How Many Africans are Studying in China?

In recent years, I've been pleased to see a lot of African students attending conferences and workshops on China-Africa topics in Beijing and Shanghai. Now I think that the turnout has actually been quite low, if a report by Antoaneta Becker is correct:

"In recent years the Chinese government has encouraged more African students to study in the country, offering thousands of scholarships. In 2009 China had 120,000 students from Africa, ten times more than it did in 2000." 

I'm willing to bet that this number, 120,000 is wrong. The late (and much missed) Professor Li Baoping estimated in a 2006 paper that more than 18,000 African students had at that point received scholarships over the decades from the Chinese government. Hong Kong University expert on Africans in China, Professor Adams Bodomo, estimated in a recent paper that 12,000 African students were currently studying in China under government scholarship, with perhaps 8000 more studying under their own funding.  

Here are the official numbers. Do the math.

           Year        Number of Africa Scholarships/Year
 
            1983         400
            1986       1600
            2005       2000
            2009       4000
            2012*     5500


*Pledged at the Sharm el-Sheikh FOCAC Meeting, November 2009.  Sources for others are in my book, The Dragon's Gift, p. 121.

Unpacking China Eximbank's $10.4 Billion Ghana Credit

Ghana-China flags. Ghanaweb.com

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On September 22, 2010, as I was flying back to Washington from Beijing, the government of Ghana announced it had signed a $10.4 billion credit package with China Eximbank. The finance is expected to begin disbursing next year (over how many years is not clear). It would be, it is said, at "concessionary" rates (not yet disclosed) and repayable over 20 years. No Chinese source has yet confirmed this, as far as I know, particularly the "concessionary loan" aspect. China Development Bank reportedly has clinched a separate loan for $3 billion which will be targeted toward oil sector development.

The $10.4 billion credit will be repaid with exports, not directly through the budget, according to Ghana's deputy minister for finance and economic planning. Does this sound familiar? It should, if you've been reading my book: see pp. 46-49 of The Dragon's Gift.

Although this is being described in Ghana as a "concessionary loan" I doubt that this finance comes from the Eximbank's concessional loan (you hui dai kuan) window.  And I doubt we can count the package as official development assistance (ODA), or that it will be on terms concessional enough to qualify as ODA.

Eximbank has given several true concessional foreign aid loans to Ghana in the past. Indeed, as research by Isaac Idun-Arkhurst (see his slide #10) has shown us, 42% of Ghana's Bui Dam loan package from China was a true concessional loan, i.e. qualified as ODA, while 58% was an export credit at a preferential commercial rate.

One piece of evidence in favor of Ghana's interpretation (and hope): the credit is said to be payable over 20 years. Concessional loans from Eximbank, or you hui dai kuan, do tend to have 20 years as a repayment period.

However, this is what I expect to see.

As details of the new Ghana deal unfold, it will be revealed as another of the well-priced "long term trade agreements" or deferred payment, resource-backed commercial export credits, where the interest rate will be based on LIBOR plus a margin. Nigeria had an offer of one of these. But when former Nigerian president Yar'Adua and former finance minister Shansuddeen Usman looked more deeply into the "concessionary loan" they thought Nigeria was getting, they found that only the $500 million export credit portion was at a preferential rate. The $2 billion portion was at a commercial rate.

I hope Ghana is getting a better deal than Nigeria was offered. The deal still needs to be approved by Ghana's parliament, which means we should be hearing a lot more about it.

Out from Behind the Great Firewall and Into Switzerland

Africa Pavilion: courtesy The Atlantic.c..

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I've been in China (Shanghai and Beijing) for the past eight days. Lots of interesting developments around the topic of Chinese aid in Africa, meetings with Africans in China, and a tour of the Africa Pavilion at the Shanghai Expo (right). But frustrating to be behind the Great Firewall and unable to access my blog & much else.

Next week I will be speaking on my China-Africa research in Geneva September 30th, and Bern October 1st.

New World Bank Study on Large-Scale "Land Grabs"

More mistaken reports of Chinese investment. photo: farmlandgrab.org

Two days ago, on September 7, 2010, the World Bank released its long-awaited study of large scale land investments. The report overall seems quite balanced and contains the expected mix of concern and pragmatism. In some countries with ample land and low population densities, commercial investment might provide benefits, if done with concern for mitigating social and environmental impact, and within the rule of law. The report emphasizes that far too often, this is not being done, and the potential for harm is immense.

Although I think it will be a helpful contribution, overall I was a bit disappointed in the study, for several reasons.

First, they actually made use of the media reports collected by GRAIN at farmlandgrab.org, put all of them into a database, and performed econometric analysis on them, without checking the veracity of these reports. Yet what does this really tell us about the realities of large-scale land investments when so many of the media reports are wrong?

With regard to Pakistan, for example, World Bank researchers did fieldwork to cross-check the media reports collected by GRAIN: "In none of these cases could any evidence of investment be found" (p. 40). Yet, apparently, even these spurious reports still went into the databases and number crunching.

This seems to me a bit like doing econometric analysis of media reports of all the suspected locations of Saddam Hussein's weapons of mass destruction in Iraq circa 2002 and then saying something useful about the threat these posed to US national security.

Second, the report is very bland and addresses the issue at such a high level of aggregation that for anyone interested in learning specifics about the reality of Chinese activity in agricultural investment abroad, there was nothing whatsoever to learn. This is very different from the report produced by the researchers at FAO, IFAD, and IIEE in 2009 which admittedly had as one purpose looking into the veracity of these reports. Indeed, the researchers at Grain.org criticized the report for the very same reason, saying:

Had the Bank really wanted to shed light on this new investment trend it would have at least peeled back the curtain on the investors. Who are they? What are they after?

But perhaps other readers will have different opinions? Click here for an ongoing discussion on this topic.  

Keywords: China, Africa, World Bank, land grab

Do We Have Statistics on China's Africa "Land Grab"?

Commercial investment in agriculture in low income countries is a hot button issue, for many good reasons. Often linked to corruption, frequently involving unscrupulous grabbing of land from unprotected traditional holders, the transfer of land from subsistence or smallholder use to commercial or large-scale use is fraught with problems and nearly impossible to manage in a socially sustainable manner. But that's all the more reason to be scrupulous with our evidence and accusations.

A couple of days ago, I had an email from a student who wondered what I thought of "the statistics of IFPRI, GRAIN, FAO" on China's "land grabs". I answered that IFPRI, GRAIN, and FAO did not actually have any statistics on Chinese land investments. They only had collections of media reports. With regard to Africa, many of these media reports are quite off the mark.

Here's a bit more detail that might be helpful to new (and more senior) researchers who are tempted to use these "statistics".

