. It relies as well on the following materials: Government of Angola, “Memorandum of Economic and Financial Policies,” April 3, 2000, available at: www.imf.org/external/NP/LOI/2000/ago/01/index.htm (accessed May 22, 2009); Government of Angola, “Memorandum of Economic and Financial Policies,” February 7, 2001, available at:
www.imf.org/external/NP/LOI/2001/ago/01/INDEX.HTM (accessed May 22, 2009); Angola Country Reports, Economist Intelligence Unit (various issues); “Angola: Oil-backed Loan Will Finance Recovery Projects,” UN Integrated Information Networks, February 21, 2005. For excellent overviews of the Angola case, see Manuel Ennes Ferreira, “China in Angola: Just a Passion for Oil?” in Chris Alden, Daniel Large and Ricardo Soares de Oliveira, eds., China Returns to Africa: A Rising Power and a Continent Embrace (New York: Columbia University Press, 2008), pp. 295--317; Lucy Colvin, “All’s Fair in Loans and War: The Development of China--Angola Relations,” in Kweku Ampiah and Sanusha Naidu, eds., Crouching Tiger, Hidden Dragon? Africa and China (Scottsville, South Africa: University of KwaZulu-Natal Press, 2008), pp. 108--23.

3/Christopher Swann and William McQuillen, “China to Surpass World Bank as Top Lender to Africa,” Bloomberg.com, November 3, 2006.

4/Repayment begins separately as each project is finished, using a designated escrow account funded by proceeds from oil exports, at market rates. Though few realized it, China’s loan uses the same oil-for-infrastructure model Japan offered China almost thirty years earlier. The loan funds remain in China (in the pattern described in Chapter 5), with Eximbank disbursing them directly to the Chinese companies doing the work.

5/World Bank, “Angola: Broad-Based Growth and Equity,” Washington DC, 2007, p. 85.

6/Why did China negotiate such a relatively generous deal? The huge block of guaranteed business for Chinese construction companies made it “win-win” for the Chinese. But the Chinese also knew that in 2004 Royal Dutch Shell was preparing to sell its 50 percent share of Block 18, one of thirty-four concessions in the Atlantic waters off the coast of Angola. Shell was about to accept an Indian offer: $620 million plus $200 million for railway reconstruction by Indian companies. Instead, Angola’s national oil company Sonangol unexpectedly arranged for the block to be sold to a joint venture between itself and the Chinese oil company Sinopec. The timing of the $2 billion Eximbank loan may have been connected to the unexpected entry of Sinopec into its first ownership stake in Angolan oil (a direct quid pro quo was never established). Henry Lee and Dan Shalmon, “Searching for Oil: China’s Strategies in Africa,” in Robert I. Rotberg, ed., China into Africa: Trade, Aid and Influence (Washington DC: Brookings Institution Press, 2008), p. 120. The subsequent loans offered in 2007 did not seem to be connected to investment.

7/“Angola: Birthday Blues,” Africa Confidential, 46(23) (November 2005): 5.

8/“Angola: Standard Chartered Draws Fire,” Mail and Guardian (South Africa), June 8, 2005.

9/“Angola: Birthday Blues.”

10/A final character deserves a story of its own: China International Fund (CIF), a private Hong Kong company. CIF is connected to China-Sonangol, a Chinese-Angolan joint venture in oil trading, and Beiya International Development Company, a shadowy property development and construction firm. Beiya is
chaired by Xu Jinghua, alleged on some Chinese blogs to be a Russian military academy classmate of the Angolan President, Dos Santos. CIF has also set up oil-for-infrastructure lines of credit in Angola. These were rumored to be many times higher than the Eximbank loans. But in October 2007 Aguinaldo Jaime, a graduate of the London School of Economics, former governor of Angola’s Central Bank and a key architect of Angola’s reforms, released an official figure of $2.9 billion for the CIF loans, and even these have not been forthcoming as planned. In 2007, the Angolan government itself had to issue treasury bonds to finance some of the projects planned under the CIF arrangement. (Alex Vines and Indira Campos, “Angola and China: A Pragmatic Partnership,” Center for Strategic International Studies, Washington DC, p. 10.)

The Hong Kong-based CIF has a bad reputation among Chinese mainland companies: “So far, half a dozen contractors have had unpleasant experiences with the CIF, which stands accused of routinely delaying payment for completed work and keeping rates as low as possible.” Zhou Jiangong, “Africa Frenzy Feeds China Stock Bubble,” Asia Times Online, March 27, 2007, available at: www.atimes.com/atimes/China_Business/IC27Cb01.html (accessed May 22, 2009). While the smaller Eximbank projects moved ahead, many of the large projects being funded by the CIF loan – the Benguela Railway renovation, a new airport, a massive housing complex -- stalled over the course of 2007 and 2008. Chinese bloggers believe that the CIF program must have been approved by the Chinese government; the Chinese embassy in Angola denied any knowledge of the CIF venture. For excellent reviews of the CIF saga, see Lee Levkowitz, Malta McLellan Ross, and J. R. Warner, The 88 Queensway Group: A Case Study in Chinese Investors’ Operations in Angola and Beyond, US-China Economic & Security Review Commission, July 2009; and Alex Vines, Lillian Wong, Markus Weimar and Indira Campos, “Thirst for African Oil: Asian National Oil Companies in Nigeria and Angola,” A Chatham House Report, August 2009.

See also: Alec Russell, “Angolan Loan Casts Light on Ties with China,” Financial Times, October 19, 2007; Alex Russell, “Infrastructure: Big Projects Fall Behind Schedule,” Financial Times, January 23, 2008.

Michael Sata and China in Zambia

2011-10-03T18:49:00.000-04:00

Photo credit: Reuters

While Michael Sata was winning the Zambian election, I was next door in Tanzania, doing research in Morogoro, and without internet access. The election, and peaceful transition, bode well for Zambia. They voted for change. How will this affect China's role in Zambia, or in Africa more broadly?

Foreign Policy's blog described the election as "a setback for China." Sata's victory is widely seen in the West as "a vote of no confidence against [China's] existing projects" in Zambia. The Atlantic carries a more thoughtful piece along the same lines by the experienced reporter Howard French.

But look more closely. Sata's initial steps after the election confirm the importance of the relationship with Beijing: his first official appointment at State House was with China's ambassador Zhou Yuxiao (right). Sata emphasized that Chinese investors need to respect Zambian laws. The ambassador nodded.

In the 2006 election, which he lost, Michael Sata famously played the China card, with relentless attacks on Chinese "infestors". However, reports that "China" (an earlier Chinese ambassador) threatened to cut ties with Zambia if Sata won the (2006) election usually fail to add that Sata promised to recognize Taiwan as an independent country if he won. This pledge was nowhere in evidence in the 2011 election. Sata toned his rhetoric down considerably in this round.This could be seen as a win for Beijing.

During the campaign, Sata signalled that he would continue the Zambian government's support for foreign investment. Close observers like Chanda Chisala emphasize his pragmatism and, surprisingly, his management skills.

If Michael Sata carries out his campaign promises, we should be seeing greater attention and more money for enforcing labor rights and safety standards in Zambian mines, where the Chinese are the worst offenders. All of the mines (which include non-Chinese companies: London-listed Vedanta Resources, Canada's First Quantum Minerals and Swiss commodity giant Glencore) could be hit with higher royalty rates and/or windfall taxes. Sata has also warned that he will be enforcing work permits, limiting the number of expatriates allowed to enter to work on projects.

We could also see a crackdown on Chinese informal traders operating without permits in Lusaka's Kamwalla market and elsewhere. China's close friend Tanzania has done crackdowns like this twice since 2008. Apparently, it was a great success: I saw almost no Chinese traders in the large Kariakoo market in Dar es Salaam on this trip, a big change from 2008. The crackdown also did no harm to the official ties between the two countries.

It remains to be seen if other African opposition politicians see Sata's win as a lesson in playing the China card. Ironically, Sata was a far more lively "China basher" in the 2006 election, which he lost. But so far the new pragmatism from the "fiery populist" and the first few days of a Sata presidency do not herald a sea change in China-Africa relations. If China and Zambia move fairly smoothly into this new stage, we will have yet another example of how the Chinese emphasize relations with states, but not a particular leader or regime.

World Bank Pushes (?) China to Offshore Manufacturing to Africa

2011-09-07T12:49:00.003-04:00

Robert Zoellick hugging panda. Credit: AP

World Bank president Robert Zoellick has taken on the idea that China is restructuring, and that some of the lower-end manufacturing jobs will be going abroad. Why not to Africa? As readers of The Dragon's Gift know, the Chinese have been thinking about this at least since 1984, and have put a number of tools in place to help make this happen (see Chapter 3: "Going Global").

In a recent YouTube video, Bob Zoellick elaborates on his efforts to engage Chinese officials to take "practical steps" on this. I wonder if he knows he's preaching to the choir?

A hat tip to Henry Hall at China Africa News. He's made his site a go-to place for current events and analysis.

Chinese Workers Build Infrastructure in India

2011-09-05T19:05:00.000-04:00

photo credit: Deborah Brautigam (c)

Catching up again -- over Labor Day -- I read a fascinating article by Rama Lakshmi from the Washington Post: "Chinese Workers Fuel India's Staggering Infrastructure Boom," (October 24, 2010). What I read could have come from many parts of Africa. And in particular, it reminded me of towns I visited in Eastern Nigeria where Chinese teams were working with Nigerian workers to construct factories for Nigerian owners. It puts the widespread use of Chinese workers in Africa in international perspective.

Takeaway Points:

(1) Skilled Chinese workers can be effective trainers:

Perched precariously on scaffolding, several Chinese workers showed Indian laborers how to weld the shell of a blast stove at a steel plant construction. Step by step, the Indians absorbed the valuable skills needed to build a large, integrated factory from scratch in record time.... "This factory is a classroom for Indian workers and we will create a benchmark for speed, quality and cost," Singh [the company's director] said.

...The Indian workers are learning a new work ethic from the Chinese and are now more punctual, not stopping work to take frequent tea-breaks or gossip, managers said.

(2) While India has a labor surplus, low level workers lack appropriate skills.

"India may be an IT superpower ... But the biggest gap is in the availability of skilled electricians, carpenters, welders, mechanics and masons who can build mega infrastructure projects ... Most of these workers have to be trained on the job. And that often delays the projects and makes them more expensive."

(3) The ratio of Chinese to Indian workers: at one factory site (under construction) was 1600 Chinese supervisors, technicians, and other laborers to 5000 Indian workers, or 25:75. This is fairly similar to the 20:80 ratio I've seen, on average, in Africa.

(4) Speed, as well as skill, is the great China advantage.

The Indian workers earn slightly less than the Chinese, whose speed ultimately brings down the cost of the project.... The steel plant is expected to take 18 months, a rare feat in India. ..

These details provide one answer to the idea that vocational training may be all that's needed. Sure, it will help in building skills, but maybe not in building work habits. The tone of the article was refreshing: curious, balanced, informative, detailed. A hat tip to DH.

Zambian Economist Reviews "The Beijing Consensus"

2011-09-03T10:00:00.000-04:00

The always interesting blog Zambian Economist reviews Stefan Halper's "The Beijing Consensus: How China's Authoritarian Model Will Dominate the Twenty-First Century." (This is the book my research assistant said "makes China out to be rather scary"). Halper's book repeats a number of China-Africa myths, including the one about China giving Malawi $6 billion in aid. One day I might also review it, if only to point these out, but in the meantime, an excerpt from the Zambian Economist review:

...Taking Zambia as an example, it is not obvious that we would necessarily be better in terms of democratic outcomes without Chinese influence. Beyond the perverse economic plunder of mineral resources (which is primarily western led), it is difficult to argue that in terms of governance, the 1991 – 2001 period under IMF / World Bank overlord were necessarily better than 2002 – 2010 period under increasingly Chinese control of Zambian interests. Indeed The Beijing Consensus does acknowledge the flaws and inevitable downfall of the American led "Washington Consensus". It therefore begs the question what these "western values" and practices being eroded are. Is it merely American dominance, for better or for worse? For many poor nations there’s little difference between a Beijing dominated world and an American one. Similarly, if we looked at the Zambian government’s policy it is unclear what the Lusaka government is learning from Beijing. The Beijing model is direct state led involvement in key strategic sectors and stricter requirements on foreign investments (e.g. in the car industry). That is hardly Zambia’s approach. Indeed when one extrapolates across other developing nations (e.g. Malawi, DR Congo and Angola) a similar picture emerges. Many of these countries are more liberal than Beijing, and where they are intolerant of democracy, it is because they have always been intolerant – not because Beijing has introduced it....

To read the rest of the review, click here.

China Development Bank's $3 Billion Line of Credit in Ghana: Better than the World Bank?

2011-08-31T12:25:00.000-04:00

Ghana's speaker of the house of parliament in Beijing, 2008

The framework for China Development Bank's offer of a $3 billion line of credit was approved last week by Ghana's parliament. The controversial credit was debated over several sessions of parliament, and the opposition abstained from the final vote. Finance minister Duffuor said the credit is "comparatively cheaper than floating a Eurobond" and from what I can see, the line of credit is roughly equal to, or potentially better than, a non-concessional World Bank IBRD loan, although clearly not better than the World Bank's IDA credits.

What's interesting about all this? Three things: (1) Ghana's democracy and lively parliament show that a better governed country allows more transparency about its engagement with Chinese banks; (2) Because of that transparency, we are learning a lot from Ghana about how Chinese banks engage, and they don't seem to have prohibited Ghana from releasing this information; (3) China's resource-secured line of credit model appears alive and well. The IMF and World Bank are not going to like this challenge to their position as preferred creditors.

The terms of the CDB line of credit differ in its two installments. The first tranche of $1.5 billion will have a 20yr maturity including a 5yr grace period. The interest rate will be 6 month LIBOR (London Inter-Bank Offered Rate) plus a margin of 2.95%, with a commitment fee of 1% and an upfront fee of 0.25%. The terms of the second $1.5bn tranche are 15yr maturity including a 5yr grace period, interest rate of 6 month LIBOR plus a margin of 2.28%, and probably the same fees.

The credit appears to be secured by a petroleum off-take arrangement and escrow account, the same model China has been using for decades in Africa, most famously in Angola. As one report states:

Repayment of the loan facility ... would be effected from petroleum revenue and other government owned resources. Due to the aforementioned terms of repayment, the report stated that a commercial contract for the off-take of oil would be entered into by the Ghana Petroleum Corporation and the Chinese authorities. According to the report, the government would reduce the impact of commercial projects on the public debt, through an on-lending and escrow arrangement for most of the projects under the facility.

With a debt burdened past, Ghanians rightly worry about the increasing levels of debt being incurred by their government. Their parliament needs now to ensure that all the projects financed under these credits have proper feasibility studies, and that the contracts they finance are won through open, international, competitive tenders. There should be plenty of Chinese companies competitive enough to win contracts that these loans will finance, and according to the terms, up to 40% can finance non-Chinese contractors.

Under clause three of the Master Facility Agreement, a minimum of 60 per cent of each tranche was required to be paid to the People's Republic of China (PRC) contractors, a clause which allows about 40 percent of the facility to be applied towards local content sourcing, or sources other than the PR

Ghanians are already trading accusations about corruption and worries about kickbacks. With infrastructure contracts this is a very real worry. But from what I've seen the intial allegations stem from a lack of understanding of the convention of upfront fees. Some believed the fees serve as a commission of some kind to some broker or deal maker, but this kind of fee is common, even in World Bank loans, which also have upfront fees. The World Bank's IDA loans for the poorest countries currently have no commitment fee (this is a change) but do carry a service fee of 0.75%. The World Bank's IBRD loans (for middle income countries, probably Ghana falls here now) vary in fees. The highest are for special development policy loans, currently at 6 month LIBOR plus a minimum of 2%, with upfront fees of 1% of the total loan amount, while "Development Policy Loans with a Deferred Drawdown Option (DPL DDO) carry a 0.75% front-end fee, plus a 0.50% renewal fee; and Catastrophe Risk or Cat DDOs carry a 0.50% front-end fee, plus a 0.25% renewal fee".

A hat tip to Naa Aku Addo for the story. Below, more details of the loan, repayment, and the projects that are projected to be financed.

Majority Voice Seals $3 Billion China Deal: The Chronicle [Ghana]
August 29, 2011

...The goal of the credit facility, according to movers of the motion, is to enhance the efficiency and effectiveness of the oil and gas sector operations, as well as industrial minerals processing and agro industrial ventures.

The MFA, the report noted, would be disbursed under individual subsidiary project agreements (Subsidiary Agreement) to be signed between implementing agencies, and the contractors, for the construction and establishment of projects to be financed from the facility.
Actual disbursement of the funds would be for projects, for which the Subsidiary Agreement had been approved by the Government of Ghana, through Parliament, and the China Development Bank (CDB).

Projects under Tranche A1 of the loan agreement include the Western Corridor Renewal Project with railway components, Western Corridor Infrastructure Renewal Project, Takoradi Port Phase 1 Retrofit Rehabilitation, and the Sekondi Free Zone Project, which include the development of onsite infrastructure and utility services for the proposed industrial minerals processing estate and alumina refinery.

Projects under Tranche A2 of the loan agreement include the Accra Plains Irrigation Project Phase 1, covering 5,000 hectares, Coastal Fishing Harbours and Landing Sites Project in Axim, Dixcove, Elmina, Winneba, Mumford, Senya Bereku, Jamestown, Teshie, Gomoa Fetteh, Ada, Keta and Moree, Eastern Corridor Multi-Modal Transportation Project - Volta Lake facilities components - upgrade of ferries/ pontoons as well, and landing sites for Kpandu/Amankwakrom, Kete Krachi-Kwadwokrom, Yeji-Makango, Tapa Abotoase, Dzemini, as well as the upgrade of the Akosombo and Buipe ports.