(1) IFPRI: The International Food Policy Research Institute, part of the Consultative Group on International Agricultural Research, or CGIAR, compiled media reports of land-grabbing in an April 2009 policy brief. The original version of this policy brief contained a large table simply listing "Overseas Investments". I contacted IFPRI and suggested that although the text mentioned the sources as "media reports", titling the table "Investments" was misleading, suggesting that these reports were all actually real and the investments underway. They then revised the title of the table to state that these were "Media Reports" of investments.

In the course of this, I had an interesting exchange on the veracity of some of the China/Africa media reports with the IFPRI authors on their blog -- to see this exchange on the IFPRI website, click here. After this exchange, which was in the spring of 2009, I went to Mozambique and Zimbabwe myself, and was able to confirm my hunches on both of these cases, as I report in The Dragon's Gift. In the spring of 2010, IFPRI invited me to present my research on China's agricultural engagement. For a link to the presentation, click here, and for a three minute interview, click here.

(2) GRAIN:  GRAIN is an international advocacy organization supporting the rights and livelihoods of small farmers. GRAIN lists "China" along with the Gulf states as "the biggest players" in their 2008 study of the new land grabs. Chinese companies have made, or tried to make, several big investments in Asia and Latin America. These can be confirmed. But in Africa, for the most part, this hasn't been the case.

The GRAIN researchers were not very diligent about validating their sources for African "cases". For example, GRAIN reported that China had set up the China Africa Development Fund in 2008 with $5 billion to invest in African agriculture. Their source: a 2008 article in a local Liberian newspaper. It would not have taken much fact-checking for the GRAIN researchers to determine that the China Africa Development Fund was actually established by China Development Bank as an equity fund in 2007. It began with $1 billion to invest in any kind of profitable project in Africa: infrastructure, manufacturing, mining, agro-industry, etc. When the fund reaches its full size, it is expected to be $5 billion. It is a rather substantial error to say that it is focused on agriculture.

Like IFPRI, GRAIN also compiled a table of "land grabs" as reported by the media. They include most of the same stories. With regard to Africa, as I reported in The Dragon's Gift, I looked into the three major stories of "large land grabs" -- the DRC, Zimbabwe, and Mozambique -- and found little or no substance to two of them (the DRC case which I have discussed elsewhere on this blog, does have some substance. How much is still unclear).

To my mind, the worst case of misrepresentation at GRAIN's list is probably the Mozambique story, reproduced below from their website:

According to a study by Loro Horta, the son of Timor L’Este’s President Ramos Horta, the Chinese government has been investing in infrastructure development, policy reform, research, extension and training to develop rice production in Mozambique for export to China since 2006. Eximbank has already provided a loan of US$2bn and pledged an additional US$800m for these works, though more is expected. Some 10,000 Chinese settlers will be involved. G2G contracts and land leases are still under negotiation, though. Land cannot be owned by foreigners in Mozambique, so joint partnerships with "sleeping" Mozambican entities may need to be struck.

There are so many mistakes in this, I hardly know where to begin to address it. It will have to be the subject of a separate post.

(3) FAO: The Food and Agriculture Organization (FAO) of the United Nations, has sponsored an excellent recent study focused on Africa:  FAO, IFAD & IIED. 2009. Land Grab or Development Opportunity? by Lorenzo Cotula, Sonja Vermeulen, Rebeca Leonard and James Keeley. This study actually had the funding to do fieldwork and interview companies, and the researchers were quite careful. They don't produce "statistics" but they do examine a number of cases.

With regard to Chinese "land grabs" in Africa (and elsewhere) the authors say: "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..."

They also note "as yet there are no known examples of Chinese land acquisitions in Africa in excess of 50,000 hectares where deals have been concluded and project implemented."

Soon, we should be able to read the World Bank's study on "land grabs" which is due to be published in the latter half of 2010. With the kind of budget and access enjoyed by the World Bank, we might see more authoritative coverage of this issue. More on this in a future post.

The Chinese Communist Party and African Agriculture

One of CSFAC's investments in Africa. (photo James Keeley)

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Are Chinese companies pushing aside their party comrades when it comes to investment in African agriculture? A recent China Daily news article (excerpt below) reported on a China-Africa agricultural cooperation conference held in mid-August 2010 in Beijing, co-sponsored by China's Ministry of Agriculture and the International Department of the Communist Party of China Central Committee.

Two things interested me. First, the CCP's co-sponsorship of the conference, which, to me, indicates that agricultural cooperation is still viewed primarily as a political venture rather than an economic one. If it was an economic venture, I would expect to see it co-sponsored by the Ministry of Commerce's Department of Outward Investment and Economic Cooperation.

Second, the quotation below from China State Farm Agribusiness Corporation indicates lessons learned from past efforts to invest using "party to party" links. In The Dragon's Gift, I note several other interesting examples of this "learning from failed political aid projects" in Ghana.

"The fragile political situation is still the biggest challenge for Chinese companies to invest in Africa," Xu Jun, deputy general manager of China State Farms Agribusiness Corporation (CSFAC), told China Daily on Tuesday. Last year, a cooperative program worth more than 70 million yuan ($10 million) between the CSFAC and Ghana's ruling party came to an abrupt halt when the opposition party took office, he said.

"Now we prefer to talk with government administrations instead of party leaders when it comes to further cooperation," Xu said.

The CSFAC is one of the country's leading agriculture resources development companies. It started its first farm in Africa in 1994 and now operates seven farming projects across Africa, with more than 8,600 hectares of land. 

Finally, it is also interesting to see how small, and how few, CSFAC's investments in Africa have been. In a 2003 article on China.org.cn, CSFAC was said to have 11 projects in Africa (some could have been processing) on about 16,000 hectares of land. If these figures are in the right ballpark, CSFAC's investments in Africa have shrunk over this decade, rather than expanding. Greater emphasis on a market rationale rather than a political rationale might be the reason.
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The Real Cost of Chinese Railway Construction in Nigeria

Train in Lagos, Nigeria (photo: Accelerator, Nigeria)

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For several years, stories about China Civil Engineering and Construction Corp (CCECC)'s $8.3 billion Lagos-Kano railway modernization contract have circulated in Nigeria and in the international press. The editor of Foreign Policy, Moises Naim, for example, mistakenly claimed in the New York Times that China was giving $9 billion in aid to finance this project. (There was actually no aid offered, although a preferential export credit of $500 million was discussed in connection with the railway).

Nigeria's existing, colonial-era railway between Lagos and Kano is far from adequate for a major transportation artery, antiquated, non-standard (narrow) gauge, and single track. However, I've read that CCECC's price for the new railway was "hugely inflated," that the project was hastily delivered to CCECC without proper tendering, and that there was not an inadequate "front end design" and/or feasibility study before awarding the contract.

I've been doing research in Nigeria off and on since 1987. I know that Nigerians are rightly suspicious of any large infrastructure project proposed for their country. They have bitter experience of money being "eaten", cost overruns, and white elephants. Was the CCECC project, recently scaled back, fated to be another in this long line?

Several weeks ago, Professor Richard Joseph sent me a photocopy of a fascinating full page ad published by CCECC in the Guardian (Lagos) on June 18, 2008, in which CCECC defended their 2006 contract, in particular the claim in the June 15, 2008 Sunday Punch (Lagos) that the contract was "inflated by $5.8bn" and should have cost $2.5bn.

CCECC contends that:

• An initial feasibility study for the project was produced by the Nigerian branch of the international engineering firm Julius Berger together with an Italian firm, TEAM Consultants, in 2001. CCECC says they also conducted a "detailed feasibility study" before they participated in a limited tender, and an environmental impact assessment after the contract was awarded.
• They produced 4 possible designs for the railway: (1) Rehabilitation of existing narrow gauge, single track for $1.76 billion; (2) Rehabilitation plus 2nd new narrow gauge, double track for $6.7 billion; (3) New, standard gauge, single track line for $5.81 billion; (4) New standard gauge, double track except Abuja-Kaduna, for $8.3 billion.
• In April 2006, along with two other (unnamed) "pre-qualified companies", CCECC was invited to submit tender documents, which they did in June 2006 (yes, this does seem hasty).
• Their costs were very reasonable.

Let's look into the cost issue further.

An important Chatham House report cited an interview with an unnamed World Bank official in Abuja, May 2008, who said that $3.04m per km was "double the cost it should have been." The report noted that a review by the Yar A'dua administration "discovered the costs to be highly inflated" but they didn't question the reports of this review. If the costs were "double" then this implies that the proper cost should have been around $1.52m per km. 

CCECC claimed that their bid for the double-track railway, at US$3.04 million per km, was low compared with the "international average construction cost of US$3.50m per km". (The railway distance is 1315 km. For a double track, this makes 2703 km x $3.04 or $8.22bn.)

As I read all this, I wondered:  what do we know about railway construction costs?  Is there any way to shed light on these various claims? I turned to Google.

I learned that costs per km are affected by a number of things, including materials, the terrain, and so on. But there is actually plenty of information on this online if one wanted to check general ballpark figures for reasonable costs of railway construction.

For example, news reports on a number of projects at the Railway Gazette website give costs, including a project financed in 2009 by the Asian Development Bank in Afghanistan: a 75km project for $170m, or $2.26m per km (single-track).

In 2008, Libya began a railway project, a standard gauge, double-track line awarded to Russian Railways, for a cost of 2.2 bn Euros ($2.8 billion) for 554 km, or $5m per km. Libya later signed a contract in 2009 with China Railway Construction Corporation for $805m for 172 km of railway on the Tripoli-Ras Edjer line ($4.7m per km).

A January 6, 2009 article in the Guardian (Lagos) by Moses Ebosele, "Lack of Policy Trails Nigerian Railway in 2008," quoted from a World Bank study (for Nigeria?) which "estimated capital cost of conversion from the present narrow gauge railway to standard gauge at between $1.5m and $5.0m per route km." Averaging these would give us $3.25m per km. (This doesn't say whether the standard gauge would be single or double-track.)

Here in Washington, DC, I found that our fancy new Dulles Airport Aerotrain cost $1.5 billion for only 3.8 miles (6.12km), or US$245.0m per km! Of course this is an extremely nice train. We're very happy with it.

Clearly without knowing the specifics of the Lagos-Kano line, it's hard to say which estimate is the most reasonable, or even whether the entire project was a good idea or not. But this little survey suggests that the contract costs of $3.04m per km in the CCECC contract do not look out of line. 

Indeed, in November 2009, CCECC and a new Nigerian administration signed a new contract. This contract is for a shorter, 200km stretch of railway between Abuja and Kaduna. This new project is estimated to cost $876 million, or $4.38m per km. The $500 million preferential export credit from China Eximbank will be applied to this project.

Whatever the details of the new contract, it's clear that three years and much negotiation later, the cost per km rose rather than fell. Which is what one would expect, given inflation.
But perhaps Nigerians with access to the inside story will have a different view of all this?

Chinese Prisoners Rumor Redux: South China Morning Post

Stirring up trouble
Claims that China sends convicts to labour in Africa are unfounded
Barry Sautman and Yan Hairong Aug 21, 2010
What more could promoters of the "China threat" idea add to the litany of charges that have grown stale over a decade? One claim is that China sends convicts to labour in developing countries. We have been to 10 African countries to research China-Africa links. Rumours of Chinese convicts circulate in each one.  The notion is not new. In the 1970s, 60,000 Chinese laboured alongside an equal number of local workers to build the Tanzania-Zambia Railway. As US historian of the railway Jamie Monson describes it, when the first 1,000 Chinese workers arrived in Tanzania, "all wearing identical gray cotton suits and balancing small blue suitcases on their shoulders ... crowds of curious onlookers gathered, some speculating that the strangers were soldiers or prisoners sentenced to hard labour." In Africa, rumours of Chinese prisoners arise because of cultural differences in work and living habits. The rigorous working pace and discipline of Chinese employees give rise to the idea that anyone who would work so hard must be a prisoner. Also, skilled Chinese workers and engineers do not live like Western expats, who in Africa have individual houses and local servants. Many Chinese live collectively, often sharing rooms, and do their own housework. Often, local people cannot conceive that foreign professionals would live that way and imagine them to be prisoners

Popular rumours circulate for other reasons as well. In Zambia's Copperbelt, we interviewed a leader of the opposition Patriotic Front (PF). The party's  head, Michael Sata, is famous for his anti-Chinese mobilisations and once claimed that "Zambia has become a labour camp. Most of the Chinese are prisoners of conscience."

The Copperbelt PF leader explained to us, however, that Zambians think that "if 100 Chinese come, 20 of them are skilled and the other 80 are unskilled prisoners ... it's a way for local people to demean the Chinese and to say we're better than the [prisoners]".

In some developing countries, rumour-mongering has a more deliberate aim and seems to be fostered as part of competition between local and Chinese construction companies. Claims of Chinese convict labourers have been made by a prominent local building firm owner in Sri Lanka and by the chief executive of a "leading player" in Kenya's construction industry. In Namibia, the owner of a local construction company told a wire service: "We have a hard time getting jobs from government, while the Chinese ship in container-loads of prisoners to work on public projects." No evidence is ever presented.