The following projects have been proposed under Tranche B (B1 & B2) – Western Corridor Gas Infrastructure Project - Offshore Gathering Pipeline, Early Phase Gas Processing Plant, Onshore Trunk Pipeline including gas dispatch facility; retrofit of Tema Oil Refinery (TOR) to enable processing of natural gas liquids (NGLs); and deployment of helicopter fleet for enhanced surveillance of facilities, Takoradi Petroleum Terminal Project - to be sited at Pumpuni, Western Corridor 'Oil Enclave' Toll Road Redevelopment Project, Deployment of ICT-based integrated platform to enhance security and surveillance of all infrastructure and facilities in the Western Corridor Oil Enclave, Accra Metropolitan ICT-enhanced Traffic Management project to include an accelerated completion of stranded road construction works on key congested road arteries, and Small and Medium Enterprise (SMEs).

Benefits to be derived from the projects, according to the Joint Committee on Finance and Poverty Reduction Strategy, include added value within a relatively short time to the nation's gas resources, by developing it to its fullest, to the benefit of the country.

Repayment of the loan facility, according to the report, would be effected from petroleum revenue and other government owned resources. Due to the aforementioned terms of repayment, the reported stated that a commercial contract for the off-take of oil would be entered into by the Ghana Petroleum Corporation and the Chinese authorities.

According to the report, the government would reduce the impact of commercial projects on the public debt, through an on-lending and escrow arrangement for most of the projects under the facility.

Fifteen percent (15%) of the Government of Ghana's (GoG) counterpart funding would be paid from the 'Owner Contribution Account,' to be established as a sub-account under a main 'Collection Account' to be established at the Bank of Ghana, into which the GoG would deposit funds towards the repayment of the loan facility.

The committee's report further stated that the government intended to repay the loan facility through the Annual Budget Funding Amount (ABFA) with the Petroleum Revenue Managing Act, 2011.

Under clause three of the Master Facility Agreement, a minimum of 60 per cent of each tranche was required to be paid to the People's Republic of China (PRC) contractors, a clause which allows about 40 percent of the facility to be applied towards local content sourcing, or sources other than the PRC.

Prior to the approval of the loan facility, the Minority had argued that though the intent of the facility was good, inconsistencies, coupled with contradictions in the whole agreement, ought to be corrected before going ahead to source the US$3 billion Chinese loan.
Whilst the Majority members were of the opinion that the projects earmarked for funding under the facility were critical to the nation's development, especially, the gas infrastructure development, and that approval must be given to enable the various Subsidiary Agreements to be negotiated and presented to the House for approval, those on the Minority side argued that since the definition of 'Facility Agreement' includes Subsidiary Agreements, approval of the Facility Agreement would necessarily imply the approval of the Subsidiary Agreements, which are not yet known.

China, Libya, and Oil: Update

2011-08-28T22:55:00.000-04:00

China is positioning the country to engage with the new Libyan government, despite comments from at least one Libyan rebel that China might lose out for not being part of the forces backing the rebels. I doubt that will happen, and I predict that Chinese companies, which had signed some $18 billion in infrastructure contracts, will be actively trying to restart those projects and others. They will succeed in a lot of this. Reconstruction after all the NATO bombing will mean lots of new business.

Here are a few facts on China & Libya from a recent news article. (I also recommend searching for "Libya" on this blog and reading some of the comments.)

...About 75 Chinese companies operated in Libya before the war, involving about 36,000 staff and 50 projects, according to early Chinese media reports. Many of those firms were engaged in building roads, buildings and infrastructure....

...China's top three state oil firms CNPC, Sinopec Group and CNOOC all had engineering projects in Libya, but no oil production yet, company officials said....

"China was unusually quick to support the [National Transitional Council] ...Relative to China's typical foreign policy response, that was quite important, but relative to what Europe and the United States did, that falls short. So I think they will struggle," said Ben Simpfendorfer, managing director of Silk Road Associates, a Hong Kong-based consultancy that specializes in business between China and the Middle East.

China shipped in roughly 150,000 barrels per day of crude oil from Libya last year through Unipec, the trading arm of Asia's top refiner Sinopec Corp that holds the long-term supply contract. That amounted to about one tenth of Libya's crude exports [and about 3 percent of China's].

A hat tip to Stellenbosch University's Center for Chinese Studies.

China in Africa: What Can Western Donors Learn?

2011-08-23T09:00:00.000-04:00

photo credit: Deborah Brautigam

A new report of mine: China in Africa: What Can Western Donors Learn? has just been published by Norfund, Oslo, August 2011. Some excerpts:

...Many Western donors think they know what China is doing in Africa. They’ve seen the headlines: the Chinese arrived a few years ago in a desperate search for oil. They set up a huge aid program, propping up governments in resource‐rich, pariah states that the West won’t touch. Their companies bring in all their own workers and refuse to hire Africans. They’re leading the “land grab” in Africa, growing food to ship back to China. It’s an alarming story … but, on closer inspection, none of it is true. (p. 3)

...Chinese companies do have low costs but construction firms in Zambia and Namibia have documented unfair Chinese business practices: collusive bidding, low wages, and a tendency to hire contract workers in order to get around mandated labor benefits (paid holidays, sick leave, etc.) for permanent staff. (p. 12)

...Speaking at the World Bank/IMF Annual Meeting in April 2011, Dr. Situmbeko Musokotwane, the Zambian minister of finance, compared China’s business and aid model with that of the West. China used aid and other tools vigorously to encourage its companies to invest in Africa, he said, but that did not seem to be the case for Europe and America, whose aid programs were more paternalistic, and seemed to be designed as charity: “at least help them not to suffer, we can’t do much more than that. They’re not ready for investment.”

...We need a better understanding of just how countries like China are engaging in Africa. And once we have that understanding, we may be better positioned to accept the recommendations of thoughtful African officials like newly (re)appointed Nigerian finance minister Ngozi Okonjo‐Iweala: “China should be left alone to forge its unique partnership with African countries and the West must simply learn to compete.” Implicit here is a warning: we in the West no longer have a monopoly over development ideas, practice, and finance. China is rising, and with them, India, Brazil and others. If we don’t learn how to have “a new conversation” as African Development Bank president Donald Kaberuka put it, we risk finding that Africans are no longer interested in listening. (p. 16).

Continue reading here >>

Why I Speak to the State and Defense Departments on China and Africa

2011-08-22T08:21:00.000-04:00

Angolan offshore oil rigs. photo credit: Neftegaz.r

At the end of summer, when the Western world pauses, I am catching up on some China-Africa reading. One piece I missed dates from August 2010: an article in China Monitor by Jesse Salah Ovadia, a York University (Canada) Ph.D. student who did fieldwork in Angola. His comments on his interviews with US government officials in Angola were illuminating, and disturbing:

In an interview I conducted with an American diplomat in Angola – carried out as part of a wider research project - he repeatedly denigrated the quality of Chinese infrastructure projects in the country and argued that the Chinese "don‘t have any interests here other than resource extraction. ... It‘s plain and simple. They are just here for the resources. They are not interested in the country‘s well-being, only in extracting what they need economically." ...

...The diplomat went on to insist that the United States espouses a much more holistic set of interests than China: "Yes, Angola is the sixth largest supplier of oil to the U.S., but that is not the sum total of our relationship. We still promote democracy and human rights, and our goal is free, secure, and peaceful relationship with Iraq—I mean Angola."

Iraq? An interesting little slip, that.

What about our holistic set of interests? In 2009, according to budget documents, the US allocated $56 million in aid to Angola -- mainly global health and child survival. We gave nothing under "feed the future" for agriculture and food security, $2 million for basic education, $4 million for family planning/reproductive health, $14.7 million for HIV/Aids, $30 million for malaria, $2 million for micro-enterprises, $300,000 for trade capacity building, $3 million for water funding, and apparently nothing for general infrastructure (roads, electricity). I didn't see anything specifically for democracy and human rights, either.

That same year, according to the International Energy Agency, the US imported about $10 billion in petroleum from Angola, and $18 billion in 2008.

China's official aid to Angola has also financed malaria initiatives, and health, but has been modest. Where the Chinese make the difference is in using a portion of their oil imports to secure major infrastructure loans that have built massive reconstruction infrastructure in Angola. Between 2004 and today, this has amounted to $10 billion (mainly oil-backed), with another $1.5 billion line of credit to be focused on development in agriculture, from China Development Bank, and $2.5 billion from a commercial bank, ICBC (the latter two are not oil-backed).

None of this Chinese finance should be considered "official development assistance" as it is offered without subsidies, at LIBOR rates. But it does support development. So a lot of China's oil imports from Angola are used to finance Angolan development, but that's not the case for us. (Of course there is the Hong Kong-based syndicate that controls the China International Fund which is doing far less development and reaping far more profit from its cozy relations with Angolan elites. This was covered pretty well by the Economist in a recent article). But that is a separate issue.

What about the impact of this infrastructure finance? Ovadia said:

China‘s new role in Angola has brought the financing needed for the country‘s reconstruction and significant investment has been made in key sectors of the economy. Journeys that once took most of a day can now be completed in a few hours and neighbourhoods are being connected to national power grids for the first time... there is little doubt that the projects are having a major impact on the country.

In a footnote, Ovadia adds:

The diplomat‘s comments were somewhat contradicted a few weeks later at a public forum in Luanda on the role of China in Angola when an American defence attaché from the embassy commented publically that China was trying to create "a new slave empire in Africa,"* demonstrating that the 'extreme-China threat‘ position is still alive and well.

This is why I speak to the State and Defense Departments whenever they invite me (I regret expressing some hesitation to speak to the CIA when one of their officials approached me informally -- they never followed up with an invitation). Washington: I'm ready to present a different, empirically based, a bit wonky, but, I hope, more balanced perspective, if you're ready to hear it.

----
*Perhaps he was simply quoting the title of a newspaper article published by Peter Hitchens a few years ago in the UK?

The Economist on China International Fund

2011-08-19T15:50:00.000-04:00

credit: Reuters, as used by The Economist

As readers of this blog know, I've been compelled to (as Owen Barder once Tweeted) "fisk" some of The Economist's fact-challenged articles that deal with topics I follow fairly intensely: China in Africa, and Chinese aid. But this week I was, in general, impressed by a lot of Oliver August (and team)'s investigative reporting on China International Fund and the 88 Queensway syndicate.

Here's what is important about this report:

1. It's the best analysis yet of the evidence that points strongly to a conclusion that China International Fund (or the 88 Queensway group) is not some secret tool of Beijing:

Although the Queensway syndicate has sometimes been suspected of being an arm of the Chinese government, there is little evidence of that.

As I have also argued, the evidence points instead to CIF's role as a broker -- like Pierre Falcone -- with high level Africa contacts involved in making deals in Africa's often nasty and money rich resource sector. (See my posts on CIF: March 20, 2010 "Was Guinea Bought by Beijing?" June 2, 2010 China International Fund's New Bellzone-Kalia Guinea Deal," July 27, 2010 "China International Fund in Africa: Another Failed Project").

But why did The Economist relegate this portion of Oliver's excellent analysis to Baobob's blog rather than the print edition?

2. It contends that "China" is probably paying market prices for Angolan oil, even if the company China Sonangol (a joint venture between the Hong Kong based CIF and Angola's state-owned oil company Sonangol) may pay a lower price. This is consistent with what I have seen elsewhere.

The terms under which China Sonangol buys oil from Angola have never been made public. However, several informed observers say that the syndicate gets the oil from the Angolan state at a low price that was fixed in 2005 and sells it on to China at today’s market prices.

3. It makes clear that although earlier predictions by The Economist and others that "China" (i.e. CIF) would prop up the military junta in Guinea, were not accurate. Whatever funds the Queensway group transferred had little impact on the junta, which honored the promise to hold elections.

4. It reports that Angola's state-owned oil company Sonangol now owns shares in China International Fund.

First, the Angolans, including Mr Vicente, seem to have gained a significant hold on the syndicate. Recent company fillings in Singapore show that China Sonangol now owns China International Fund, the original vehicle.

China Sonangol (which does not involve any mainland Chinese companies) is a joint venture between Sonangol (30%) and Dayuan International Development, Ltd. (70%), part of the infamous Hong Kong group known as "88 Queensway". According to the 88 Queensway study, Dayuan owned 99 percent of China International Fund. If this report is correct, China Sonangol now owns CIF, in other words, Angola's Sonangol itself would now have about 30% of CIF. So when we read about "China International Fund" doing something in Africa, we should be thinking "Angola" as well as "Hong Kong".

5. It is the first place I've seen to break a story that one of the key "88 Queensway" people, Wu Yang, has broken from the group and actually sued them. I would have loved to hear more about this.

OK, so I do have some criticisms of the article.

1. Let's start with the title and subtitle: "The Queensway syndicate and the Africa trade: China’s oil trade with Africa is dominated by an opaque syndicate. Ordinary Africans appear to do badly out of its hugely lucrative deals."

As I know with The Dragon's Gift: The Real Story of China in Africa, authors don't always get to choose their titles or subtitles: editors often do this for them. Nevertheless, this article is about China's oil trade with Angola, not Africa. And as campaigns like "Publish What You Pay" and research on the "resource curse" have shown us, the subtitle one could easily be rewritten as "The West's oil trade with Africa is dominated by opaque multinationals. Ordinary Africans appear to do badly out of their hugely lucrative deals."

Sadly, there is nothing unique about that.

2. Some fact-challenges on timing:

In 2002, after decades of commercial isolation, China started encouraging entrepreneurs to venture abroad.

No: not decades of commercial isolation preceding 2002. I devoted an entire chapter of The Dragon's Gift, "Going Global," to showing how this process of "going out" began around 1979 in Africa and evolved gradually.

3. Do Chinese companies' have no ownership of Angola's oil assets?. The Economist writes:

By contrast, China’s state-owned oil companies have no direct interest in Angolan oilfields, one of their two biggest sources of crude. Their names do not show up on the map of concessions.

I don't have time to explore this in depth -- I'm trying to write a scholarly journal article this week! -- but I doubt this is true. Sinopec sent out a press release in March 2010 that they had acquired 55% of the shares of Block 18 in Angola, from Sinopec Sonangol (SSI, the joint venture that also involved China Sonangol), saying "This transaction is Sinopec’s first acquisition of overseas upstream assets. The assets are also the best-ever overseas assets of Sinopec." A March 2011 report in the invaluable investigative newsletter China-Africa Confidential stated:

In February, China Sonangol won three deep-water pre-salt oil (equity) concessions in Blocks 19, 20 and 38, adding to its existing shares in Blocks 3, 31 and 32. Meanwhile Sonangol Sinopec International (SSI), a joint venture between China’s state-owned Sinopec and China Sonangol, has equity stakes in blocks 15, 17 and 18.

4. The article mentions enormous CIF "pledges" and "rights" in Zimbabwe without commenting that these have been as vacant as other enormous "pledges" made by CIF in places like Guinea.

Sino-Zimbabwe Development Limited (a CIF-linked company)... received rights to extract oil and gas, and to mine gold, platinum and chromium. In return, the company publicly promised to build railways, airports and public housing. These pledges were valued at $8 billion by Mr Mugabe’s government.

5. The article insinuates that the CIF oil-backed infrastructure finance deal in Angola (which may amount to some $2.9 billion) is somehow a trade of infrastructure for all of Angola's oil exports.

In return for Angolan oil, the syndicate promised to build infrastructure, including low-cost housing, public water-mains, hydroelectric plants, cross-country roads and railways, according to the government. The country desperately needs such things, to be sure. But their value is unlikely to exceed several billion dollars. That looks like a poor deal for the Angolan people.

I'm sure that all the international oil deals in Angola are not doing much for the Angolan people (nor did they all during the Cold War, when Western firms were the only beneficiaries). But these deals should not be seen as a "swap" of Angolan oil for infrastructure, but rather oil-secured finance. I'm not sure how large the CIF infrastructure deals actually are in Angola, but they are small in comparison with the $20 billion annual value of Angola's oil exports to China.

Several points the article didn't make, but could have:

6. CIF's officials may have deliberately tried to camouflage their company by adopting a name similar to conventional corporations in China: CIF is similar to CIC, China Investment Corporation and CICC China International Capital Corp. Both of these are large, legitimate companies, and CIC in particular is involved in long-term overseas investments.

7. The Bright Connection. Along these lines, the name of a key CIF-affiliated company, New Bright International, is similar to the Chinese Everbright* group (one of the 88 Queensway gang, Wang Xiangfei, was formerly an executive director and CEO of an Everbright subsidiary) and Sinopec's 100% owned subsidiary Century Bright Capital Investment Ltd. Is this also done for camouflage, or does it mean that these "Bright" companies are affiliated?

I've been contacted by several groups doing research on CIF, including Global Witness and some student researchers at Columbia University. I hope they were able to sort more of this out and I look forward to their findings.

--------------

*Is the financial services corporation China Everbright a front for Chinese military intelligence, as the famous 88 Queensway Group report alleged (while noting in a footnote on its source: "information from this source has not been corroborated")? Could be, but if so, that hasn't stopped companies like Citicorp from partnering with Everbright: see, for example, Citicorp's Hong Kong-based investment fund Citicorp Everbright China Fund.

Why Are We So Critical of China in Africa?

2011-08-18T09:30:00.002-04:00

The German newspaper Die Zeit has published an op-ed "Why are we so critical of China in Africa?" that I co-wrote. The English version can be found online at the German Development Institute). We make three points challenging the conventional wisdom about the size of China's aid flows, the alleged links between Chinese aid and natural resource investments, and the impact of Chinese aid on governance and human rights.

The final edits for the column deleted a portion that I wrote:

Sensational stories may sell more newspapers, but their exaggerated (and often erroneous) claims do no service to a realistic and balanced understanding of a growing power. As just one example: on July 28 the Frankfurter Rundschau carried a story saying “China’s practice of buying up land” had contributed to the famine in Ethiopia, based on a statement by Günter Nooke, the German Chancellor's G8 Personal Representative for Africa in the Federal Ministry for Economic Cooperation and Development. Research we and others have done in Ethiopia show that Chinese private companies are active in infrastructure and mining but are not buying up land. As a field study of Ethiopian land grabs by the Oakland Institute in California published in June this year said: Chinese companies “were surprisingly absent from land investment deals.” The German media missed that story.

Just wanted to be sure that this point gets made somewhere -- even if not in Die Zeit :)

More Mistakes by The Economist: "Charity Begins Abroad"

2011-08-16T17:01:00.001-04:00

Image credit: Michael Kirkham for The Economist

The Economist has a new feature on aid from developing countries (August 13th, 2011): "Charity Begins Abroad: Big Developing Countries are Shaking Up the World of Aid."

A lot of the article appears to be accurate. But with regard to China's aid, not surprisingly, it gets a few big things wrong or partly wrong. Here are three:

(1) Dredging up the (awful) Wagner School "data" on China's "aid":

But second on the list, if reports monitored by New York University’s Wagner School are to be believed, would be China, which gave away $25 billion in 2007. (Statistics on aid from new donors are dodgy and the line between aid and trade is blurred; by another count China’s officially reported aid was only $1.9 billion in 2009.)

Sigh. As I have posted a number of times, this so-called monitoring by "the Wagner School" was actually a project done for the Congressional Research Service by students who collected rather indiscriminately all the media stories they could find on any aspect of Chinese state engagement in developing countries, defining this as "Chinese aid". By mentioning this thoroughly discredited statistic, even if with a hint of doubt, The Economist continues to give it credence.

The second statistic is the dollar translation of China's budget figure for external assistance in 2009. This is an accurate (and official) figure, but it does not include the face value of the concessional loans, only the direct subsidy required to make them concessional. As the loans are expected to be repaid, and thus are not a donation, this is a more accurate figure for the real budgetary outlays made by the Chinese government for (net, not gross; disbursed, not committed) official assistance.

(2) A few mistakes: mixing apples and lychees.

At the same time, China has become a far bigger donor. Wen Jiabao, the prime minister, has promised that in 2010-13 China will provide $10 billion in low-interest loans to African countries, bolster the China-Africa Development Fund by $1 billion (bringing it to $5 billion) and cancel debt owed by highly indebted countries with which China has diplomatic relations.

Yes, Wen Jiabao said that China would provide $10 billion in low-interest loans to African countries between 2010 and 2012 (not 2013). This pledge was made at the November 2009 FOCAC; these pledges go on three year cycles. Some of these loans will be "concessional" (you hui dai kuan) and some will be preferential export credits (you hui mai fan xin dai). Technically, only the former would qualify as official development assistance by the OECD's guidelines. Even if they all were to be counted as "aid", this would amount, on average, to $3.3 billion per year, divided among the 49 or so countries with which China has diplomatic ties, or an average of about $67 million per country, per year.

On the other hand, the China Africa Development Fund, which has been capitalized with $1 billion, and which is now scheduled to raise its second billion (it will only reach $5 billion at full maturity, at some distant point), is not aid, but investment: equity finance in support of FDI (foreign direct investment) by Chinese firms.

Finally, the debt to be canceled is not all debt, but, as stated by the Chinese, overdue debt from zero-interest loans, a modest portion of China's aid. It's important to get that right, as borrowers reading The Economist may believe that China is going to cancel all their debts, including concessional loans and commercial debts. No way.

(3) Spinning Without Evidence: The article suggests, without any evidence, that some of the infrastructure projects financed by Chinese aid were done in support of China's resource extraction goals. And it states, falsely, that China has "modernized the port" of Dar es Salaam:

Many of its aid projects help build infrastructure that benefits Chinese investment. It has helped rebuild the Tanzam railway, for example, linking Zambia’s copper belt, where China has large projects, and Dar-es-Salaam, where it has modernised the port. The white paper seeks to counter Western views that much of its aid goes to feed its appetite for oil and minerals. It says only 8.9% of concessional loans have been used to support the extraction of such resources. But it gives no details. Much of the 61% of loans for transport, communications and power may also help mining efforts.

By not being transparent about their aid, the Chinese government leaves themselves open to this kind of accusation. However, my own database supports the claim that China's aid is not distributed in support of Chinese resource extraction projects (these are mainly financed directly by the companies, with a few exceptions as in the Congo Sicomines project, which is financed by non-concessional loans from China Eximbank).

So what about the two examples mentioned by The Economist?

The idea that the iconic Tanzam railway -- built as a Maoist project in the 1960s-1970s to allow Zambia's exports to bypass apartheid controlled South Africa -- was rebuilt to serve China's resource interests is probably not the case. The expensive railway has been continuously supported by Chinese aid (the World Bank has also financed some Tazara modernization) for the past 35 years during which it transported the region's resources to Europe. Now they are going to China. But using aid to support the Tanzam railway all these years has been far more about politics and China's soft power than it has been about resource extraction.

Furthermore, the statement that China has "modernized" Tanzania's port with its aid dollars in order to extract resources seems to be false. The bottom line is that China has not (yet) financed any construction at the port. The Tanzania Port Authority reported in June 2011 that it was still in discussions with the Chinese government in the hope that it would finance the $523 million cost of constructing two new container berths (#13 and #14), probably on a Build Operate Transfer (BOT) basis using a public private partnership (PPP) arrangement, as recommended by the World Bank.

If China does finance this construction, is it likely to use a concessional loan to do so? Possibly. In January 2010 the Chinese offered Tanzania a line of concessional credit for $180 million to be used in a number of projects over three years, with discussion ongoing on finance for other projects (including the port). Chinese companies are interested in getting the contract to build this project, but if it is to be financed by a Chinese bank -- no sure thing -- I predict it will be on commercial lines, BOT, and with a commercial profit in mind -- and not aid.

The Economist suggests that the Chinese are blurring the boundaries between aid and investment. I don't see that, but what I do see is that they have a lot more instruments for promoting development than our governments do. We need to move away from the narrow pattern of thinking that our "help" for African development can only come in the form of aid.

When China and Africa Dance, the Elephants Get Trampled

2011-08-04T14:36:00.001-04:00

http://www.vanityfair.com/contributors/guillaume-bonn

A beautifully written and moving investigative article by Alex Shoumatoff in the August 2011 Vanity Fair, "Agony and the Ivory", fingers the Chinese demand for ivory and the rising presence of Chinese businesses in elephant-rich areas of rural Africa as an insidious pull-push factor in the rise in elephant poaching. I'm sure they are right about this.

The whole article is well worth reading, particularly for those who have been swept up in the honor and wonder of seeing these magnificent, intelligent animals in the wild.

Here are a few excerpts that shed light on the Chinese role:

“Another problem,” Crystal explains, “is that the Chinese word for ivory is elephant’s teeth—xiang ya. We did a survey. Seventy percent thought tusks can fall out and be collected by traders and grow back, that getting ivory did not mean the elephant is killed, and more than 80 percent would reject ivory products and not buy any more if they knew elephants were being killed, so it’s ignorance.”

Of course this ignorance doesn't extend to those on the ground in Africa:

...Hundreds of thousands of Chinese workers and other temporary laborers are employed on road, logging, mining, and oil-drilling crews in all of the elephants’ range states. Some manage to make it home with a few pounds of ivory hidden in their suitcases, thus doubling their meager earnings, or they are recruited as carriers for higher-ups. But they are not the real problem. The real problem is the managers, who have the resources to directly commission some local to kill an elephant and bring them the tusks, and diplomats, whose bags are not checked, and the Chinese businessmen, who are taking over the economy of Africa.

Well, it's not necessary to ring that gratuitous alarm "the Chinese are taking over!" when the reality of Chinese engagement in the ivory business -- as consumers, and as middlemen -- has been well-documented. Other Asians are also involved, although from what I can see, the West appears pretty clean in this sector.

Remember the old African saying, "When elephants dance, the grass gets trampled." It seems while China and Africa danced, the elephants are getting trampled. Public education and a strong zero-tolerance stance by the Chinese government on ivory trading by its diplomats and businessmen could do a lot to improve this.

Read more here. A hat tip to Matthew Robertson.

Guest Post: Let's Argue About the China-Congo Contract

2011-08-03T09:23:00.002-04:00

By Tony Busselen
Brussels

The debate about the cooperation agreement between Congo and China at the Brussels symposium on the 27th of May, 2011 was very instructive.

This agreement is not about charity or aid; it is a form of economic cooperation on a capitalist basis, in that investors make a country pay for the risks they take. Congo will pay with minerals, the market defines the price of the minerals and the Chinese companies involved come to Congo to make profits.

As a leftist, it is not my spontaneous idea of economic cooperation. But I try to understand this situation. I've lived in Kinshasa for a year and I have been studying the country since the 90’s. Colonialism and neo-colonialism have imposed enormous challenges on the Congolese people and confront the Congolese leaders with hard dilemmas: which choices should they make to go forward?

For me it is clear that since the fall of the Mobutu dictatorship, there is a strong tendency among Congolese leaders to advance in an autonomous way and to get rid of the paternalistic tutelage of the old colonial and neo-colonial masters. The cooperation convention between Congo and China is one of the key dossiers in this perspective. The main question here is: will this contract be a real step forward for the Congolese people or will it make them suffer for another generation?

It is astonishing to see how much hostility this deal has provoked among people who see no problem in Western economic and political cooperation with Africa that until now left the African people with no real benefit.

Professor Marysse is certainly one of the few Belgian scholars who have thoroughly studied the Zairian and later the Congolese economy. He knows how deep the economy of this country has fallen under the neocolonial dictatorship of Mobutu. I understand and respect his anxiety for the future of the DRC. But some of his arguments [ed. summarized in this article] make me wonder if these feelings do not push him into exaggeration on different aspects of the Congo-China agreement.

For example: Professor Marysse compares the guaranteed rate of return of 19% of the Congo-China agreement with the annual profits of the colonial enterprises under Belgian colonialism between 1906 and 1960, which according to Marysse stood at an average 6%. For this figure of 6% he referred to a study by Frans Buelens (Congo, 1885-1960, een financieel economische geschiedenis, EPO 2007) who studied the profits of colonial enterprises.

I recalled much higher profit figures in Bruelens, and so I checked Buelens again.

In Buelens' book the figure of 6% only appears as an average for all the sectors for the sole year 1960, the critical and crisis year of Congo's independence. For the mining sector, he gives much higher profit figures, year after year.

I summarize one of his conclusions: “One inevitably comes to the conclusion that the mining sector had the biggest returns of all economic sectors [emphasis added]. In the top year 1951 the mining sector obtained a return of 49%, compared to returns of more than 20% in other sectors. Agriculture (plantations), banking and insurance and construction in particular made spectacular profits. But the mining sector obtained a return of 63.4% in the year 1937, after the thirties' crisis. The global list of figures leaves us with a spectacular impression: the Congolese enterprises were among the most profitable in the world.” (Buelens, pp. 584-585)

So, it is my view that, Professor Marysse should compare apples with apples and, in this case, compare the results of the mining sector under colonialism (an average of 27,7% for the 39 years between 1922 and 1960 according to the calculations below)/2 with the (guaranteed) rate of return of 19% put forward in the Congo-China agreement.

It would even be more telling and accurate to compare with other contemporary agreements. For example, let us examine a document on the Kolwezi Tailings Project (KTP)/1, dated March 30, 2006 and published by the mining company Adastra Minerals, formerly known as American Mineral Fields. Adastra then held 8.6% of the shares of KTP, the rest was in the hands of First Quantum. (p. 39)

On page 8 of the document Adastra guarantees a profit of 29.2%. In the financed case the document predicts even a return of 40.4% for the Adastra shareholders in KTP.

Another example: Professor Marysse compares the value of minerals promised in the contract with the investment. According to his calculations, the Chinese parties obtain minerals for a value of between 34 billion and 83 billion dollar, according to the benchmark price, whereas they invest 6 billion dollars. But I do not grasp why the professor doesn’t speak about the costs of production? It must cost a lot to produce 400.000 tons of copper for 20 years.

What is more: 32% of the shares of the Sicomines Joint Venure remain in the hands of the Congolese, which means that they'll receive 32% of the benefits. One has to consider also that the real value of the 3 billion dollar investment in infrastructure will be much higher for the Congolese people, since this infrastructure can contribute to the relaunch of Congo's economy and the creation of wealth for the Congolese people.

Moreover, let’s compare the investment versus output of the Chinese contract with that of the above-mentioned Kolwezi Tailings Project of Fist Quantum. On page 8 of the mentioned document we read that the KTP is about a "Mineral reserve of 112.8 million tons at 1.49% copper" and that the investment in KTP is 305 million dollars.

1,4% of 112,8 million tons makes 1,6 million tons copper. This means that First Quantum and Adastra would invest 305 million dollars to obtain 1,6 million tons of copper. This is an investment equal 1/20 of the Chinese investment to obtain 1/6th of the quantity of the Chinese contract! In other words: the Chinese invest $600 per ton of copper where First Quantum and Adastra would invest $190 per ton of copper!

No wonder, the Congolese government demanded to renegotiate the First Quantum contract after the famous review of the mining contracts (the famous ‘revisitation des contrats miniers”). And it canceled the contract when First Quantum refused any negotiation.

I fully understand why my friend Martin Kibungi was so angry about the accusation that Congolese authorities are not competent and have lousy negotiation skills. Martin is a civil society activist, but professionally he works in the government's Planning Department and each year he contributes to draw up the famous PRSP (Poverty Reduction Strategy Paper). So he is well aware of the pressure that is coming out of institutions such as the IMF or the World Bank. And he knows that the Congolese authorities’ biggest problem is that they are in a weak negotiating position, the problem is not their skills or lack of competence.

The real problem in the mining sector is that the mostly Western mining companies are not willing to cooperate and start production in Congo. The map accompanying this text shows this very clearly. The gray areas are the territories where the companies have exploration licenses, the very few dark spots are the exploitation licenses.

This map tells a lot of the problem the Congolese government is confronted with. The mining companies are taking hostage two thirds of the immense territory of the DRC. Will they ever start producing there? Only when it is in their interest and profit. The Congolese people are supposed to accept this reality and wait. The decision to start producing is taken abroad in a far away country, by boards of companies with budgets higher than the Congolese state budget, and they can pay lawyers and specialists to impose their will on the DRC.

And we saw the judicial and media war First Quantum waged against the DRC’s government since this government canceled the contract with First Quantum: with the help of the Canadian Government the Firm succeed to postpone the cancellation of the debt of the DRC for 6 months. And many Western media repeat blindly that the contract was canceled “because First Quantum refused to pay bribery to Congolese officials”.

At the conference in Brussels someone complained to me about the intervention of Paul Fortin at the symposium. Mr Fortin was charged by the World Bank to run Congo's state-owned mining company Gécamines between 2005 and 2009. At the conference, he disappointed attendees by providing only a general statement that the Sicomines contracts would continue to evolve, like a marriage or a symphony. The person who approached me thought Fortin's intervention was cynical.

I personally regret his intervention was much too short, but Fortin had a very important message. He said that the mining operations are on Congolese territory, so Congo had to sign an agreement first but afterwards there will be a lot of changes and perhaps improvements to this agreement. Is this cynical? According to Fortin it is the Chinese who are in a weak position: they have already started their construction works, but production of copper will begin at the earliest in 2014, this is in three years time. What if Congo's political landscape changes in the mean time? What if the opposition leader Etienne Tshisekedi wins the next elections and breaks the agreement, as he has promised to do? Will China invade Congo with its army, as the West has done when its economic interests are challenged?

But above all, Fortin put his finger on the real challenge the Congolese government tried to solve when signing the contract: the government want its mining production to take off, it wants to break the attitude of the global mining 'community' which sees Congo as its own private strategic reserve. And yes, Kinshasa has made a lot of concessions. But without the Congo-China agreement and without the mining contract review (the famous "revisitation"), many projects still would lie idle and the Congolese state would have even less mining revenues than it has now. So, Fortin says that the music of renegotiation must go on, not only for the Chinese agreement but also for other contracts.

Finally, the advocates of development theory will argue that it is not good to count on the mining sector to develop a country and that everything should begin from agriculture. My sympathy goes to father Kabila, who as the first post-Mobutu president made the first plan for the reconstruction of Congo without the interference of IMF, World Bank and the West. This plan was written by the brand new government members, appointed by president Kabila in June 1997, three months later their plan for the next three years was there.

For the first time in Congo's history, the Congolese themselves had planned for the reconstruction and economic development. This plan surely had weaknesses and could easily be criticized. But its merits were that it put the agricultural sector as the priority on the forefront. But did this plan receive support from abroad? It did not. Instead many in the West described Laurent Kabila as a dictator and an obstacle for progress.

And honestly, when Kabila was assassinated in 2001, I was ashamed to be Belgian, because in the Belgian media the assassination was applauded, like in January 1961 after the assassination of Patrice Lumumba. When Joseph Kabila took over as President in 2001, he learned his lesson, and looked for other ways to go forward and yet stay alive. Professor Marysse showed a graphic that proves how the reconstruction indeed began in 2001 and that growth took off again and continues to improve. It is not a spectacular improvement, but it is an improvement. So why all this hostility and sarcasm against the Congolese government and the Congo-China agreement?

Let’s study more to put the agreement with China into context and compare it with other contracts with Western societies; let’s follow how these agreements will evolve. Let’s listen to all of the Congolese people, not only to the opposition. And let’s support the Congolese people in the way they want to go forward, which might be different from the recipes of the West.

Tony Busselen

Member of the Congo group of intal (www.intal.be) and author of “Une histoire populaire du Congo”, Aden May 2010.

1/The original document has disappeared on the internet. But the same figures can be found in this document on page 27, Table 1.8.

2/Annual Rate of Return Calculations by Author:

1922 13

1923 43.9
1924 29.5
1925 41
1926 27.1
1927 26.7
1928 23.2
1929 33.5
1930 28.5
1931 2.8
1932 -5.8
1933 0.6
1934 4
1935 25.7
1936 39.7
1937 63.4
1938 28.7
1939 42.5
1940 39.4
1941 20.8
1942 19.1
1943 19.5
1944 20.5
1945 26.1
1946 31.5
1947 19.9
1948 23.8
1949 20.8
1950 40
1951 49
1952 43.8
1953 36.2
1954 35

DRC Debates: Is China's Sicomines Project Good or Bad for the Congo?

2011-08-02T21:54:00.003-04:00

Chinese managers supervise a Congolese worker in the DRC.

On May 27, 2011 I attended a very interesting day-long "debate" in Brussels focused solely on the famous China-Congo "deal of the century" . This package deal was originally a $9 billion package combining a copper mining investment ($3+ billion) and two $3 billion commodity-backed infrastructure credits. (The second credit was deleted under pressure from the IMF).