Then there is the political element; what better way to deflate the soft power of a strategic competitor than to claim that it exports prison labour and thereby undermines the employment opportunities of host peoples?

A 2010 US State Department report on human trafficking asserts that "an increasing number of Chinese and Indian men recruited to work in Chinese- or Indian-owned mines in Zambia's Copperbelt region are reportedly exploited by the mining companies in forced labour. After work hours, some Chinese miners are confined to guarded compounds surrounded by high concrete walls topped by electrified barbed wire."

We have interviewed Chinese at mines in Zambia. They are salaried, highly skilled workers, engineers or managers. Their compounds' walls and wire serve the same function as similar structures throughout Africa: to keep out intruders.

It is one thing for average people to misunderstand the presence of guest workers in their countries and quite another for competing businesspeople, politicians and researchers to take part in rumour-mongering. Brahma Chellaney, a strategic studies specialist, has recently done that. Chellaney's sensational, but unsubstantiated, charge got his essay about it into prominent newspapers globally, including this newspaper.

Neither we nor other researchers have found evidence to confirm the Chinese prisoners rumour. Let's take but a few examples. Deborah Brautigam, a US specialist in China-Africa relations, has said: "I ask about this issue fairly frequently during my research and have never come across any evidence of Chinese prisoners working in Africa." Anna Ying Chen, research associate at the South African Institute of International Affairs, has averred that "the rumour that Chinese companies employ prisoners who are confined to their own camp to save costs is indeed a misperception". And Swiss journalists Serge Michel and Michel Beuret, who visited many African countries for a book about the Chinese presence, have said that "in all our travels we have not met a single [Chinese prisoner] and feel free to assert that this is anti-Chinese propaganda".

Anti-Chinese propaganda or not, those who spread such rumours cannot explain why China's government would incur the reputational risk and expense to do so. After all, few convicts are highly skilled and, in developing countries, such labour is relatively cheap. Often claims are based on the idea that China is overflowing with prisoners, but, in fact, it has about the same number of people imprisoned (including all those in "administrative detention") as the US does, despite a population that is more than four times as large.

There may be some former Chinese prisoners among the hundreds of thousands of Chinese working in developing countries, but to contend without evidence that the Chinese government has a programme of sending out great numbers of prisoners is another matter.

Barry Sautman is a political scientist and lawyer at Hong Kong University of Science & Technology. Yan Hairong is an anthropologist at Hong Kong Polytechnic University

Chinese Entrepreneurs and Workers in Africa: An Angola Story

Chinese workers in Angola (BBC).

In 2008, Chinese companies reported a turnover of around $20 billion from construction contracts in Africa. Tessa Thorniley gives us a firsthand look inside  the world of Chinese business in Africa in her recent Danwei article: "Chinese Entrepreneurs in Africa, Land of a Billion Workers." An excerpt on Angola follows: 

...In Portuguese-speaking Angola, which pumps two million barrels of oil a day, the two communities [Chinese and African] are even further apart. Meng Mei, born in France to Chinese parents, has been working in Luanda since 2008. "In my experience there is almost no contact between the locals and Chinese workers. There is no integration. On the construction sites, the Chinese usually live on site. They live, work and sleep there. They don't go out. It's quite similar to the way migrant workers behave in China. They save money and send it home.

"For me, however, it is quite odd. I am Chinese but born and raised abroad. The Chinese workers do not go to movies or out to restaurants very much and they certainly don't do this with the locals. Some higher-ups may interact more, but only for business purposes," she says.

The lack of strong ties between the communities has created distrust and resentment.

There are long-simmering tensions over the number of Chinese workers brought over by firms doing unskilled jobs that could have been given to local laborers. The Angolan government has tightened its immigration policies, and the cost of winning a long-term visa for a Chinese worker, together with travel costs and welfare payments, has risen to as much as USD20,000.

In response, Chinese companies have tried to take on more local staff, according to William Wang, an IT engineer who works with Meng Mei in Angola. “Back in 2008, maybe you would only see Chinese workers in Chinese companies but that has changed a lot in the last two years. I know a Chinese construction boss in Luanda, he hires 70 Chinese workers and 500 or 600 locals. It's not uncommon," he says. "I don't think the Angolans feel we are taking jobs. We have created employment also."

He adds: “In the past, I think there were problems because even the brightest Angolans had no real expertise – because of the war they didn't have much chance to develop. An IT engineer was qualified if he could switch on a computer and type. That's not the case anymore. Universities are training Angolans and they are increasingly skilled. Perhaps Chinese companies doing business here incentivised that?”

For the full article, click here.

Tessa's reporting suggests a few enduring conclusions: (1) Chinese companies respond to local conditions and incentives. (2) Analysts always need to keep in mind that the China-Africa relationship is evolving quickly. For more on these changes, see the August 20, 2010 Wall Street Journal article by Benoit Faucon and Sherry Wu: "Hostility Toward Workers Cools Angola-China Relationship."

Is China Sending Prisoners to Work Overseas?

Yesterday I received an email from a UNDP colleague asking me what I thought about recent media stories of "Chinese convict labor" being used overseas, and the public denial of this practice by the Chinese Ministry of Commerce.

Here's the story: Early in July, several papers including the Washington Times and the Sri Lanka Guardian and the Japan Times published an opinion piece written by a New Delhi-based security analyst, Dr. Brahma Chellaney, a former journalist and currently a professor at the Centre for Policy Research in New Delhi. Chellaney wrote that China was engaged in "the forced dispatch of prisoners to work on overseas infrastructure projects". He said that Sri Lanka had "thousands of Chinese convicts" working on infrastucture projects in Sri Lanka and that convicts from China were also building 4,000 houses as part of China's tsunami reconstruction aid project in the Maldives. Earlier, in June, opposition politicians in Sri Lanka had claimed that 25,000 Chinese convict labourers were working on the island. At the end of July, the op-ed was carried in Canada's Globe and Mail, and appeared on the Guardian UK (website). I hear it is now being discussed in Brazil.

In a later interview with The Hindu, Chellaney did not give any information about his sources but said that they were "unimpeachable." He told Bloomberg News: “The opinion piece was based on actual investigations and thorough fact-checking and I stand by what I wrote,” Chellaney said. “That they deny is not a surprise.”

The Hindu also quoted an African diplomat, who raised practical questions about the claim:  “Chinese workers overseas is already a sensitive issue, just by their being there and working on projects in large numbers,” said a diplomat from an African country. “Why on earth will China make matters worse by shipping out criminals? It is very hard to believe.”