A Financial Times editor wrote about this deal: "Beijing has thrown down its most direct challenge yet to the West's architecture for aiding African development." For quick background and fascinating insights, see the trio of excellent articles by Peter Lee at Asia Times: June 12, 2009; March 11, 2010; and June 11, 2011.

The Brussels conference was organized as a "day of study" by an impressive group of young men affiliated with the two biggest Belgian trade unions, 11.11.11 (the consortium of Flemish NGOs), the movement intal (International Action for Liberation), and two Belgian think tanks.

They were all well-informed, and their commitment to understanding this deal, their determination, great connections, and a bit of luck enabled them to put together a group of panelists that included the reclusive Paul Fortin, the Canadian lawyer who negotiated the deal for the DRC's state-owned firm Gecamines, Stefaan Marysse, a Belgian professor who is critical of the deal, Yenga Mabolia (coordinator of the World Bank-DFID supported project Promines, Ministry of Mines, DRC), Philip Linza Lukeke (Union Nationale des Travailleurs du Congo, UNTC) and Jean de Dieu Ilunga (Confédération Syndicale Congo, CSC).

Some of the interesting comments of the day:

Yenga Mabolia told us that the DRC (nudged by DFID/World Bank) has decided to publish all of its mining contracts (thank you, donors: one win for transparency).If this happens, we should be able to finally compare the Chinese deals to others in the same sectors.
Philip Linza Lukeke, a local trade unionist, said that the Chinese infrastructure work "is being done and appreciated by everyone. The country is on its way to being rebuilt. Employment is being generated. Before it used to take 10 days to get from Lubumbashi to Kasinga, now it takes 3 hours*. Market prices have gone down." He concluded: "There are other investments in mining ... but their impact [on our development] is hardly felt. Why is the Chinese contract being attacked?"
On the other hand, he mentioned his concern with illegal informal sector workers/miners doing mining and not operating at an international standard. Chinese are involved, mainly as middlemen. He concluded by saying: "The term 'win-win situation' is one that we like very much. We like promises that are being carried out."
Jean de Dieu Ilunga, also a trade unionist: "You have to understand the situation. No one was coming in with fresh capital. We had to start afresh. ... The Chinese were looking to see what Congo needed. Our capital city was in shambles. Congo had been abandoned. We had to start from somewhere." His main concern was that Chinese workers are coming in on group visas and he fears that the companies are bringing more workers than they are allowed. "Yes, the Chinese all look alike but we are watching. We are against the group visas ... We want people to abide by the laws. It's true, they pay low wages, but we have collective bargaining. I want to insist on these points. We know what the situation is."

Focusing intensely for a day on this case helped clarify a number of things (see the story on the conference at Africa/Asia Confidential). Tomorrow: a guest post on the Sicomines deal by one of the conference organizers.

*DB note: it is 1260 km, and to do it in 3 hours you would have to fly ... ,

"Germany blames Chinese land buys for Africa drought": Really?

2011-07-28T18:53:00.000-04:00

Photo credit: International Land Coalition

Today here at the International Food Policy Research Institute in Washington, DC, I spoke by phone with a German reporter who wanted to interview someone about the statement this morning by the German government's Africa adviser Guenter Nooke who allegedly blamed Chinese land buys for the drought in the Horn of Africa.

He told the daily Frankfurter Rundschau: “In the case of Ethiopia there is a suspicion that the large-scale land purchases by foreign companies, or states such as China which want to carry out industrial agriculture there, are very attractive for a small (African) elite.” He added that "the Chinese investments were focused on farming for export which he said can lead to 'major social conflicts in Africa when small farmers have their land und thus their livelihoods taken away'.”

I'm glad the reporter was from a radio station; he couldn't see my jaw drop. Yes, land grabs are bad news for small farmers in Ethiopia. But does China even have agricultural investments in Ethiopia? Not according to the newly released "land grab" studies by the progressive California-based Oakland Institute (whose head, Anuradha Mittal, used to be at Food First). The Oakland Institute actually conducted fieldwork on land grabs instead of looking only at media stories. Their June 2011 report on Ethiopia has this finding (which I do not think has been repeated anywhere by the media):

"While China is active in the mining and infrastructure development sectors, they were surprisingly absent from land investment deals. Recent evidence suggests that a Chinese company is poised* to sign a 25,000 ha concession to produce sugarcane in the Gambella region, and this company claimed to be the first agricultural company from China (emphasis added)."

That's consistent with what I found across Africa (note: not necessarily the case for SE Asia or Latin America). It's also consistent with the findings of a 2009 FAO/IIED study of "land grabs" which said:

"A common external perception is that China is supporting Chinese enterprises to acquire land abroad as part of a national food security strategy. Yet the evidence for this is highly questionable."

So who has actually invested in Ethiopia? Well, the real story seems to be that it is Western hedge funds, among others. Here's Mittal's YouTube interview.

* Oakland Institute has a copy of a contract between the Ethiopian Ministry of Agriculture and a Chinese company signed December 12, 2010. Nothing appears to have come of this yet, but this could change. If any of you are following this issue in Ethiopia, let us know what happens.

The Atlantic Joins the China-Africa Scare-Mongering

2011-07-26T00:20:00.000-04:00

Robert Mugabe and Chinese businesspeople credit: ZimDaily

I'm disappointed that one of my favorite magazines, The Atlantic, published on June 24, 2011, a short and sloppy article by Max Fisher-- "In Zimbabwe, Chinese Investment with Hints of Colonialism." This is a striking example of some of the superficial, error-ridden, and at times irresponsible China-Africa
analysis that a major magazine can casually publish. Articles like this -- apparently dashed together out of a quick spin through the internet -- are all that America's elite opinion makers are likely to read about China's role in Africa. That's a pity.

Fisher doesn't much care for Mugabe and neither do I. Mugabe is an appalling leader. His policies over the past decade have driven his country into the ground. His refusal to relinquish power in legitimate elections has been devastating for Zimbabweans.

Fisher also highlights concerns by Zimbabwean construction workers, restaurant staff, and labor unions about Chinese employers: these are no doubt a reality: Chinese managers have a well-deserved reputation for poor working conditions. Sadly, there's no news in these claims, which have been voiced often in African and international media (and which form the centerpiece of a good edited volume published in Namibia by the trade union movement).

Fisher ignored something that was interesting and new: the complaints by Zimbabwe's trade unions were taken seriously by the Chinese who sent a delegation in response. As Veneranda Langa reports from Harare, after the labor problems hit the media, the Chinese government reacted:

A high-level delegation from the Overseas Chinese Affairs Committee (OCC) of the National People’s Congress of China is in Zimbabwe [June 13, 2011] to hold seminars to encourage Chinese nationals to live harmoniously with locals in an effort to boost relations between the two countries.

As for the low salaries, also undoubtedly true -- but the union complaint that that some Chinese companies pay only $4 a day (about $120 a month for a five day week) as wages has to be seen in the context where statutory minimum wage figures in 2009 were $100/month for mining, $150/month for government workers, or $30/month for domestics. (Zimbabwe has no overall minimum wage, only minimum wages for different sectors; these are re-negotiated regularly.)

But let's look at some of Fisher's other claims:

China has won "near-exclusive dominance of everything from mineral rights to labor standards" ...

"China recently paid $3 billion for exclusive access to Zimbabwe's extensive platinum rights, a contract estimated to be worth $40 billion."

These claims about exclusive access to mineral rights would come as a surprise to the many international mining firms that have ongoing mineral investments in Zimbabwe, particularly those with extensive investment in the platinum sector, including Canada's Caledonia, and Impala Platinum (the South African firm that is the major shareholder of Zimplats) as well as the mining giant Anglo-American.

It's my guess that discussions of a $3 billion line of credit offer (not a contract or concluded deal) appear to be real -- a line of credit has been under discussion since 2006 but there have been many sticking points. However, if this happens, it would clearly not be a "swap" of $3 billion for "all of Zimbabwe's platinum", but rather a resource-secured line of credit linked to a platinum deposit like the one that was earlier encumbered for another Chinese loan. This bears some similarity to the DRC's copper "deal of the century".

Fisher bends and twists a few things to make his story more colorful:

The 87-year-old ruler even relies on Chinese medical treatment.

Well, he does seem to get treatment in Singapore -- he's been six times recently. But isn't this stretching it a bit in an article on "Chinese colonialism"?

Fisher also gives us an alarmist interpretation of a complicated and politically controversial project:

A massive military compound is under construction in Harare, built by Chinese firms and with a Chinese loan of $98 million. The open-ended loan, which the already indebted Zimbabwean government has no obvious way of paying back, means that this component of the country's military will be effectively Chinese-owned ... the expensive facility will hand a small but important part of Zimbabwean sovereignty over to Chinese lenders.

Neglecting to mention that the "massive military compound" is actually the site of Zimbabwe's new National Defense College, Fisher puts a scary spin on something that is a tad more ordinary. (And why portray the signed loan as "open ended"?)
Here's the history of this project: In 2008, the Zimbabwe government/military decided to upgrade the Staff College run by the University of Zimbabwe, and enable it to have the capacity to offer a BA and MA degrees in Defense and Security Studies. But they didn't have the money to do this. So they negotiated an "obvious way to pay it back": secure a concessional loan from the China Eximbank with the future export of Zimbabwean resources from a joint venture between the Chinese construction company and the Zimbabwe government (again, this resembles the DRC copper/infrastructure model).

Using aid for a project like this is a good example of the downside of China's request-based aid (the package deal seems to have been cooked up between Anjin Corp and the Zimbabwe Defense forces) and Chinese deference to local ownership (i.e. the Unity government -- and Zimbabwe's Parliament, which ratified the deal) in making decisions on how to use aid finance. (I talk about these problems more in The Dragon's Gift).

Surely Zimbabwe has better uses for its diamonds than using them to pay to build the professionalism of its military. (And surely my own country, the US, has better uses for our money than paying for our military's desires... and yet still we do it, and ironically we also finance it by borrowing from the Chinese!). But rather than China now 'owning' part of Zimbabwe's military, China Eximbank will have a lien on part of the Marange diamond fields.

Fisher then moves into shakier territory with a couple more myths:

In 2006, China paid Mozambique $2 billion for a deal to dam off the Zambezi river and send 3,000 settlers to populate the valley, some of the country's most fertile land.

This Chinese "deal" for the Mpanda Nkua Dam on the Zambezi is another zombie myth that has cycled around the internet for nearly six years. When I went to Mozambique in 2009 to look into it, I found that although Chinese credit for a dam had been discussed, it was never finalized. When the contract was given to a Brazilian firm to build the dam in 2008, there was still no financing. There are no Chinese settlers in the Zambezi Valley, and no one I spoke to knew anything about this hypothesized plan. But why check when the truth might spoil a good story?

In a grand conclusion, Fisher widens his scope to the entire continent:

China is snatching up agricultural land across the continent, often with leases nearing a century in length.

This claim has an embedded link that brings the reader to an Atlantic article that does describe an African land grab. However, the article has no examples of Chinese "land grabs" and in fact states: "But neither China nor the U.S. is driving the land scramble: Saudi Arabia and its neighbors are." Did Fisher even read his colleague's piece? It's counter-intuitive, but field researchers continue to report that there have actually been very few big Chinese land deals in Africa.

Fact checkers, where were you when this was published?

Two New Papers on Chinese Aid in Africa

2011-07-18T12:00:00.000-04:00

Here are links to two new papers of mine on Chinese aid published this month:

(1) Deborah Brautigam, "Chinese Development Aid in Africa: What, Where, Why and How Much?" China Update 2011, eds. Jane Golley and Ligang Song, Canberra: Australia National University, 2011.

Abstract: China’s development aid to Africa has increased rapidly, yet this might be the only fact on which we have widespread agreement when it comes to Chinese aid. Analysts disagree about the nature of China’s official development aid, the countries that are its main recipients, the reasons for providing aid, the quantity of official aid, and its impact. Why does this matter? Knowing more about Chinese development aid is important for understanding Chinese foreign policy and economic statecraft: how and to what ends does China use its government policy tools? It is also important for more accurate comparisons between Chinese practices and those of other donors and providers of finance. Finally, for those who are interested in the question of whether, as it rises, China will transform, reform or maintain the existing system of norms and rules (Kim 1999), development aid provides a particularly interesting case study. The rules and norms about foreign aid have been forged not by a global institution, but primarily by the Development Assistance Committee (DAC) of the Organisation for Economic Cooperation and Development (OECD)—a group of countries of which China is not a part. To answer questions about China’s impact on these rules and norms, we need to have a sound idea of what China is actually doing as a donor.

(2) Deborah Brautigam, "Aid 'With Chinese Characteristics': Chinese Aid and Development Finance Meet the OECD-DAC Regime," in Journal of International Development, v. 23, n. 5, July 2011.

Abstract: China's official aid programme is non-transparent and poorly understood. The paper compares development finance from China and the Organization for Economic Co-operation Development (OECD) generally and through the examination of two cases of Chinese development cooperation in Africa. These cases illustrate a major argument of the paper: that the lion's share of China's officially supported finance is not actually official development assistance (ODA). China does provide finance that meets the definition of ODA, but this is relatively small. Export credits, non-concessional state loans or aid used to foster Chinese investment do not fall into the category of ODA. China's cooperation may be developmental, but it is not primarily based on official development aid. This suggests that the institutions established at the OECD to develop and apply standards for foreign aid (the Development Assistance Committee) may not be the right ones to govern these growing ties.

Australia and China: What Can Africa Learn?

2011-07-12T07:47:00.000-04:00

I"ve been in Australia since last Friday, participating in the launch of China Update 2011: Rising China, Challenges and Opportunities at Australia National University and having meetings with AUS government officials. It's fascinating how the Australians view their relationship with China, their major economic partner. As a resource-rich country, Australia has been the target of enthusiastic trade and investment interest by Chinese firms. It's been a politically contentious relationship, but Australia has by and large managed it very well (although one prominent Australian academic here called the govenment's new screening policy toward investment from 'state-owned enterprises' bumble-footed.)

Some Australians have moved up the ladder inside Chinese firms. Australian Andrew Michelmore, a former Rhodes Scholar, now the highest ranking foreigner working for China Minmetals Group, said in a July 4, 2011 interview with Businessweek:

The myth is that the [Chinese] government goes to company X and says, ‘Company X, I want you to go and buy that asset over there and pay whatever you want for it because we want it,’” said Michelmore, who won a gold medal at the 1974 World Rowing Championships. “Not at all,” he said in an interview in Hong Kong. “There is this incredible competition in China, they are businesspeople competing against each other.”:

What can Africans learn from the Australian approach to China? A lot, I imagine.

A hat tip to PKU African Studies Program.

BBC Where Art Thou? Another (Un)Balanced VOA Story on China in Africa

2011-07-06T17:00:00.000-04:00

In a June 28, 2011 article with the thoughtful title: "China Supports Global Pariahs, Gets Resources and Criticism in Return," the United States' official broadcasting system Voice of America continued a series on China's overseas engagement. Here are some of the balanced analysts they're quoting: Greg Autry, co-author with Peter Navarro of the book Death by China and economics professor at University of California Irvine, and Peter Navarro, author of the polemic The Coming China Wars. Here's a sample of the analysis.

"Zimbabwe has everything from diamonds to tobacco and farm land," says Peter Navarro, an economics professor at the University of California, Irvine. "China has gone in there and there are a lot of Chinese farmers there now tilling Zimbabwean soil growing crops that are sent back to China while the people of Zimbabwe starve..."

There is a lot to be critical of in China's engagement with Mugabe, but sending a lot of Chinese farmers to till the soil is not one of them. Yes, China imports a lot of Zimbabwean tobacco. Two Chinese companies operate out-grower schemes buying tobacco from Zimbabwean farmers. Another Chinese project contracts with Zimbabwean cotton growers.

Later on the article repeats another of the myths floating around the internet:

China International Water and Electric Company ... has lease holds on over a quarter of a million acres of land in southern Zimbabwe for the raising of maize, which it exports back to China.

This zombie of a story -- another of the "rural legends" floating around the internet (this one was launched in 2003) -- is hard to kill off. But it is bogus. (I explain what really happened in The Dragon's Gift). It's also been embellished. The original version claimed that CIWEC was producing maize for Zimbabweans. Now the VOA, without checking, "reports" that CIWEC is exporting food back to China while Zimbabweans starve.

Oh BBC, where art thou? A hat tip to Henry Hall for the story.

The Untold Story of China Development Bank

2011-06-28T12:56:00.000-04:00

I've just finished reading Erica Downs' excellent monograph: Inside China, Inc.: China Development Bank' Cross-Border Energy Deals (Brookings Institution: March 2011).

Another extremely well-researched and well-written contribution from Erica, this balanced study busts some myths (inter alia, these deals do not mean China is "locking up" sources of energy) and confirms some concerns (China's ability to coordinate -- sometimes -- in financing and supporting a package of deals mean it is going to be hard for US companies to compete).

Although there is very little on China in Africa, this study is well worth reading to get a better handle on how China Development Bank (CDB) works overseas. Between 2006 and 2010, CDB's loan exposure in Africa increased from $1 billion to $10 billion and this is only going to go up.

Moreoever, it is packed with fascinating detail -- almost all of it openly available in Chinese and other media sources -- on how CDB embarks on the major financing deals that have made it stand out as one of China's deepest pockets. The information on the variety of terms (interest rates, maturities) of these deals alone is a major contribution. It confirms what I've seen in Africa: large deals are nearly always structured using variable LIBOR-plus interest rates, and on terms that are often just slightly better than those available from global commercial banks.

The better terms do not reflect direct subsidies, Erica points out, but rather the government backing for CDB, a policy bank. This backing means that CDB has the ability to take more risks and accept a longer term reward than would a purely commercial bank. Still, CDB cares about its profits and its bottom line. As I've also noted, CDB often uses major international law firms like White & Case to help structure these deals.

The multiple media sources Erica relied on also tell me that reporters in other parts of the world (even in China!) are getting much better detail on these deals than reporters are getting in Africa. It also suggests that that there may be no inherent Chinese prohibition on this information. For example, Brazil's Petrobras, the state-owned oil company, has transparently reported on its deals with China in its annual reports. Yet CDB did not grant Erica an interview, which also shows it has a way to go on openness.

Applause for New Study on Africa and Its Emerging Partners [China]

2011-06-25T10:20:00.000-04:00

Released in June 2011: an insightful new African Economic Outlook 2010 highlights a very careful study of Africa's "emerging partners" (mainly, but not exclusively, China).

The annual African Economic Outlook "combines the expertise of the African Development Bank, the OECD Development Centre, the United Nations Economic Commission for Africa, the United Nations Development Programme and a network of African think tanks and research centres". The study draws on numerous background papers and field reports from member countries.

Chapter 6, "Africa and its Emerging Partners" is one of the most balanced, detailed, evidence-based pieces of group research I have seen on this topic and I highly recommend it. Among the interesting findings:

An analysis of Chinese Ministry of Commerce (MOFCOM) data reveals that, by 2009, 76% of Chinese outward FDI in Africa was in countries defined by the IMF (2007) as hydrocarbon- or mineral-rich .... [however] For FDI from OECD member-countries this ratio is even higher, at 85%. By implication, FDI from emerging partners is actually less concentrated in oil-exporting countries than that of traditional partners.

Outlook experts give a cautiously positive verdict on concerns about the impact of the emerging partners on Africa’s development. Prospects are good for the transfer of technology and access to finance. There is no evidence to suggest that the new players are hindering Africa's industrialisation, debt sustainability or governance, but Africa needs a clear engagement strategy and all sides must show greater transparency.

[S]everal countries have begun formulating such strategy [for engaging emerging powers]: Namibia’s engagement strategy is formalised and the assistance provided by emerging partners is integrated into the national development plan; similarly, Cameroon’s engagement strategy with emerging partners is framed within the country’s development vision for 2035. In Morocco, Chinese operators are actively encouraged to invest in the country to counterweigh Chinese imports and ease the commercial deficit; in Cape Verde, the government plays on the full range of partners to modernise productive capacity and infrastructure; in Equatorial Guinea, officials negotiate in Chinese with their Chinese counterparts.

History makes it clear that investment decisions concerning infrastructure projects currently conducted by emerging partners need to be properly budgeted for and framed consistently with a sustainable, realistic, home-grown development strategy. Projects that are approved need to clear the hurdle of high and wide relevance for the country’s development and chosen to be sustainable not only within the country’s current economic conditions but also in times of economic trouble domestically or worldwide.

Full disclosure: I was a reviewer of an earlier version of the chapter. I think they put in a tremendous amount of effort and the results show this: they did a great job. While the study is available for purchase, parts of Chapter 6 can be read online or downloaded.

2011-06-22T13:55:00.000-04:00

Lisa Sodalo, a student at the Sorbonne in Paris, writes (on the basis of fieldwork!) a comment: "China in Cameroon's Construction Sector: Towards Enforcement of Higher Labour Standards than Local Regulation?" in the May 2011 China Monitor, published by the Centre for Chinese Studies at Stellenbosch University in South Africa. Among her interesting findings:

Chinese construction companies, like their foreign and local counterparts, hire most frequently through a local sub-contractor called a tacheron. This intermediate employer recruits the necessary number of men to complete a determined work or service, at an agreed and fixed price.
Safety and hygiene at work are legally part of the subcontractor's duties. Therefore, in the event of an accident, the responsibility lies with the intermediate employer, the tacheron... [yet] the primary employer, Chinese or otherwise, might be in a better position to implement the rules related to safety and hygiene, as well as to compensate the worker in the event of an accident.
A national study estimates that less than ten percent of [all] workplaces enforce the hygiene and safety laws. Data regarding the enforcement of these codes on Chinese sites is unavailable.
The minimum wage in Cameroon's construction sector is approximately 63 USD per month, but across the country numerous men are willing to work at a lower rate, including for Chinese companies. Comparatively, migrant workers (min gong,民工) employed at similar positions in mainland China are remunerated approximately 183 USD per month.
Cameroonian sources in this industry claimed that Chinese companies generally bring their fellow citizens to work on their projects. The situation might be evolving, as every Chinese construction site visited showed Cameroonian labourers working under Chinese management.

To read more, click here.

Bill Gates, Hillary Clinton, China in Africa, and The Dragon's Gift

2011-06-13T13:15:00.000-04:00

Saturday last week The UK's Daily Mail posted an interview with Bill Gates in which he mentions that he was reading The Dragon's Gift in preparation for an upcoming visit to China:

His passion for aid is such that he devotes his spare time to reading about it: ‘At the moment I’m reading Getting Better by Charles Kenny, and I’m going to China soon, so I’m reading The Dragon’s Gift, about the history of Chinese aid to Africa.’

After attending a small informal dinner last week in Beijing with Bill Gates, a couple of Chinese experts, and a trio of Gates Foundation staff, I can confirm that he did read The Dragon's Gift. He sprinkled analysis, and references to it throughout the evening's conversation. If it had been a seminar, I would have given him an A. :).

Clinton and Banda in Zambia. Photo Credit AP: Susan Walsh

So now Donald Trump and Bill Gates have read The Dragon's Gift, and The Guardian recommended it to Britain's new Conservative-Liberal government. Yet it's clear from media coverage of Secretary Clinton's visit to Zambia that Mrs. Clinton is probably not among those who have read it.

Below are a few clips from her press conference in Lusaka (emphasis added):

"Acknowledging that China, the world’s biggest energy user, has extended its influence across Africa, the top U.S. diplomat said she recognized that while its size accounted for its presence in the continent, she had reservations about its reach: 'We don’t want to see a new colonialism in Africa.' ... The U.S. is 'concerned that China’s foreign assistance and investment practices in Africa have not always been consistent with generally accepted international norms of transparency and good governance,' Clinton said yesterday at a news conference in Lusaka after meeting Zambian President Rupiah Banda. Clinton pointed to U.S. efforts to improve political and economic governance in countries like Zambia as an example of a different approach. 'The United States is investing in the people of Zambia, not just the elites, and we are investing for the long run.'*

The implication that China is not investing for the long run, or is only interested in narrowly investing in Zambian elites would be hard to argue for anyone who has read my book. Chinese leaders' multiple visits to Zambia over the past five decades, numerous aid projects including the iconic Tan Zam railway (which is still being supported by Beijing as it limps along), and business investment in multiple sectors, suggest a much longer, deeper, and broader set of interests than Secretary Clinton appears to be aware of.

And while the Secretary's concern about Africa's political and economic governance is commendable, I wish she had shown the same concern about US foreign assistance and investment practices in Africa. Our foreign aid is transparent -- and China's is not -- but this same transparency makes clear that even after the end of the Cold War, several countries with poor records on democracy and governance -- Mubarak's Egypt and Ethiopia -- have been the largest US aid recipients in Africa. This support is clearly not "consistent with generally accepted international norms" of good governance. As I have noted before in this blog, it is a sad fact that energy security concerns trump good governance in relations between the Obama administration and the notoriously corrupt human rights abusers heading the Obiang government in Equatorial Guinea.

China has a long way to go in improving its multi-faceted engagement on the continent, but the US is not there yet either. The difference is not as complete as Secretary Clinton would have us think. Pointing to the principles that do generally guide our aid, ignoring US companies happily investing with a pat on the back from the Obama administration in places like Equatorial Guinea, and then comparing our aid to Chinese aid and investment is a common debate tactic among op-ed critics (Michael Gerson did this recently in the Washington Post). I would have hoped that Secretary Clinton would do better than this. But perhaps as her major advisor on Africa (and, probably, on China's role there) is Ambassador Johnnie Carson, the person who, in the Wikileaks cables, famously dismissed China in Africa as "a pernicious economic competitor ...[with] no morals", it's not a surprise.

As many of the comments on the Zambian Watchdog reposting of this story make clear, Africans are under no illusions about Chinese -- or US -- goals in their neighborhood.

A hat tip to Calestous Juma for the Zambia story and to Joe for the story of the Times interview with Bill Gates.

*The quotation comes from a different news story on the visit: http://www.dawn.com/2011/06/11/clinton-warns-against-new-colonialism-in-africa.html

Donald Trump and The Dragon's Gift

2011-05-26T03:10:00.000-04:00

Take this with a grain of salt: Donald Trump lists The Dragon's Gift among his top 20 China books. "I've read hundreds of books about China over the decades," Trump told a reporter. Here's Tony Pierce's take on the Donald's reading habits (from the LA Times): (a hat tip to Elsie Cheng for this story.)

Donald Trump has read a lot of books on China: 'I understand the Chinese mind'

Donald Trump recently reeled off an impressive list of Chinese books that he has read over the years that has helped him understand the nation and people that he does business with.
"I've read hundreds of books about China over the decades," Trump told Xinhua, the official news agency of the People's Republic of China.
"I know the Chinese. I've made a lot of money with the Chinese. I understand the Chinese mind," said the billionaire, who has continually stated that if he were president he would levy a 25% tax on Chinese imports.
Asked to name any of his favorite tomes on China, Trump reportedly listed the following 20 books right off the top of his head.
1. "The Party" by Richard McGregor
2. "On China" by Henry Kissinger
3. "Mao: The Untold Story" by Jung Chang
4. "Tide Players" by Jianying Zha
5. "One Billion Customers" by James McGregor
6. "The Coming China Wars" by Peter W. Navarro
7. "The Beijing Consensus" by Stefan Halper
8. "China CEO" by Juan Antonio Fernandez and Laurie Underwood
9. "Poorly Made in China" by Paul Midler
10. "CHINA: Portrait of a People" by Tom Carter
11. "The Man Who Loved China" by Simon Winchester
12. "China Shakes the World" by James Kynge
13. "Mr. China" by Tim Clissold
14. "Country Driving" by Peter Hessler
15. "The Dragon's Gift" by Deborah Brautigam
16. "Factory Girls" by Leslie T. Chang
17. "The Heavenly Man" by Brother Yun
18. "1421" by Gavin Menzies
19. "Seven Years in Tibet" by Heinrich Harrer
20. "Battle Hymn of the Tiger Mother" by Amy Chua
That's quite a difference from when Katie Couric asked Sarah Palin in 2008 what magazines and newspapers she reads:

Couric: And when it comes to establishing your world view, I was curious, what newspapers and magazines did you regularly read before you were tapped for this to stay informed and to understand the world?
Palin: I’ve read most of them, again with a great appreciation for the press, for the media.
Couric: What, specifically?
Palin: Um, all of them, any of them that have been in front of me all these years.
Couric: Can you name a few?
Palin: I have a vast variety of sources where we get our news, too. Alaska isn’t a foreign country, where it’s kind of suggested, “Wow, how could you keep in touch with what the rest of Washington, D.C., may be thinking when you live up there in Alaska?” Believe me, Alaska is like a microcosm of America.

File this away if Trump and Palin ever square off in a debate.

-- Tony Pierce
twitter.com/busblog

The Chinese in Africa: The Economist Gets Some Things Right, Some Wrong

2011-05-20T11:07:00.000-04:00

The Economist's April 20, 2011, report on China and Africa (with the catchy subtitle "Africans are asking whether China is making their lunch or eating it") gets a lot of things right, but some big things wrong. As I noted in an earlier post, it is also prone to exaggeration.

What the reporter, Oliver August (he emailed me while he was working on the article but I was in Ethiopia and we never managed to talk), got right was a generalized sense that lower standards, lack of "corporate social responsibility" (social and environmental) in business practices, poor labor relations, competition with import substitution industries (especially textiles), and not enough hiring of local labor are the downside of China's increasingly prominent presence in Africa. These are serious issues and rightly tarnish the general reputation of China in Africa. I've written about them all in The Dragon's Gift.

Here's my take on what they got wrong and/or exaggerated:

1. The Economist: "For investment in African farming, China has earmarked $5 billion. A lot of Africans view this anxiously."

Wrong: Sigh. This myth is a hard dragon to slay (so to speak). I wrote about the legend of the (non-existent) $5 billion fund for agriculture here in April 2010 after reading Howard French's Atlantic article that made this surprising and erroneous claim. Yes, China Africa Development Fund plans to raise $5 billion for Chinese equity investment in Africa (they've raised only $1 billion so far), but this is going into all sectors: infrastructure, manufacturing, energy, mining, and agriculture. The mistake that this fund is devoted to agriculture has become one of the urban legends circulating around the internet, a "rural legend" we could call it.

2. The Economist: Chinese construction work can be slapdash and buildings erected by mainland firms have on occasion fallen apart. A hospital in Luanda, the capital of Angola, was opened with great fanfare but cracks appeared in the walls within a few months and it soon closed. The Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km (81 miles) to the south-east, was quickly swept away by rains.

Exaggerated: I've analyzed stories about the Luanda hospital and the Lusaka-Chirundu road before in this blog. True, both had problems (the hospital was opened in February 2006 but rather than "falling apart" in a few months, it developed significant cracks over the first four years, and closed for repairs in June 2010). The Economist implies that the entire Lusaka-Chirundu road was "quickly swept away by rains". This did not happen but the road did develop a cave-in along what appears to be a 20 foot section. For more on this from several Chinese, Africans, and others see the comments on my post.

3. The Economist: At Chinese-run mines in Zambia’s copper belt they must work for two years before they get safety helmets. Ventilation below ground is poor and deadly accidents occur almost daily. To avoid censure, Chinese managers bribe union bosses and take them on “study tours” to massage parlours in China. Obstructionist shop stewards are sacked and workers who assemble in groups are violently dispersed. When cases end up in court, witnesses are intimidated.

Exaggerated. Let's look first at the claim of deadly accidents occurring "almost daily" in Chinese-run copper mines. It took about five minutes of searching on the internet to find what appear to be fairly good statistics on all fatalities in the copper belt, not just the Chinese. For example, here is a table from a critical 2008 South Africa Institute for Security Studies study of Zambian copper mines by Neo Simutanyi:

All Mining Fatalities in the Copperbelt

Year         Fatalities
2000             9
2001           23
2002           17
2003           21
2004           19
2005           80*
2006           18
Source: Mines Safety Department [in Simutanyi, "Copper Mining in Zambia," July 2008].
*Includes the 50+ workers who were killed in the notorious BGRIMM dymanite factory explosion at the Chinese-run Chambishi mine.

Although the data stops in 2006, it covers the worst years with regard to Chinese safety practices (see below). A 2009 Norwegian academic study of an unnamed international copper mining firm in Zambia (not the Chinese company) reported that it had experienced 20 fatalities between January 2005 and May 2007. Any fatality is one fatality too many, but it does no favor to our efforts to understand the reality of Chinese engagement to exaggerate their record.

I didn't look into the massage parlour claim (sounds plausible) but on the other safety aspects I asked Dan Haglund, a British scholar who has done extensive fieldwork on the Chinese copper mines. He was unaware of any practice that miners "must work for two years before they get safety helmets." He told me "the first Zambians working at NFCA after it started operating in 2003 may well have had very limited safety equipment during the first couple of years. However employees as well as regulators agree that standards have improved significantly since then - albeit from a low base." From another researcher, I learned that the Chinese in the copper belt do issue required safety equipment on a regular basis, but are reluctant to replace boots or helmets that are damaged before the scheduled replacement period.

About court cases, Dan Haglund reported that in his experience, the Chinese in the copper belt tended to ignore many labor regulations, for example, they would dismiss personnel without giving notice. However, he said, "my impression is actually that the court usually rules in favour of the workers. The Company Secretary said that this was one of the company's concerns regarding operating in Zambia - saying that in Zambia, if there is a dispute, the courts will always rule in favour of workers."

Perhaps due to an editing error, The Economist combined discussion of the improving Chinese state-owned companies in the copper belt with the poor record of the private firm running the Collum coal mine in southern Zambia (which is where the notorious mine shootings took place in 2010). (For deeper discussion and links to stories on the shooting at Collum coal mine, see my earlier blog post.)

4. The Economist quotes (without comment) Sanou Mbaye, formerly a senior official at the African Development Bank, who said "more Chinese have come to Africa in the past ten years than Europeans in the past 400."

Exaggerated/Wrong. A nice quote but without being unkind, I venture to say it is complete balderdash. No one has figures on how many Chinese have come to Africa. We often hear estimates of 750,000 or a million, or even more. But any estimate pales in comparison to the numbers of Europeans who came to Africa during colonialism and who live and work there even today. Nigeria and South Africa are favorite destinations for Chinese traders and immigrants. And there may be more Chinese than Europeans in Nigeria. But could anyone who lives in South Africa or visits frequently, as I do, claim that there are more Chinese than Europeans in the airports, or even on the streets of South African cities and towns?

Estimates of Europeans in Africa during the colonial period vary, but a long and pretty well documented Wikipedia overview of "White Africans of European Ancestry" might surprise Mr. Mbaye. The article estimates that the population of Europeans in Africa rose to perhaps 10 million during the colonial period, and remains (at most) at 6.5 million. While I will leave it to others to examine the sources, the article cites research claiming that in South Africa in 1995, there were some 5.2 million "Europeans" while Algeria had over 1.6 million Europeans in 1960, the Portuguese colonies in Africa had some 650,000 Portuguese before independence, Libya had over 150,000 Italians; Tunusia and Morocco had 750,000 Europeans, at the peak there were some 296,000 Europeans in Zimbabwe.

5. The Economist: Suspect above all is the type of transfer that China offers to African countries. Most loans and payments are “tied”—ie, the recipient must spend the money with Chinese companies. (Japan, Spain and others followed a similar model until fairly recently.) But tied aid leads to shoddy work. With no competition, favoured firms get away with delivering bad roads and overpriced hospitals. Creditors and donors often set the wrong priorities.

Exaggerated/Wrong. Yes, Chinese aid and export credits largely appear to be tied. Yes, donors from the OECD agreed to progressively reduce their own requirement that official aid to the poorest countries be tied. But as a 2011 analyses by the OECD pointed out, while aid is increasingly untied in theory, it doesn't seem to be untied in practice: most contracts still go to donor countries' own firms. This was also the conclusion of an independent study funded by Denmark: "Untying Aid: Is it Working?. (For a fascinating blog post by Laura Freschi at Aid Watch on the "unsung hero" of the struggle to get the US to even report how much of its aid is tied.)