Dr. Chellaney actually provided no sources, no evidence, and no specifics to support his claim. I've never heard of him, so I asked a friend and former classmate who is a New Delhi-based foreign policy expert whether Dr. Chellaney was a credible source. Here is part of what he replied: "He is a bit of an ultranationalist ... I read this story. I don't believe it. Brahma tends to fly off the deep end sometimes while he is China bashing..." Chellaney's blog contains several other recent articles on China, including "Sri Lanka: Another Case in China's Blood-Soaked Diplomacy" and  "Insatiable Dragon."

I have heard stories of forced Chinese prison labor overseas but these happened during the colonial period:  the British and the Dutch dispatched Chinese and other prisoners to work off their sentences in a number of overseas locations, including South Africa. As noted by Malia Politzer in Migration Information:

The first wave of Chinese immigrants to South Africa was small (only 17 Chinese names were on a convict list dated the year 1724) and consisted largely of convicts and ex-convicts banished from Indonesia to South Africa under Dutch colonial rule. ... Chinese convicts who did come over were considered "black" and largely treated as slaves... 

Although Dr. Chellaney reported that the forced export of prisoners is a "new policy", the claim about modern-day Chinese convict labor in Africa has been around for many years. For example, in May 1991, Roberta Cohen, a trustee for the International League for Human Rights, and a former State Department political appointee, wrote a letter to the New York Times claiming that when she lived in Benin in the 1980s, she had "learned" that Chinese prison labor was being used there. "Seventy percent to 75 percent of the construction workers building the Dassa-Parakou road in central Benin were known to be prisoners" she said, but provided no information as to how she had "learned" this, or how this was "known".

The German paper Der Spiegel reported opposition politician Michael Sata's claim that 80,000 "former prisoners" from China were working in Zambia. Getting more specific, Richard Behar in Fast Company said that he had interviewed an immigration "consultant" in Zambia who said she had "processed paperwork for hundreds of Chinese prisoners." (This made me curious:  How did she know they were prisoners? Behar didn't say.).

Chinese engineers quarters, Sierra Leone 2007. Photo by DB

My best guess is that stories like this are largely urban myths. People view the way that Chinese construction workers live, in extremely basic conditions like those on the left, in compounds on the construction site. These construction sites are usually surrounded by security fences, but this is to keep the construction site secure, and in particular, to prevent the stealing of construction materials, rather than to keep the workers locked inside.

Since the Chinese first began exporting labor in the late 1970s, they have sent 4,970,000 people to work abroad (including to Hong Kong) according to official statistics from the Ministry of Commerce.

Forcing prisoners to work overseas as official policy, as Dr. Challaney maintains, is most unlikely. Is it possible that some Chinese prisoners might have been sent overseas voluntarily, on the kind of work release apparently practiced even today in the state of Louisiana for the BP oil spill cleanup? Certainly, prison labor is commonplace in China, as it is in some parts of America. Given the high levels of corruption, the need for local governments to raise revenues, and the multiple Chinese actors operating overseas, it's plausible that a contractor could make a deal with local prison officials. But exporting large contingents of prison labor as official policy would be politically very risky. If it has happened, it is almost certainly uncommon and ad hoc.

I ask about this issue fairly frequently during my research and have never come across any  hard facts or evidence of Chinese prisoners working in Africa. But after giving a talk at a university here in the US a few months ago, I met a student who told me that he actually had some evidence on this from his own travels. I have encouraged him to write this up and will link to his blog if he decides to do so.

What do other researchers say? Swiss journalists Serge Michel and Michel Beuret report in their book China Safari (p. 252):

...the dragon slayers and some NGOs have spread the rumor that most Chinese workers in Africa are actually prisoners. But in all our travels we have not met a single one and feel free to assert that this is anti-Chinese propaganda.

I encourage anyone with actual evidence on this issue to comment. But please provide specific evidence, rather than sightings of Chinese workers who looked like prisoners, or other unsubstantiated claims.

China in Nigeria: Update on Mambilla (and Brazil!)

In May, I posted on China-in-Nigeria "Power Myths", including my debunking of the oft-circulated 'fact' that 'China' was building the Mambilla, or Mambila, hydropower plant for Nigeria.

Update: The Nigerian paper Business Day published a story on August 4, 2010 in which a top Nigerian government official "stated that the Brazilian government had indicated its interest to invest in the country’s power sector, especially the Mambilla Power Project."

This new development illustrates several things relevant to research on China-and-Africa:

• Many announcements of 'interest' are made by recipient governments who get political capital from showing that they are busy arranging important deals.
• Many of these announcements of interest will go nowhere.
• Check and double-check before adding projects like Mambilla to any list of Chinese deals!

Will Brazil actually finance Mambilla? I wouldn't hold my breath. For at least one reason why, see Peter Bosshard's comments on my May posting.

A hat tip to the Center for Chinese Studies in Stellenbosch.

Chinese and US-funded Malaria Centers: Contrast and Competition

I've just read in Allafrica.com about a US initiative to finance ten malaria centers in endemic regions around the world. The International Centers for Malaria Research initiative, to cost $US 106 million, is a collaborative effort to strengthen research and training capacity around the world. The US-based National Institute of Allergy and Infectious Diseases (NIAID) is providing the funding. This sounds a bit like the initiative announced by the Chinese government in November 2006, to set up ten malaria centers in Africa as part of the FOCAC pledges. Although I reported on this pledge in my book, The Dragon's Gift, I haven't looked into these centers in any detail (my book focuses more on the productive sectors of agriculture and manufacturing, as well as mining and infrastructure).

Tracing the planning and implementation of these two initiatives would make a great comparative research topic for a master's or Ph.D. thesis!  Is anyone working on this?

China International Fund in Africa: Another Failed Project

Once again, the murky Hong Kong company China International Fund (CIF) shows that it "talks the talk" but can't "walk the walk". The East African reports that a project under discussion for four years to partner with China Sonangol [CIF's joint venture with Angola's state-owned oil firm Sonangol] to revive Tanzania's state airline, Air Tanzania, remains moribund. Air Tanzania is threatening to partner with Air Zimbabwe now. Hmmm.Thanks to Henry Hall for the tip.

This project is one of those discussed in the July 2009 "88 Queensway Group" investigative report on CIF by the U.S.-China Economic & Security Review Commission. They reported that the "Tanzanian oil company grants China Sonangol [the joint venture] 3 licenses for oil exploration after it purchases 49 percent of Air Tanzania." This deal later appears to have fallen apart after protests that it violated Tanzania's rules on open tenders. No oil licenses, no partnership.

China's Roads in the DRC: Good, bad, or ugly?