However, this discussion of "tied aid" is beside the point: what the Chinese are primarily providing to African governments is not aid, but commercial-rate export credits. And no OECD country provides untied export credits. That would defeat the purpose of this government tool for increasing exports. Members of the Development Assistance Committee at the OECD reported in 2009 that they had committed $24.8 billion in "other official flows"* to developing countries (this is in addition to official aid). We don't have a "tying" report for these transactions, which are the appropriate comparison for the Chinese non-concessional official flows.

6. The Economist: The Democratic Republic of Congo was persuaded at the last minute by international advisers to scale back a Chinese lending facility from $9 billion to $6 billion.

Exaggerated/Wrong. This sounds as though international advisers came in "at the last minute" as the DRC was about to make a huge mistake. What really happened was a stand-off lasting nearly two years between the DRC and its creditors, which were refusing to consider debt reduction for the DRC unless it reduced the size of (and official guarantees for) a Chinese credit package linked to a joint venture mining investment. What this meant for the DRC (in addition to a lower debt) was that the benefits it will get from the Chinese consortium in exchange for the mining rights were reduced by $3 billion. (The mining venture was going to finance $6 billion in reconstruction infrastructure projects, unlinked to the mine, in addition to $3 billion for the mine). For more on this complicated story, see this note by researchers Johanna Jansson and Wenran Jiang for Pambazuka.

I'm leaving for a CSIS/CIIS meeting in Beijing tomorrow and then on to conferences/speaking engagements in Brussels, Copenhagen, and Dresden. Thanks to the Great Fire Wall, likely won't be blogging again for awhile, but I'll be interested in readers' comments on my take on The Economist.

------------
*other official flows: "Other official flows are official sector transactions which do not meet the ODA criteria, e.g.: i.) Grants to developing countries for representational or essentially commercial purposes; ii.) Official bilateral transactions intended to promote development but having a grant element of less than 25 per cent; iii.) Official bilateral transactions, whatever their grant element, that are primarily export-facilitating in purpose. This category includes by definition export credits extended directly to an aid recipient by an official agency or institution ("official direct export credits"); iv.) The net acquisition by governments and central monetary institutions of securities issued by multilateral development banks at market terms; v.) Subsidies (grants) to the private sector to soften its credits to developing countries [see Annex 3, paragraph A3.5.iv)b)]; vi.) Funds in support of private investment." Source: OECD/DAC Statistics.

Interview on The Dragon's Gift: Podcast on Development Drums

2011-05-04T16:47:00.000-04:00

Development expert Owen Barder interviewed me about The Dragon's Gift in Addis Ababa for his podcast Development Drums. He was a terrific interviewer (how great to speak to someone who has actually read The Dragon's Gift, quite thoroughly; how nice to know that he will be based part time in Washington DC now).

I'm sitting in a hotel in Oslo, Norway, grading final papers in between speaking at Norfund and the Ministry of Foreign Affairs, and the University of Oslo, and moving on to Bergen for ten days in my new position as Professor II at the University of Bergen (a part-time "visiting" position).

At some point soon I hope to get back to more serious blogging on China and Africa.

Lusaka-Chirundu Road and Summer Research

2011-04-25T17:17:00.000-04:00

Road after rainstorm

Road when originally completed.

Here are a couple of 2009 photos of the Lusaka-Chirundu road, another problematic Chinese construction project, this one a key link between Zambia and its southern neighbors. China Henan was the company in this case. A hat tip to Wei for this story.

This project -- along with the crumbling Angola hospital -- was part of this week's Economist story on China and Africa. The Economist reported that the "The Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km (81 miles) to the south-east, was quickly swept away by rains." Well, I don't think the entire road was quickly swept away by rains, but clearly a chunk of it was.

For another Zambia story on the heavy pressure some of these roads are under, see this Lusaka Times story. Researchers: Zambia provides a wealth of examples of comparative road construction. In this story from 2005, we can see the mention of a Chinese company, a local firm (Sable) and a South African company: Steffanutti and Bressan, all with similar contracts. What an interesting summer research project: comparative analysis of the state of these Zambian roads today, based on contracts awarded in 2005.

New Transparency? Beijing Reports on Chinese Aid

2011-04-22T12:07:00.000-04:00

Food donations: photo credit japanfocus.org/-B-McCartan/3153

China's State Council has released its first official report on China's foreign aid program, providing the most authoritative figures on Chinese aid to date. As I told the Associate Press's Gillian Wong, this is a very big step, and should be welcomed. I will look carefully at this report and compare it with my own analysis in The Dragon's Gift (updated for the 2011 paperback, just released in the UK) once I have a minute in the middle of end of semester demands and deadlines ... (how does Chris Blattman manage?!)

Chinese Aid and Luanda General Hospital in Angola: Still Falling Down?

2011-04-21T11:36:00.000-04:00


Angolan Cartoon: Crumbling Hospital

Last year we learned that Luanda General Hospital, built by Chinese company COVEC under China's aid program (not under China's multi-billion dollar line of oil-backed credit) had developed severe cracks and was closed, with patients living in tents on the grounds. A critical op-ed on Chinese engagement in Angola published recently in al-Jazeera by Angolan human rights activist and journalist Rafael Marques de Morais, led with this story, arguing that many Chinese projects in Angola had problems with quality.

It is not surprising that some of the hundreds of projects constructed between 2004 and the present under what has now become a $10 billion infrastructure program have problems. As Marques de Morais notes, Angola has weak monitoring and enforcement capacities and a lot of corruption: "After all, Brazilian and Portuguese construction companies have expertly exploited this environment for decades, leading Angolans to create a specific lexicon for the resulting public works: disposable roads, Styrofoam bridges, facade works, etc." China also has a lot of corruption in infrastructure at home, and infrastructure is known worldwide as a sector rife with corruption.

As we know, a Hong Kong based company, China International Fund, is also involved in infrastructure in Angola, although the Chinese government has officially distanced itself from CIF, telling Marques de Morais: “CIF is a company that has no construction record or credentials.” I wouldn't be surprised to find problems with infrastructure built under CIF.

But I was surprised about the hospital. As I noted in The Dragon's Gift, the Chinese have a long-term sense of responsibility for projects financed under their aid program (but not export credits) because aid is an important tool of diplomacy. Because of this, the quality of projects financed under the official aid program is usually very good, and these projects often seem to have life-time guarantees. I looked into what happened in the case of Angola's Luanda General Hospital. Here's what I found.

The decision to build the 100-bed $8 million Luanda General Hospital was made in 2002, and after tenders in China, COVEC won the bid and constructed the building between July 2004 and February 2006, " using 90 percent local labor." On his visit to Angola in 2006, Chinese Premier Wen Jiabao visited the hospital to officially open it. In June 2010 serious cracks developed in the walls. The patients were evacuated, the hospital was closed, and the Chinese government dispatched a team to investigate.

Their conclusion was that the problem was (the Chinese official claimed) partly Chinese and partly Angolan. According to the contract, apparently, the Angolans were supposed to provide geological survey data for the location, but this data was not accurate, and therefore the design by the Chinese architects was flawed. (Seems to me that given weak state capacity in Angola, this basic task should not have been left up to the Angolans.)

A Chinese official told me: "After several rounds of discussion both sides have reached consensus on how to address the problems. The Chinese side will build some temporary wards and sewage systems for patients to ensure the operation of the hospital. Then the maintenance work and expansion of the hospital will begin." The Chinese government will finance the new construction.

Will COVEC be given the job, or will another Chinese company do the work? That's not clear, but what is clear is that one messed-up hospital project has cast a particularly large shadow over hundreds of other less visible Chinese construction projects in Angola that do not seem -- so far -- to have had such dramatic flaws. Yet what is also clear is that the environment for construction in Angola, as Brazilian and Portuguese companies have found, tends to produce infrastructure with lives that are "nasty, brutish, and short". Perhaps it's time for a new international NGO to focus on monitoring transparency and accountability in public infrastructure projects. "Engineers (and Architects) without Borders"?

New York City Meets Warm Heart of Africa

2011-04-12T12:54:00.000-04:00

This has very little to do with China and Africa -- call it New York City and Africa -- but swamped as I am with grading papers, article deadlines, traveling to give talks, thinking what I will say during my seven minutes on a World Bank/IMF Annual Meeting panel this week, I want to share 3:42 minutes of escapism: a video of The Very Best's hit song Warm Heart of Africa with guest artist Ezra Koenig of Vampire Weekend joining Esau Mwamwaya of The Very Best. This sweet and jolly song combines pieces of my life (Columbia University and Malawi where my South African husband lived for five years). Enjoy.

Michael Gerson on "China's Aid Invasion"

2011-03-30T11:16:00.000-04:00


The Obamas with the Equatorial Guinean dictator.

This morning's Washington Post had a critical op-ed on China's aid (or is it investment? the online version has "investment" in the title, the print version says "aid") to Africa by conservative columnist Michael Gerson. While less hyperbolic than columns on China's "aid" by Freedom House and others over the past few years, Gerson nevertheless falls into some of the same pits: the double standard; and the mixing up of aid and business.

Gerson writes "in Africa today, America consistently promotes economic liberalization and good governance..." Just how consistently we do this is open to debate. For example, the US provided -- each year -- about $1.6 billion in aid (economic and military) to repressive Egypt under Mubarak.

Referring to China, Gerson says "African governments have a rich friend with low standards." I wonder how he would describe America's friendship with tiny, oil-rich Equatorial Guinea? Check out Harvard group Human Rights in Equatorial Guinea for a portrait of the deep problems with repression and torture in that country, or read Peter Maass's piece in Slate: "Who's Africa's Worst Dictator?". Yet as the BBC has noted,

"[t]he US finds it hard to criticise a country which is seen as an ally in a volatile, oil-rich region. In 2006, Secretary of State Condoleezza Rice hailed President Obiang as a "good friend" despite repeated criticism of his human rights and civil liberties record by her own department. More recently President Barack Obama posed for an official photograph with President Obiang at a New York reception."

There is plenty to criticize in China's human rights record at home, and plenty of room for improvement as Chinese leaders take uncertain and inconsistent steps toward being a "responsible great power". But let's get our own record straight, Mr. Gerson. Your op-eds will be more credible to Africans if you do so.

China's Oil Imports From Libya

2011-03-23T13:56:00.000-04:00

Source: http://www.economist.com/blogs/dailychart/2011/02/libyan_oil
Hat tip to Leo in Comments section

A Chinese student asked me today what China might learn from the Libya situation about the risks of investing in unstable countries. I mentioned that China's FDI investments in Libya are not large, although China does import oil produced in Libya. But how does China compare with other countries as a buyer of Libyan crude? A quick Google effort found the AP article below, which I have not verified with the source, the International Energy Agency.

Europe gets most of Libya's oil exports

By The Associated Press

Tuesday, February 22, 2011 at 12:55 p.m.

NEW YORK — Europe gets over 85 percent of Libya's crude exports. The rest goes to Asia, Australia and the U.S. Here's a breakdown of how much oil various countries import from Libya (in barrels per day) and the percentage of a country's total crude imports supplied by Libya.

-Italy: 376,000 (22 percent)

-France: 205,000 (16 percent)

-China: 150,000 (3 percent)

-Germany: 144,000 (8 percent)

-Spain: 136,000 (12 percent)

-United Kingdom: 95,000 (9 percent)

-Greece: 63,000 (15 percent)

-United States: 51,000 (0.5 percent)

-Austria: 31,000 (21 percent)

-Netherlands: 31,000 (2 percent)

-Portugal: 27,000 (11 percent)

-Switzerland: 17,000 (19 percent)

-Ireland: 14,000 (23 percent)

-Australia: 11,000. (2 percent)

(Source: International Energy Agency 2010 statistics)

The Associated Press

Origins of China's New Anti-Corruption Law

2011-03-22T12:01:00.000-04:00

The Chinese National People's Council has passed a landmark amendment to its corruption legislation that makes foreign corrupt practices illegal. Yesterday Ted Moran, blogging at the Center for Global Development attributed this move to efforts by a G-20 coalition. He wrote:

The Toronto Summit in June 2010 established a working group “to make comprehensive recommendations on how the G-20 can take practical steps to combat corruption.” During the Seoul Summit in November, a coalition of emerging market members of the working group (including Brazil, Argentina, South Africa, and Mexico) quietly joined with the United States to urge China to adopt an anti–foreign bribery law. That effort has now borne fruit!

I respect Ted Moran's knowledge of corporations (in fact I've assigned portions of his new book to my students). And it would be nice to think that Chinese legislation moves that quickly, or that the United States and the G-20's quiet urging led to this result.

Yet in fact, as I pointed out in a chapter written three years ago for Transparency International's Global Corruption Report 2009, "When China goes shopping abroad: new pressure for corporate integrity?" (p. 69), this amendment has been in the works for years:

Legal changes now under way may boost efforts to combat bribery by Chinese firms outside the country. China was a sponsor, and has signed and ratified, the UN Convention against Corruption (UNCAC), which stipulates that bribery overseas be made a crime. Chinese officials have repeatedly said that China will modify its laws to comply with all the convention’s obligations.14 In September 2007 China set up the National Corruption Prevention Bureau, tasked to improve international cooperation against corruption and fulfill China’s responsibilities as an UNCAC signatory. The agency was not made autonomous, however. In June 2008 the Communist Party’s Central Committee included the prohibition of commercial bribery overseas in its five-year anti-corruption work plan.15

I think we have the UN Convention Against Corruption (which was ratified and entered into force on December 14, 2005) to thank, and before that, the OECD Convention Against Corruption, not the quiet urging of the US or the G-20.

These Chinese reforms were already well under way before June 2010. It's important to get this analysis right if we want to understand how China's efforts to "go global" are likely to evolve, the factors that will influence them, the way the Chinese government works (still a work plan!) and the time involved in moving through reform.

Notes:
14 Li Jinzhang, vice minister of foreign affairs, statement at the First Conference of the State Parties to the UN Convention against Corruption, Amman, Jordan, 10 December 2006; Caijing Magazine (China), 25 July 2007.
15 Central Committee of the Chinese Communist Party, ‘Work Proposal of Establishing and Improving the Anti-corruption System 2008–2012’, June 2008.

China and Libya: Update on Workers

2011-03-15T23:52:00.000-04:00

Bangladeshi workers stranded in Libya. Photo: AFP

Last week I posted on China and Libya, highlighting the challenge of Chinese companies employing Chinese workers and the backlash against this. A reader forwarded me an article from a Bangladeshi newspaper, The Daily Star, that puts China's actions into comparative perspective. Where the Chinese government has moved in ships and planes to evacuate the 30-36,000 Chinese working in Libya (most as laborers), Bangladesh has done little to ease the plight of what appears to be anywhere from 45,000 to 60,000 Bangladeshi workers stranded in Libya. According to the article, "a Chinese company moved 804 Bangladeshi workers to Greece from Libya on Sunday."

An October 2008 article in Libyaonline.com provided some history on the Libyan government's policy of recruiting labor abroad. Then, the Libyan government had "directed foreign companies from Germany, Japan and South Korea working in Libya as well as [the] Libyan private sector to recruit workers from Bangladesh." I haven't seen any major newspapers asking whether the instability in Libya would make Bangladesh rethink its labor export strategy...

The Human Side of China's "Economic Invasion" of Africa

2011-03-08T10:47:00.000-05:00

Engineer Liu Hui & Kenyan workers: Sven Torfinn/Panos Pictures

If you overlook the title, "China's Economic Invasion of Africa," you'll enjoy a well-done and interesting story by Xan Rice in The Guardian's Sunday, February 6, 2011 issue. It contains great interviews of individual Chinese entrepreneurs and corporate managers who have come to do business or seek their fortunes in African countries.

Here's one quotation from a Chinese entrepreneur who, Rice writes, "is aware that western attitudes to China's push into Africa remain largely negative – something he struggles to understand."

"Western countries also buy oil, and have mines around the world. People don't talk about 'grabbing', or 'new colonialism' there. So why is it different for Chinese? We are not sending our armies to places and saying: 'Now sell us this!'" Xu says. "If you can't compete with us, you find an excuse. It's like two children fighting, and the losing one crying to his parent about funny tricks."

Some of those funny tricks might involve practices that have been outlawed in the West under laws like the US Foreign Corrupt Practices Act and the OECD Convention on Corruption. These are not always observed by Western companies, but at least they serve as an important signal of a liberal normative consensus. China has no comparative law.

It was particularly interesting to me that the story begins with Zhang Hao, the son of a man who worked on one of China's foreign aid-financed development projects -- a fishing project on Lake Victoria that I wrote about in The Dragon's Gift. After spending time there himself as an aid worker, Hao's father encouraged him to explore business opportunities in Uganda.

A hat tip to Li Anshan's Centre for African Studies at Peking University.

China and Libya: What's the Real Story?

2011-03-04T15:38:00.000-05:00

Chinese evacuees in Malta. Dmitry Solovyov / NBC News

In recent days, the unrest in Libya and attacks on the many Chinese projects there, have raised questions about the impact this will have on China's quest for natural resources in unstable states. I think this focus is surprisingly off-track. What should we be learning about Chinese strategy from the Libyan engagement?

(1) China joins in United Nations sanctions. First, there has been relatively little comment about a rather extraordinary step: on February 26, the Chinese joined with other Security Council members at the UN in approving Security Council Resolution 1970 which imposed immediate sanctions on the government of Muammer Gaddafi. This move put into place an international arms embargo and targeted "smart sanctions" on key individuals, and refers the matter to the International Criminal Court for possible prosecution. Given Chinese reluctance to support intervention into "internal affairs" of other states, this move marks yet another step toward China's coming of age as a global power. It's something we can applaud.

(2) China's investment in Libyan oil is actually quite modest, while Western companies are major players. As William J. Hudson, acting deputy assistant secretary in the Bureau for Near Eastern Affairs, told Congress in 2009: "I'm happy to report that US oil companies are the most active there, and Libyans are eager to use their technology. The Chinese are participating, but our countries [sic] are taking the lead" (Snow 2009).