DRC Minerals & Infrastructure
From Le Monde Diplomatique - Philippe Rekacewicz

Home again for a few days, I found a China-Africa posting on Chris Blattman's terrific development economics blog. Chris provides a link to Texas in Africa who writes:

"Say what you will about China's multi-billion dollar deal with the Congolese government to trade infrastructure development for access to minerals with little regard for human rights and environmental issues. They've still managed to turn a big segment of North Kivu's main highway from this [photo] into this [photo]."  Read more and see the photos

The comments following the post run the whole range of opinions. Some assume that these roads are being built solely to transport the DRC's copper ... to China.  The Chinese infrastructure package does include a railroad from the mine-rich Katanga area to the port. Yet as the map above shows, there is a mix of roads that will serve to link the DRC to its neighbors (the green bands on the map above are transport corridors being built under the package. This map can be seen much more clearly at Le Monde Diplomatique).

Some warn that the new roads are unlikely to be maintained. This is a huge risk, although the deal also includes toll roads which in theory could provide an incentive for a commercial operator to swap maintenance for tolls.

One person comments that he/she lived in Tanzania while the famous Tan-Zam/Tazara railway was being built in the 1970s. The cost of poor quality goods Tanzania was required to buy in connection with the this project was higher than the value of railway, he/she alleges.

I doubt this, simply because of my understanding of the facts around the supply of these goods. With the Tazara railway, as with many other Chinese aid projects built during the late 1960s and 1970s, Zambia and Tanzania had difficulty financing the local costs (local labor, local inputs for the civil works, compensation for land and resettlement, if any, etc.). So the Chinese, who had very little foreign exchange at that point (how things change), provided finance for local costs. Because the renminbi could not be used in Africa (i.e. it was not a convertible currency), they shipped Chinese consumer goods to Zambia and Tanzania, allowing the two countries to sell them on the local market and use the proceeds to pay for local labor, etc.

This commodity financing was very similar to some provisions in Title I of the US PL-480 law which allows US food surpluses to be sold for local cost financing (on a concessional loan basis) of projects in cash-strapped countries. I believe the supply of Chinese goods was also financed under the concessional loans that paid for Tazara.

As a researcher in the 1980s, I saw that this had been common practice on Chinese projects, and I was surprised that there was no follow up to retain a Chinese export market. That wouldn't happen until at least a decade later. Today, it's hard to imagine African markets without Chinese goods everywhere. But that's another story.

Chinese Investment in Africa: Good Deals or Bad?

Back home for a few days after weeks of travel, mainly South Africa & Namibia, including some research, and a lot of the World Cup... I've been offline a lot, and haven't been posting much.

I just read a draft paper by two US-based economists who use Chinese FDI data to analyze determinants of Chinese investment in Africa. I've already posted here on the problems with using Chinese official FDI data. (Derek Scissors at American Heritage Foundation, who hosts the China Global Investment Tracker, commented recently on a different set of challenges raised for those who try and track investments by using media reports: "An accurate assessment, however, is confounded by widespread credulity regarding Chinese investment. Although global media trumpet supposedly “gigantic” Chinese deals, such reports can be based on disinformation spread by host country governments.")

But the paper by the two economists reminded me of another issue. They state as a "fact" that Chinese companies will pay significantly inflated prices in order to get access to resources, citing a 2006 article in African Affairs -- Jedrzej G. Frynas and Manuel Paulo, 2006, “A New Scramble for African Oil? Historical, Political, and Business Perspectives,” African Affairs, 106, 423, 229 – 251 -- as their source for this "fact".  But at the same time, others worry that Chinese banks & companies are not giving African countries good deals (see for example, a comment on China's huge Congo deal). 

Where does most of the evidence lie? Are Chinese companies consistently paying inflated prices? Or are they "ripping African countries off"? Has behavior changed over time? If it varies, why and how? I don't have the answers to this -- informed comments, evidence & analysis are welcome.

China and Western-Led Aid Structures in Cambodia (guest post)

 

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Guest Blogger Kate Griffiths is completing her MSc degree in Geosciences at the University of Sydney in Australia. Kate recently completed fieldwork in Cambodia, and reports here on her research on Chinese and Western donors. Kate finds that the Chinese have been participating (a bit) in the donor forums. Two things are particularly interesting about this. First, as Kate points out, the World Bank (which commonly chairs donor forums in poor countries) is headed in Cambodia by someone who is himself Chinese. Second, the donor forum (Cambodia Development Cooperation Forum) is headed by the Government of Cambodia, not the World Bank. Might these help explain this unusual cooperation? Or is Cambodia a Chinese experiment, "crossing the river by feeling the stones?"

Kate writes:

"It is widely assumed/reported that China does not participate in western-led aid structures. However, is this always true? In Cambodia, it appears that China is in fact moving towards some degree of greater transparency and participation in the Western aid-dominated landscape.

Cambodia is an aid dependent country, with nearly half its annual budget coming from aid. Most DAC member countries are represented in Cambodia, as are the big multilateral agencies including the World Bank, ADB and UN. Added to this, there are also hundreds of local and international NGOs represented in Cambodia such as Oxfam, World Vision and NGO Forum. Since the Paris Peace Accords of 1991, and subsequent UNTAC period, western donors have come to dominate the aid landscape in Cambodia and consequently have had a disproportionally large role in shaping Cambodia’s development strategy. They have tended to set the agenda, influence government policy and promote western development ideology. Particular foci of the traditional donors in Cambodia include good governance, democracy reforms, judicial reform, and agricultural development.

However, since the mid-2000s, another aid player has come to the fore in Cambodia – and this is China. China has, in fact, been giving aid to Cambodia for around the same length of time that the western donors have, although it is only recently that attention has begun to be paid by the media, researchers and policy analysts to China as an aid donor in Cambodia. In 2006, the media fell over itself to report that China had matched the entire western aid pledge for that year, by pledging $600 million versus $601 million pledged by the DAC donors at the Consultative Group Meeting. (e.g. see BBC 8/4/2006; Asia Times Online 6/10/2006; NY Times 17/9/2010). However, whilst Chinese aid figures to Cambodia have increased, they are usually nowhere near the inflated figures reported in the media (see Chinaafricarealstory May 17, 2010). For example, the aid disbursement reported by China for 2006 was only $52.3 million and for 2007 $92.4 million (Cambodia Aid Effectiveness Report 2008), even combined nowhere near the $600 million as reported by the media. According to the latest Cambodia Aid Effectiveness Report (2010), Japan is still the largest donor to Cambodia (a position it has held for many years), followed by China. Both countries have, however, significantly upped their aid between 2008 and 2009 (17% and 20% increase respectively). This is in line with overall trends in aid to Cambodia which have been on the increase. China has disbursed 85% of its total aid to Cambodia since 2004 according to this report.