ENI (Italy), Occidental (USA), and Petro-Canada and BP, Hess, Marathon, Conoco-Phillips, ChevronTexaco, and others have been key players in Libya. Italy, Germany, Spain, and France have been Libya's major markets for its oil. Although the US imposed sanctions on Libya after the Lockerbie airline bombing tragedy, not all European countries followed suit; US sanctions ended in 2004. Check out the Wikileaks website for the Libya cables and extensive discussion of all of this. (A good place to start is here.)

China's efforts to invest further in Libyan oil and gas were rebuffed in September 2009 when Libya vetoed CNPC's $US462 million bid for Verenex Energy, whose assets were Libya-dominated. Chinese oil and gas operations employed only around 400 Chinese nationals, another sign of their small size.

(3) For China, the problems posed by the popular uprising in Libya are far more about Chinese construction projects and their use of Chinese labor, than Chinese companies' oil investments. Over the past four years, China State Construction Engineering Corporation (CSCEC) has itself signed at least $2.67 billion of construction contracts in Libya. In 2008 alone, Chinese companies signed US$10.05 billion in contracts for 180 construction, engineering and labor service projects in Libya (they also reported turnover of US$750 million, which suggests most of these projects started fairly recently). This was far larger than any other location in Africa.

Construction firms doing projects in telecoms, railways, and other infrastructure, seem to have employed some 36,000 Chinese workers. This was bound to raise resentment from Libya's unemployed youth. Despite high levels of unemployment, wages are also high in Libya, and few local workers speak foreign languages. Comments on a Tripoli Post story on this issue suggest that use of foreign workers is a widespread response by foreign companies in Libya. Despite this, many Libyans do find employment in this sector. The Economist Intelligence Unit's 2008 report on Libya cited the Monitor Group, a US consulting firm, which estimated in 2005 that some 600,000 to 800,000 people were employed in Libya's construction industry. It is likely that the vast majority of these people were Libyan. But the attacks on Chinese work camps in Libya bring home the risks of a business plan that relies on imported labor in repressive states with high unemployment.

References:

Nick Snow, "Local approaches may help US in oil-rich areas overseas," Oil & Gas Journal, July 27, 2009.

China's Special Economic Zones in Africa

2011-02-26T13:05:00.000-05:00

Outside a Chinese residential project near Addis (not the Zone).

Last week I was in Ethiopia for a quick trip with the China-DAC Study Group, a two year effort to build bridges between China, OECD countries and African countries in the broad area of development assistance. I had a chance to visit the Chinese Eastern Industry Zone (thank you, Michael!), probably the slowest of the six zones in Africa to get going, but which is moving ahead quickly now. The single factory on site, a cement factory, is owned by the zone developers, and apparently profits from the factory are helping them overcome capital shortages experienced in earlier years, enabling the infra. The two photos below show the sign at the entrance to the zone, and the factory shells being constructed by the developers, which will be rented out to other industrialists.

If you're interested in learning more about these zones, the Journal of Modern African Studies (January 2011) has just published an article I wrote with Tang Xiaoyang: "African Shenzhen: China's Special Economic Zones in Africa." This is based on our fieldwork between 2007 and 2009 covering all six official African zones (Mauritius-JinFei; Nigeria-Ogun; Nigeria-Lekki; Zambia-Chambishi/Lusaka; Egypt-Suez; Ethiopia-Eastern). Here's the abstract:

Industrial sites being constructed at the Eastern Zone

Abstract: "This article examines recent Chinese efforts to construct a series of official economic cooperation zones in Africa. These zones are a central platform in China’s announced strategy of engagement in Africa as ‘mutual benefit’. We analyse the background, motives and implementation of the zones, and argue that they form a unique, experimental model of development cooperation in Africa : market-based decisions and investment by Chinese companies are combined with support and subsidies from an Asian ‘developmental state ’. Though this cooperation provides a promising new approach to sustainable industrialisation, we also identify serious political, economic and social challenges. Inadequate local learning and local participation could affect the ability of the zones to catalyse African industrialisation. The synergy between Chinese enterprises, the Chinese government and African governments has been evolving through practice. A case study of Egypt provides insight into this learning process."

2011-02-12T15:30:00.000-05:00

The Elcano Royal Institute/Real Instituto Elcano, a Spanish think tank, has just published a short article of mine, "China in Africa: Seven Myths." Here's an overview:

"Sensationalism and rumours cloud our ability to understand China’s growing engagement in Africa. Many of the fears about Chinese aid and engagement in Africa are misinformed. This paper unpacks seven myths: (1) ‘China is a newcomer to Africa’; (2) ‘China targets pariah regimes’; (3) ‘China hurts the West’s efforts to build democracy’; (4) ‘Chinese aid is huge’; (5) ‘Chinese aid is mainly used to win access to resources’; (6) ‘China is sending millions of farmers to Africa, leading the land grab’; and (7) ‘Chinese companies bring in all their own workers’.

While China’s rise in Africa is cause for some concern, efforts to gain a more realistic picture should help Africans and their other development partners to craft appropriate responses." Click here to continue.

Being a Constructive Critic: "China's Growing Role in African Peace and Security"

2011-01-28T12:19:00.000-05:00

photocredit: japanfocus.org

On being a "constructive critic": Saferworld, a UK-based non-governmental organization, has just released their report on China's Growing Role in African Peace and Security. They sent me a copy last week.

I read the Executive Summary, which seems overall to be a balanced and helpful treatment. I'm not (at all) an expert in the security area: I always recommend Ian Taylor's excellent work. However, the report frames Chinese security engagement within Chinese engagement more broadly, and here there are a few mistakes. Below, my comments to the authors:

It looks good! There were a few areas where I saw some room for improvement:
p. 1 "China ... has started to deliver development assistance..."
As you know, I'm sure, China "started" to deliver aid to sub-Saharan Africa around 1960. Recently aid has increased, but it's still fairly modest and not new. This is important because it helps dispel the myth that China just arrived as part of a desperate search for resources. This engagement is much more complex.
p. ii. "China has developed close relationships with African regimes that the international community, or more specifically, Western countries, only engage
with in a manner that is conditional on improvements in governance."
Perhaps you mean Western governments only provide aid "in a manner that is conditional on improvements in governance"? (even this is debatable: see Egypt for example...). Western companies have lots of engagement except when specifically banned, which is extremely rare (Sudan). And Western governments "engage" with all sorts of poorly-governed and/or non-democratic countries: Angola, Nigeria; Egypt; Chad; DRC; Guinea; Equatorial Guinea ... and even Sudan and Zimbabwe.

One statement is quite inaccurate:
p. ix "As part of China’s wider participation in Africa’s infrastructure development, Chinese finance and companies had been involved in the construction of 25 dams in Africa by 2008."
I've seen the report you cite. The authors did a good job of compiling media reports. However, the figure of 25 is far from the real story.

Here's how these 25 projects break down: 4 refer to projects, usually quite small, completed between 1982 and 1996; 3 refer to repairs or expansions of hydropower plants (i.e. new turbines, etc.), not dams; 3 have construction contracts signed recently & seem to have financing lined up, but haven't started construction & so could still fall apart (Ethiopia-Neshi; Togo-Adjarala; Gabon-Grand Poubara); 10 appear at the present moment to have been MOUs or expressions of interest that went nowhere; as of 2011 only 5 of the listed projects are dams currently under construction or completed recently (Ethiopia-Tekeze; Ghana-Bui; Congo-Imboulou; Sudan-Merowe; Botswana-Dikgatlhong).

Some of these points are small, but as you know, as a constructive critic, it's important to present things as accurately as possible -- it shows you know what you're talking about, and this matters for Chinese readers as well as us in the West.

Understanding China

2011-01-17T12:46:00.000-05:00

As Washington prepares for Hu Jintao's state visit, two excellent and short articles that help set the stage for understanding "how China thinks":

James Fallows in The Atlantic January 16, 2011 on "Imagining America as China": a thought experiment that does an excellent job of showing the sheer scale of China. A hat-tip to Chris Blattman.
Henry Kissinger (yes, I'm surprising to find myself agreeing completely with this craggy old realist). In the Washington Post, January 14, 2011: "Avoiding a US-China Cold War." A thoughtful, large-picture view of our quite different paths to the present.

Wikileaks: What Do the China-Africa Cables Really Tell Us?

2011-01-16T18:27:00.000-05:00

Chinese President Hu Jintao and President Kibaki of Kenya

Hu Jintao is heading to Washington. We're not sure what will be on the agenda, but we do know that China's engagement in Africa is a source of some concern for the US government. We've all see that Ambassador Johnnie Carson believes that China has "no morals" in Africa. But a closer look at the Wikileaks cables reveals some surprises about China, the US, and at least some parts of Africa. Ryan Briggs and I discuss this at the Royal African Society's African Arguments.

Has China's Export Financing Met Its Match?

2011-01-14T16:37:00.000-05:00

photo: a train in Pakistan: but is it GE or Chinese?

A fascinating new development in the dry area of export financing: we learn that for the first time, the US Eximbank has matched China Eximbank's terms for export financing. John Pomfret reports for the Washington Post on the case of GE's effort to win a tender for train exports to Pakistan. GE was about to give up:

After all, China was a powerful competitor that routinely offered low-cost financing - below-market interest rates, easy repayment terms - that cut tens of millions of dollars off the bottom line of its international deals.
But in a case that underscores a significant shift in how the United States and the rest of the developed world are dealing with the challenge of China's economic might, the U.S. Ex-Im Bank decided to fight back. In February of last year, U.S. Ex-Im informed Pakistan's Ministry of Railways that it would take the unprecedented step of matching China's below-market-rate financing terms.

GE won the contract.

"There's a new willingness to take on China, to compete toe-to-toe with China on financial terms," said Fred Hochberg, the chairman of the Ex-Im Bank. "This is a policy change that we will compete with anyone who's not compliant."

In an interview with the Wall Street Journal, Hochberg confirmed this view: "They're winning deals in part because they're not playing by the rules." Although the US administration positioned this action as a move against China, which was not "playing by the rules" it's important to point out that the rules China was not playing by are a voluntary "Arrangement on Officially Supported Export Credits" set by the elite membership of the OECD, an organization of wealthy states that does not include China.

The rules apply only to other OECD members. Why should China abide by these rules?

This is a positive development. The US has long pressed other wealthy exporting powers to adhere to common rules in order to try and create a level playing field. Yet the rise of the BRICs now makes the choice of the OECD as the arena for rule-making seem quaintly obsolete. If we want to get China and the other BRICs to play by the wealthy countries' rules, we do need to create incentives. Now, in a tiny way, Chinese companies can feel the pain of being outside. But more importantly (and urgently), we need to have an arena in which these negotiations can take place.

Pomfret gets one thing wrong, I think. He suggests that the Chinese are using "foreign aid" in these deals, and that the US must use its foreign aid "to serve diplomatic or strategic goals" but that China's Ministry of Commerce dispenses foreign aid, with the purpose of "making money for China." First, it isn't foreign aid funds, but export credits that we're talking about, and they are not being disbursed by the Ministry of Commerce but by the China Export-Import Bank. We have the same kind of agency, the US Eximbank, and that's the relevant comparison: both were set up to "make money" for their owners' companies. I doubt if the US Eximbank got a tranche of finance from USAID for the train deal.

What were the actual terms for the contract? We learn from Pomfret that "Instead of fees of up to 21 percent of the contract, the United States said it would charge Pakistan 8 percent. Repayment was stretched from 10 years to 12." Charging fees of 21 percent, no wonder we're losing out to China! From the Wall Street Journal, we learn that the interest rate charged by the US Eximbank will be based on Treasury bond yields (now about 3 %), but we don't learn what the margin over T-bonds will be. I will try to find this out, but I doubt if the US Eximbank will be any more transparent on this than China's Eximbank.

Murder of Chinese Manager at Zambian Mine

2011-01-13T00:00:00.000-05:00

Henry Hall, at China Africa News, posted this thoughtful comment on his blog after reading about the sentencing of a Zambian worker from the Chinese-owned Collum coal mine, which has been in the news recently. Apparently, a year ago, a Chinese manager at the Collum mine was murdered by one of the workers, This worker has now received the death penalty. Henry Hall caught the story and begins his comment with a reference to the Collum coal mine:

... where Chinese managers injured a number of workers late in 2010. What I did not see reported at the time however, was that a Chinese manager had been killed by a Zambian worker as recently as February of last year. Although this in no way excuses the actions of the Chinese managers, it certainly seems relevant to the discussion. It again highlights Beijing's failure to properly manage the media impact of their African misadventures.

I also thought this report was sad and revealing. Sad because clearly the Collum coal mine is a place with deeply troubled labor relations, problems that apparently drove one man to murder. And revealing because I could not find anything else online about the killing of a Chinese manager by a Zambian worker. Did it really happen? Wasn't it considered news?

For a collection of stories on the shooting of Zambians by two Chinese managers in October 2010, including a link to a Chinese investigative reporter's story, see China Digital Times.

How Many Chinese Workers?

2011-01-10T17:23:00.000-05:00

Senegalese & Chinese. AFP for the BBC

Since the late 1970s, the Chinese government has promoted labor exports to earn foreign exchange and provide employment opportunities. Yes, there are thousands of Chinese working overseas today, over 700,000 by official count -- mainly not in Africa, but in Hong Kong, Asia and the Middle East. Yet the popular idea that Chinese companies bring in all their own workers and refuse to hire Africans is not true. The photo to the right could be duplicated in dozens of African countries.

But what is the ratio of Africans to Chinese workers on Chinese projects in Africa? What cases, if any, do we find of Africans being hired in management positions on a Chinese investment or project? Are Chinese-speaking Africans breaking into this area?

I will be maintaining a page on this blog, Chinese Workers in Africa, in which I will collect anecdotes on the ratio of Chinese to African workers on projects and investments. If you work on, or visit a Chinese project in Africa, post here with a line with the ratio, verified, if possible, with local officials, particularly trade unions. I'll update the page regularly. While I wouldn't want to do multiple regressions using these anecdotes, they may help to shed some light on this not well understood issue. Many thanks.

US Far Outstrips China in Arms Sales to Dictators

2011-01-03T20:36:00.000-05:00

Kristin Jones reports for the South China Morning Post on the surprising result of a new Norwegian study that examined US versus Chinese arms exports. She also quotes some of my reservations on the study's methodology:

US far outstrips China in arms sales to dictators

Kristin Jones in New York
Jan 03, 2011

When it comes to arming autocrats in Africa, upstart China is no match for the United States, a study of arms exports finds.

China's sales of weapons to dictatorial regimes such as Sudan and Zimbabwe have sparked outrage from human rights advocates, academics and officials in the West. Some say that Beijing is undermining the development of democracy and rights in Africa.

In a State Department cable recently released by WikiLeaks, the top US diplomat for Africa, Johnnie Carson, summed up the basic sentiment for an audience of oil executives in Lagos, Nigeria, in February last year when he noted: "China is a very aggressive and pernicious economic competitor with no morals."

But compared with the US, China actually shows a preference for relatively democratic clients such as Zambia and Namibia, according to a review of arms transfers from the end of the cold war until 2006.

And morals or not, the US tends to favour autocrats and human rights abusers - most notably its ally Egypt.

"The US is promoting its strategic interests even if it means promoting authoritarian regimes, while China is more interested in economic relationships," said Paul Midford, who co-authored the study with Indra de Soysa using data compiled by the Stockholm International Peace Research Institute.

The findings turned common wisdom on its head, said Barry Sautman, a political scientist at Hong Kong University of Science and Technology.

"People naturally assume that because China is an authoritarian state, it will want to sell arms to other authoritarian states, and that the US will do the opposite," Sautman said.
The actual record is more complicated. In Sudan, a state with an egregious record of atrocities against its people, China has indeed supplied weaponry. But it is not the most important supplier of arms, the authors note. From 2001 to 2008, as international attention to China's involvement in Sudan grew, Russia sold five times more arms to Khartoum, according to the Stockholm data.

More of China's arms went to Egypt - its biggest market in Africa. But there, Beijing's sales were dwarfed by the US. From 1989 to 2006, the US provided Egypt with billions of dollars worth of fighter jets, tanks, missiles and other arms.

Hosni Mubarak, Egypt's president, has ruled since 1981 under "emergency" law that allows the government to detain people without charge. Torture by police and security forces is routine.

"This is not to excuse Chinese arms sales to undemocratic or human rights-violating regimes," says Ian Taylor, a professor of international relations at the University of St Andrews who has written about China's role in Africa. "But we need to remember that firstly, China is not the worst culprit in this - the United States is, by far."

The Stockholm data includes sales of things like tanks, military helicopters, and fighter aircraft. But it doesn't include small arms and dual-use equipment, which are often sold through brokers rather than by direct government-to-government arrangements.

This omission was significant, said Deborah Brautigam, an expert in China-Africa relations at American University in Washington DC. Small arms, including AK-47s and ammunition, comprised the bulk of Chinese weaponry sold in places like Zimbabwe. And the trend, she added, may be towards more Chinese arms sales across Africa - not fewer.

The authors might have come up with different results, she suggested, by looking at a shorter and more recent time span.

"China's export of arms, like all its other exports, are likely on a sharp rise year by year," Brautigam said.

But Chinese arms sales did not signify an effort to challenge values like rights and democracy, Brautigam and other specialists said.

To those who had painted a picture of an emergent superpower that sought to create a "Beijing consensus" of authoritarian states, the data from Stockholm illustrated that "there may not be anything to that", Sautman said.

Midford and de Soysa are both political science professors at the Norwegian University of Science and Technology. Their research was initially presented at an international studies conference in New Orleans in February, and is under review for publication in an academic journal.

2010-12-29T16:56:00.000-05:00

The Dragon's Gift: The Real Story of China in Africa was just chosen as one of Zocalo Public Square's Top 10 Books of 2010:

Brautigam provides a new way to see China’s economic growth, offering context for all the fearful headlines about its relationships with African countries.

Thanks, Zocalo -- "the website that connects people to ideas and to each other".

Click here to read Zocalo's full review of The Dragon's Gift.