China can therefore be seen to be a major player when it comes to aid in Cambodia. But how transparent is China about its aid, and to what degree does China participate in the dominant western-led aid structures in Cambodia?

China does make some of its aid figures publicly available in Cambodia. It does this by entering information on its aid program into the Cambodia ODA database. This is a public online database which is maintained by the Cambodian Rehabilitation and Development Board (CRDB) of the Council for the Development of Cambodia (CDC) for the Royal Government of Cambodia (RGC). Whilst this is a RGC owned and managed database, the database was created in order to fulfill the aid effectiveness structures put in place by the western donors in accordance with the Paris Declaration. Each donor is responsible for entering its own aid figures. Click here for details of China’s contribution to the database.

Information from this database is used to produce the Cambodia Aid Effectiveness Report which is tabled at each Cambodia Development Cooperation Forum.The latest Cambodia Aid Effectiveness Report is from May 2010. According to this report, China provided USD 114.7 million in aid in 2009 to Cambodia. This formed part of the USD 989.5 million in aid disbursements received in total by Cambodia in 2009. China’s aid disbursements increased 20% between 2008 and 2009, with most of China’s aid going to the infrastructure sector.

Aside from publicly releasing aid figures in Cambodia, China also participates in some of the existing western-dominated aid coordination structures in Cambodia. For instance, China has been represented at the last three Cambodia Development Cooperation Forums (CDCF). At the 2010 CDCF, China sent four representatives including the Ambassador, and Economic and Commercial Counsellor. These meetings are held every 18 months or so and are the official government/donor forum whereby donors indicate aid pledges for the upcoming year(s) amongst other things. These meetings are chaired by the Royal Government of Cambodia, although they are very much dominated by the western aid discourse with topics of conversation including aid effectiveness, Millennium Development Goals, governance reforms etc. The World Bank is the lead donor facilitator, and is responsible, along with the RGC, for opening and closing remarks. Whilst China does not actively participate in the meetings in terms of speaking to the agenda items, China does, like DAC donors, give an indication of what its aid pledges to Cambodia for the next three years will be. Click here to see China’s indicative aid pledges for 2010-2012.

China has also been known to attend informal monthly lunch meetings held between western bilateral and multilateral donors in Cambodia. These meetings are arranged by the World Bank and provide a less formal forum to discuss aid and development in Cambodia. The Country Manager of World Bank in Cambodia is Mr Qimiao Fan, himself Chinese, although western educated. He has previously worked as a senior executive in the private sector in China. At his request, China sometimes attends these meetings but to date has not actively participated in debate (although this could relate to language barriers – the usual language used is English – as much as anything else).

Thus it appears that in Cambodia, China is, to some extent at least, signaling an intention to participate in some of the existing aid structures. This is not, of course, to say that China is in any way adopting the DAC norms (for instance around ODA definitions, or policies such as the Millennium Development Goals) or being completely transparent with its aid figures (I certainly could not get any aid figures out of the Chinese Embassy in Cambodia when I asked). However perhaps we are seeing a move by China towards greater cooperation with western donors, or at least a move towards more openness in the case of aid to Cambodia."

Thanks, Kate!

Eating Bitter to Taste Sweetness (guest post)

This guest post is by Lila Buckley, a student at Oxford University who is currently in Senegal doing an initial research trip for her master's dissertation on Chinese engagement in agriculture. She writes that her first trip to Africa ...

".. is an unusual introduction to the continent as I am living more in the Chinese world than the Senegalese one. But what a world this is! Chinese people have a reputation for being difficult for outsiders to approach, but in my experience, once you gain their trust they will go to the ends of the Earth for you.

"I am finding this to be true of the Chinese I am meeting here in Senegal as well. I have already been welcomed into a Chinese family running a restaurant in Dakar, gone on a road trip with Chinese agronomists all the way to the northern border with Mauritania, dined on a fishing boat and sang karaoke late into the night with Chinese and Taiwanese fisherman, and worked alongside Chinese and Senegalese workers on a farm outside of Dakar.

"I won't go into too much detail of my findings just yet, except to share a snippet of a conversation I had last night with the head of the Chinese agricultural mission for Senegal. He had been gone all day on a trip to a neighbouring farm that hadn't gone very well. Over dinner I suggested that it must have been very "辛苦" (difficult, exhausting). This is a very common thing to say to someone when you want to express sympathy for a difficult or laborious process. It literally means "tired bitterness". He quickly responded that his work should not be called "tired bitterness". It could be called bitterness, but "bitterness comes in many forms, and what I do does not make me tired. People need to work hard to enjoy rest. You can't really enjoy life without also having bitterness". He picked up a piece of 苦瓜 (bitter gourd) from a dish on the table that he had grown with his own labor, and said, "You can't really know sweetness until you eat bitterness."

"This statement gets at the heart what I observe as a fundamentally different approach to agriculture work between the Chinese and the Senegalese. The Chinese are critical of what the Senegalese emphasis on religion (primarily Sufi Mauride Islam) and what they perceive of as a lackadaisical work ethic of farm workers, while local people seem to both admire the Chinese approach to work, as well as reject it as cold and inhuman. I feel so honoured to be let into both of these worlds for this brief glimpse of time."

DB: I imagine Lila's fluency in Chinese (not to mention her engaging personality) made all the difference in the reception she received in Senegal. We need more researchers with language skills like Lila's doing research on this topic.

China International Fund's New Bellzone-Kalia Guinea Deal

Last week China International Fund, the murky Hong Kong real estate, construction, and investment company, hit the news again with a confirmed report that CIF had signed a preliminary agreement to finance $2.7 billion in infrastructure connected with the development of Australian company Bellzone's proposed $4.45 billion Kalia iron ore mine in Guinea. A $40 million feasibility study still needs to be done before the deal goes forward.

This appears to be part of the $7 billion in infrastructure deals that CIF had been negotiating with the Guinea government last year after the coup, and before the massacre of more than 100 Guinean opposition demonstrators at the national stadium. (This $7 billion has been described in many reports as "Chinese aid" with the spin that "China" stepped in when the West was about to sanction Guinea for the murders in the stadium. See my earlier post Guinea: Bought by Beijing? for a different take on that story.)

On the surface, this new deal resembles the earlier MOU laying out a likely deal between Chinalco and Rio Tinto, discussed in my blogpost: China and Rio Tinto in Guinea: A Wild Courtship. In both cases, the Chinese/Hong Kong company agreed to finance (and build) necessary infrastructure associated with the mine. In both cases, the MOU is preliminary and needs to become a signed deal down the road.