China-Africa Economic and Trade Cooperation White Paper

2010-12-29T12:53:00.000-05:00

I've been getting calls these days from journalists who want to discuss "China-Africa Economic and Trade Cooperation," the new white paper produced by the Chinese government. Some say they find it fascinating. For anyone who has been following these issues closely, there is little new in the paper, which serves as a progress report on trade, investment, and aid. The report refers regularly to "China" and "Africa" as though these are two separate states (sometimes it mentions "African countries"). I sympathize with this; it's all too easy to slip into discussions of China and Africa as though the continent and the country are two equal partners.

The report does contain two new pieces of data from the notoriously untransparent Chinese government:

(1) Chinese FDI in African manufacturing. The report carries the first official statistics on the distribution of Chinese investment in Africa by sector that I have seen since about 2000 (see the chart that accompanies this article). Data on Chinese FDI needs to be viewed with some skepticism. I pointed out why in an earlier blog posting here. However, data is far more likely to be under-reported than over. Keeping this in mind, the report notes that by the end of 2009, accumulated manufacturing investment in Africa came to 22% of the total. This would make it $2 billion, at a minimum. Clearly, Chinese manufacturers are interested in investing in Africa. This data fits well with what I have seen, and the arguments I have made in The Dragon's Gift and "'Flying Geese' or 'Hidden Dragon'?

(2) Debt cancellation. Between 2000 and 2009, the Chinese government has canceled an accumulated 18.96 billion RMB yuan (about $2.8 billion at an exchange rate of 6.8 RMB to the dollar) of debt for 35 African countries. This is interesting to me, as it shows a slowdown in debt cancellations over time. It reinforces my conclusion that the debt cancellations were only (as announced by the Chinese) about the old, overdue, zero-interest foreign aid loans, and not the new concessional and/or market-rate loans provided by the China Eximbank. As far as I've seen none of those loans has been canceled.

The report provides data on African investment in China, which, it says, amounts to an accumulated $9.93 billion. Although African entrepreneurs in South Africa, Mauritius, and elsewhere have been investing in China, this relatively large figure includes investment that transits through the Indian Ocean island of Mauritius, which hosts a popular offshore financial center. This FDI, which is then labeled as coming from Africa via "Mauritius" is more likely to be from Chinese domestic investors who are "round-tripping" in order to take advantage of incentives for foreign investment. A similar dynamic has made "Mauritius" appear to be the largest foreign investor in India.

On a minor note, the report shows that Chinese translators are not immune to mistakes common in the Western media. For example, at several points the report's translators mistakenly substituted "Libya" for "Liberia" as in the discussion of a Chinese vocational technical center being provided for "post-war Libya". In fact, the Chinese are building a Liberian vocational training center on the outskirts of Monrovia at Gardinersville, on the site of the previous MVTC.

China's Resource-backed Weapons Exports: Norinco

2010-12-27T16:55:00.001-05:00

book cover: Harper Collins

My nighttime recreational reading these days is Richard McGregor's The Party: The Secret World of China's Communist Rulers. I've not seen much yet in the book that sheds new light on China's engagement in Africa, with one interesting exception. In a chapter on the Party and the military (in which McGregor notes that the "heroic frontier business exploits" of the People's Liberation Army are now "a thing of the past") he gives an example of a business deal forged in Iraq in connection with the Iran-Iraq war (1980-1988).

Apparently Iraq bought weapons from China during the war, on credit, but couldn't repay. This unpaid debt and negotiations seem to have dragged on for years. Finally, McGregor reports, on p. 116: "it was paid in kind in 1996 by offering PetroChina a $1.2 billion oil concession in tandem with Norinco, a state-owned weapons manufacturer. The US ousting of Saddam Hussein delayed the project, and work did not begin on it until 2009."

The use of commodities to secure or repay export credits has a long history in China. As I pointed out in The Dragon's Gift, Japan used this system to finance its early exports and turn-key projects in China back in the 1970s.

We know that Norinco has been involved in military sales in Zimbabwe. Rumors are that the Zimbabwe government secured these military export purchases with chromium concessions. In 2006, Norinco formed a joint venture with Zimbabwe Defense Industries (20%) and ZMDC (20%) to explore for chromite in Zimbabwe's Great Dyke. A similar story crops up surrounding Norinco's arms sales in Burma which seem to have been paid for with a copper concession. Does anyone have evidence on Norinco (or other Chinese companies') involvement in other cases like this in Africa?

From what I can see, the Zimbabwe and Burma stories have consistent details and appear to be valid. The Chinese export finance model we have seen at work in places like Angola -- commodity-backed infrastructure loans -- should be seen as one option in a broader model of commodity-secured export and project credits. In the Iraq case, repayment in resources did not appear to be the first choice of either party, but rather something resorted to when conventional repayment failed.

Does Norinco now sell weapons in order to gain access to resources? I doubt it, given the complications and riskiness of this kind of deal. But the lack of transparency and the extreme weakness of governance in the countries where these contracts are being signed, add another problematic layer to the already odious combination of debt, weapons, and natural resources.

Moises Naim and the $9 Billion Dollar Myth

2010-12-22T16:45:00.000-05:00

Moises Naim (photo: le livre noir de l'economie)

This week in an Indian opinion piece on India-China rivalry, I read yet another reference to a myth first circulated (I think) by Moises Naim, editor of Foreign Policy, and then picked up by Fareed Zakaria. Here's how the story was told today:

"In his book The Post-American World, Fareed Zakaria quotes Moises Naim, editor of Foreign Policy magazine, telling a story about the Nigerian Government negotiating a $5 million loan for train systems with the World Bank in 2007. The bank had insisted that the Government clean up the notoriously corrupt railway bureaucracy before it approved the loan. The deal was almost done when the Chinese stepped in and offered the Government a whopping $9 billion loan to rebuild the entire train system — with no democratic and human rights strings attached. The World Bank was sent home within days! This is how China works."

This is a great story. The only problem is (as I point out in The Dragon's Gift): it never happened.

I don't mean to impugn Moises Naim's veracity. No doubt someone from the World Bank did tell him this tall tale. But because he seems to have liked the story, he never checked the facts. In fact, this is not how China works, and repeating this fictional story only helps cloud our understanding of Chinese engagement in resource-rich countries in Africa.

What really happened -- as just a little research would have revealed -- was this: a Chinese company (CCECC) won an $8.3 billion contract to rebuild the Lagos-Kano railway. The Chinese government had offered a line of export credit for $2 billion at a competitive commercial rate, and a preferential export credit for $500 million. The Nigerian government discussed a number of projects that might have benefited from these tied credits, not just the railway. At the end of the day (as Nigerians are fond of saying), the $2 billion credit was never used and expired. The railway contract was suspended, and the $500 million preferential credit was renewed, and is likely being used today to fund a much smaller railway project. More on this

China's "Rogue Aid": Japan Times

2010-12-19T16:55:00.000-05:00

The Wikileaked documents have spawned a number of stories on China and Africa. Here's one from Japan Times that offers up some interesting insights, but that also gets a bit garbled, particularly the part that purports to discuss my book, The Dragon's Gift. The headline ("Pernicious 'rogue' offers of aid") is calculated to push the "China threat" button, even if, as in this case, the reporter's story itself is fairly balanced.

One of the myths that circulates widely (and is repeated without question in this story) comes from a much-criticized report on Chinese aid prepared by the US Congressional Research Service. According to the Japan Times:

A U.S. congressional report last year quoted research showing that total Chinese aid in 2007 was $25 billion. Aid to Africa in the 2002-2007 period was more than $33 billion.

As I've noted on this blog before, these estimates are so preposterous that they should simply be treated as amusing, a funny story, except that they were presented to the US Congress as serious. Here's the inside story: what was the "research" quoted by the CRS report? A background paper on "Chinese aid" done as a class project by a group of graduate students from NYU. The students, perhaps encouraged by the researchers, decided to count every media report of a flow of finance from a Chinese entity into Africa, Latin America, or Asia as "aid". They lumped together grants, official and commercial bank loans, export credits, supplier finance, foreign direct investment, and so on. As long as it had some link to the Chinese government (i.e. it was from a state-owned bank or company) they added it to their database and called it "aid".

This methodology has two obvious problems. First, investment, export credits, supplier finance, etc., is not "aid" but commercial in nature, and should not be counted as official development assistance. Second, the fraction of projects mentioned in the media that actually go forward is small, no matter who is financing them. This overstates the size of Chinese engagement. While the CRS report claimed that China gave $25 billion in "aid" to Africa in 2007, by my estimates, the real figure of official aid disbursed in 2007 was less than 5 percent of that.

2010-12-16T16:10:00.000-05:00

The ever-interesting economist Professor Chris Blattman comments on "China: Not Playing By the Rules?" in his blog, chrisblattman.com:

In a front page headline today, the New York Times comes to the rescue of Gamesa, a Spanish company producing wind turbines in the nefarious Middle Kingdom.

The NY Times was reporting on Gamesa's complaint that Chinese companies are not playing by the rules, but taking advantage of government support. Blattman continues:

State subsidies and policies to foster infant industries at the expense of foreign competitors. This sounds almost like the dark and nefarious practices followed by… Spain.

Personally I see nothing dark or nefarious here. This is good old fashioned industrial policy at work. How else do we expect poorer countries to converge to riches? Innovate on the frontier? I am an amateur economic historian at best, but here’s my opinion: almost never been done.

China’s story today sounds a lot like continental Europe in the early 19th century, Japan after the Meiji Restoration, and the Asian Tigers in the 20th. Go back two hundred years and you can find the British press enraged with the same complaints as they lose their textile industry to that backwards backwater, France.

I remember well the same complaints made about Taiwanese copying when I lived in Taipei in 1979-80. Blattman points out that while suffering from "unfair Chinese competition", Gamesa had still managed to double its sales of wind turbines in China. Click here to continue.

China's DRC Roads Redux

2010-12-13T11:17:00.000-05:00

Chinese road construction in DRC. photo Kilogold.net

While searching for an update on China's multi-billion infrastructure contract in the DRC, I came across a blog posting on the website of a Canadian company, Kilo Goldmines, Ltd., which had a photo of Chinese road construction in the DRC (right). Accompanying it was this note:

"While there are critics of this deal and pundits who claim this is the 'second colonisation' of the DRC, this barter deal is widely seen as a key catalyst to help jump start the economy and rebuild core infrastructure that has been neglected for decades. Kilo is a primary beneficiary of some of this newly developed infrastructure including rehabilitated roads around its Somituri project."

Chinese Refineries in Nigeria, Chad, Niger & Ghana: The Sudan Model?

2010-12-11T13:11:00.000-05:00

Khartoum Refinery. photo credit: KRCSD.com

We've read recently about Chinese offers and deals to build refineries in African countries: Nigeria, Chad, and Niger and in Ghana, alumina, (but perhaps oil in the future). Not all of these deals have been concluded or financed, but we can learn something about the probable structure of the deals by revisiting the first of these: the Khartoum Refinery, a joint venture between the government of Sudan and China National Petroleum Corporation (CNPC), which opened in June 1998.

This refinery was financed by CNPC (there is no mention of China Eximbank, which was still a relatively small player in the 1990s), probably through a supplier's credit. According to a 2002 report by the IMF, the financing was secured by crude oil exports -- not access to a new concession, but as a guarantee.

At first, the debt service payments for the refinery were non-transparent, i.e. not included in the government's budget. The IMF made greater transparency a condition, and by 2002, as the Fund noted, Sudan's "budget now fully incorporates the debt service payments for the construction of the Khartoum refinery" (p. 21).

The IMF and the World Bank were concerned that Sudan had scaled back on debt payments owed to their two institutions in 2001. The value of Sudan's crude oil exports amounted to US$1.3 billion in 2001 (p. 10), but much of this value belonged to Sudan's foreign investors. In 2002, Sudan's net foreign exchange receipts were projected to be only around $120 million. Debt service for the refinery (which mainly supplied Sudan and its neighbors, including Ethiopia) amounted to $60 million annually. This left only about $60 million "for payments to the World Bank, the Fund, and other creditors (p. 38, n. 22)."

How did CNPC step ahead of the IMF and the World Bank, who are generally recognized as any borrower's "preferred creditors" (i.e. they are supposed to be paid first)? The debt service on the Khartoum refinery was fully secured by Sudan's crude oil exports. As the IMF noted, if debt service was not met, "the CNPC has the right to lift the equivalent amount of crude oil in kind. Nonpayment is thus not a realistic option (ibid)." Through securing its credit by crude oil, CNPC effectively became Sudan's most preferred creditor.

In its letter to the IMF, Sudan noted that in addition to including the repayments for the refinery in the budget, i.e. making it all more transparent, it planned to "implement a system that will ensure cash payment, as budgeted, of oil collateralized debt service payments in order to avoid in-kind lifting, thus further increasing transparency of oil revenues and avoiding distortion of oil delivery obligations" (p. 68). This was implemented.

What can Nigeria, Chad, Niger and Ghana learn from Sudan's experience?

First, clearly, securing the refinery with future oil revenues (and, perhaps, having Chinese managers) allowed Sudan to refine its own products rather than exporting crude and importing refined products, which is what Nigeria does today as a result of its failure to keep its refineries working. (We don't know how profitable/cost-effective the Chinese-built Khartoum Refinery, is in comparison with other, similar refineries. This information would be useful for countries contemplating similar arrangements.)

Second, be transparent. If a poorly governed country like Sudan can practice budget transparency for Chinese finance, there's no reason why others can't.

Third, price your domestic petroleum sales at or even above the market, as Sudan has done, in order to keep the petroleum sector above water and repay your creditors. Nigeria has far to go in this regard.

Fourth, you may be able to get away with the preferred creditor arrangement, but it won't be a walk in the park. It's easy to see from this why the IMF and the World Bank dislike the Chinese model of commodity-secured credits. They do effectively enable Chinese creditors to step ahead of the IMF and the World Bank in having Chinese credits repaid. This was one of the issues in the long stand-off over the $9 billion Chinese credit to the DRC.

Finally, keep in mind that by tying up your future revenues, you could at some point find yourself so squeezed that half of your net foreign exchange earnings are tied up in payments for just one project, as in Sudan.

Ghana's New China Deals: What's the Real Story?

2010-11-07T14:17:00.000-05:00

Ghana and China presidents toast deal: WSJ photo credit

We've heard a lot recently about the new multi-billion deals signed between Ghana and several Chinese banks, including China Development Bank (US$3 billion) and China Eximbank (US$5.9 billion for 19 infrastructure projects). Yet a lot is still murky, including the actual value of these agreements, and how they are linked to Ghana's new oil and gas resources.

On September 22, 2010, Reuters reported a phone interview with Ghana's deputy finance minister in Beijing, who appeared to put the China Eximbank credit figure alone at US$9.87 billion, A separate story on the Government of Ghana's official website September 22, 2010 reported the Eximbank credit at $10.4 billion and said that it was "concessionary"). Now the story appears to have changed.

Here is a link to the October 26, 2010 Government of Ghana's official press release about these deals.

(1) According to this official press release, the total line of credit amount is less than the $13 billion we were reading about in the papers: still $3 billion from CDB but "only" $5.9 billion from Eximbank, or a total of $8.9 billion).

(2) Interesting capacity-building and knowledge transfer plans are built into the agreement, for example: "The Framework Agreement entered into with the China Development Bank also makes provision for the CDB to share and transfer knowledge to the [Ghana] National Development Planning Commission on the lessons and experience gained in the application of project financing arrangements to the planning and implementation of infrastructure projects through multi-year investment rolling plans."

(3) The large deals are explicitly at commercial, not concessionary, rates, although Ghana also received a separate foreign aid package of a grant, zero-interest loan, and concessional loan/preferential export credit of $250 million at 2%. This latter package is quite similar to the kind of packages offered to Mauritius, Namibia, and other credit-worthy middle income countries in Africa.

In September I had lunch in Beijing with Roger Nord, a senior adviser to the Africa Department of the IMF, and we talked quite intensely about the structure of these deals. I was pleased to read Roger voicing to Reuters a reassuring "good opportunity for Ghana" take on these deals in Reuters. At the same time, the difference between the September and October figures for China Eximbank, and the delay in the press release, suggest that some behind the scenes negotiating on debt sustainability may have been going on. This also happened, but with much more rancor, in the DRC, where the initial Chinese loan package was reduced from some $9 billion, to some $6 billion.

Ghana's parliament has to approve these deals, and presumably they will receive more information. What we still don't know is just how these deals are linked to Ghana's new oil and gas resources. In the DRC, Chinese loans were used partly to develop new resources and thus new cash flows, which were used to secure/repay separate loans for development infrastructure not connected at all to the mining investment. Yet according to Africa-Asia Confidential, "resource swaps are explicitly barred under the draft Petroleum Revenue Management Framework Bill being debated in parliament." Stay tuned.

African Public Opinion on China

2010-11-02T21:25:00.000-04:00

Today a student asked me if I had any information on African public opinion about Chinese immigrants. Recently, a number of news articles have described a growing backlash against immigrant Chinese in places like Angola and Namibia. I don't know if survey data is collected on this issue (and I suspect it would be mixed at best: Chinese traders and operators of small service businesses are patronized by African consumers, but local businesses resent the competition). But we do have fairly good data on public opinion about "China" collected by the Pew Global Opinion Polls. I checked their 2010 report to see how "Africa" (in this case, only Egypt, Nigeria, and Kenya) stands in its views of China -- and, for comparison, the US.

The data were surprising. Views of China (see left) in Kenya were 86% favorable (US: 94%, see below), and in Nigeria, 76% favorable (US: 81%). In Egypt, however, opinion was more evenly divided: 52% were positive about China, while only 17% viewed the US favorably.

In Nigeria and Kenya, 90% of those surveyed thought that China's growing economy was a good thing for their country, compared with only 40% who thought so in the United States.

This public opinion survey, by one of the most trusted names in surveying, suggests that we should be cautious about drawing broad conclusions about a growing backlash of public opinion against China across Africa.

At the same time, Chinese labor relations in many countries continue to be very poor. For example, in October this year, Chinese managers at Zambia's Collum Coal Mine sprayed 11 protesting Zambian mine workers with buckshot, wounding two seriously (three Chinese were apparently also wounded, although it is not clear how or how badly). Events like this, over time, will chip away at the favorable public opinion of China in Africa.