But the two deals differ in some critical details. In the Rio Tinto deal, Chinalco, a very reputable Chinese mining giant, becomes a joint venture partner, a junior shareholder, developing the mine as a partnership. In the Bellzone deal, both companies will set up a joint venture for the infrastructure, with Bellzone becoming the junior partner with 10% of the stake. In addition, they will also set up a joint venture to later exploit another concession held by Bellzone, with shares at this point said to be 50:50. However, Bellzone will develop Kalia itself. CIF, which is not a reputable Chinese company, does not become a joint venture partner at Kalia.

It is not clear how the $2.7 billion will be financed. Where will CIF gain access to this kind of money? CIF had a lot of problems securing the promised funds for its operations in Angola. Are Beijing banks involved? No word on this yet (and I think it would be a first for CIF if this happened. Their past projects have been funded mainly by European and Hong Kong banks).

Finally, there is a huge unanswered question here. Why would CIF simply "give" Bellzone $2.7 billion worth of infrastructure, in return only for rights to buy the output --- at market prices --- and shares in several other not-yet-developed concessions, and without gaining equity in the Kalia mine itself? This is very different from the Chinalco-Rio Tinto deal, and also different from the Gecamine deal in the DRC. Most large Chinese projects with big infrastructure deals have involved loans, which are then repaid with resources.

Bellzone's Managing Director described CIF as "a highly regarded group of companies with a proven track record of developing large infrastructure projects in Africa..." China-in-Africa watchers know CIF as a dubious, murky, problematic Hong Kong company that had great difficulty coming up with the money for its promised projects in Angola and elsewhere.

If I were a shareholder in Bellzone, I would want to see a lot more proof about these projects. There are too many outstanding questions about this deal. Readers' thoughts are welcome. I am currently traveling in South Africa and posting on the run ...

The Rise of ICBC: New Environmental Challenges

Industrial and Commercial Bank of China, the world's largest bank, is increasing its African exposure. Much of this has been done in collaboration with Standard Bank of South Africa, which serves as a partner and, perhaps, tutor. In Ethiopia, however, ICBC seemed to be going solo when it apparently agreed to finance the export of turbines for a controversial dam. Read more about it in Peter Bosshard's May 27, 2010 article in Pambazuka.
This new development has several important implications. China's main financier in Africa, China Eximbank, has over the years formulated and then revised its environmental policy. After a long learning process, China Eximbank now uses international consultants to do its environmental and social appraisals. Will ICBC have to repeat this same lengthy learning process? And perhaps more to the point, will we witness a "race to the bottom' --- or pressure to conform to global standards --- among China's banks as they go global in Africa?

Interview with Paul Fortin on the Chinese Agreement in the Congo

An interesting, if a bit dated, (thanks, Dan) interview in the Belgian newspaper Le Soir. Journalist Collette Braeckman interviews Paul Fortin, the Canadian lawyer and former head of Gecamines, and the man who negotiated the DRC's China deal. Although the interview is in French, and happened in 2008, here are the main points:

• Fortin stoutly defends the agreement, explaining that it was not negotiated in secret with high level leaders, but in Beijing over two months, with a team of 15 experts from the Congo.
• He explains that the infrastructure agreement came first, in September, negotiated with Pierre Lumbi, the Minister of Infrastructure. But the infrastructure loan needed to be secured, as in Angola. Unlike Angola, Congo didn't have readily available resources to secure the loan. It was necessary to develop new resources. As Fortin says, "To finance this, I needed to find 10 million tons of copper as security. Its a form of barter." [DB: at $3000 per ton, 10 million tons comes to $30 billion. That's quite a security. Of course there are costs involved in producing that copper.] 
• "Congo was inspired by the Angola example, except that in Angola, the oil was available immediately, whereas in the Congo, the copper will only be available after three years."
• Calling it "the contract of the century", Fortin said: "it's a new idea. To have thought  it up, and then worked it out over four months, this is an incredible coup."
• "Everything is happening very quickly, and the Congolese are going to be able to see the results of these agreements very soon. With others, it's slow, there are conditionalities, they give you something, they take it back, they hesitate. The Chinese asked no questions, it was a business deal, and that's all. The team that discussed all this with us was not condescending. Their negotiators were very simple, and very direct."

As we've seen in video clips on this blog, the work did begin soon after the agreement was signed, despite the reservations of the international community. In The Dragon's Gift, I point out how important the construction business is for Chinese companies in Africa. It seems that this deal was indeed negotiated with Chinese construction companies, no mining company was involved. (A mining company was recruited to join later, but I'm not sure it remained a partner to the deal. Does anyone know?). This reinforces an important point. In seeing China's activity in Africa as all about a desperate search for resources, we are missing the complexity of the business engagement. In 2008 alone, after all, official statistics from MOFCOM tell us that Chinese companies signed infrastructure contracts worth $40 billion in Africa.

China's $23 Billion Deal in Nigeria: How Real Is It?

The Nigerian National Petroleum Corporation (NNPC) announced on Thursday last week that it had signed an MOU with China State Construction Engineering Corporation Ltd. to construct three oil refineries (about 250,000 bbl/day capacity each) and a petrochemical plant. The total cost would reportedly be $23 billion (or $23.8 billion, according to Beijing's official mouthpiece People's Daily, which also announced the MOU). If we disregard the petrochemical plant, the projected cost would be about $30,666 per capacity-barrel (a measure I think I just invented).

The endeavor still needs to secure loan financing: a combination of supplier's credits guaranteed by SINOSURE, and loans from a consortium of Chinese banks (as far as I know, SINOSURE is simply an export insurance/guarantee agency; it doesn't supply finance itself). This is clearly not a Chinese, but a Nigerian investment. As the People's Daily noted: "Nigeria State Petroleum Corp is responsible for the construction funds."

According to All Africa, 80% of the funding would be supplied by CSCEC, and 20% by NNPC.  If CSCEC merely supplies loans, this doesn't imply any equity shares in the refinery.

How solid is this news? CSCEC is a Beijing firm, a Shanghai stock exchange-listed company, and a subsidiary of China's largest state-owned construction company. It's a very respectable company, unlike the mysterious Hong Kong-based China International Fund we've seen a lot of lately.

But it's still early. An MOU is a sign of intention:  more than a first date, but much less than a wedding ceremony. The chances of this being derailed, like other large Chinese projects in Nigeria, are high. Yet it also has all the hallmarks of China's more successful deals in Africa. No bids. Creative loan financing. Chinese concern about loan repayment. "Agency of restraint" that locks some of a county's natural resources into directly useful infrastructure. Note these provisions, in particular:

...the operational mode of the new refineries will be different from that of the existing ones, ... government will have no shares or financial contribution to make in the construction and management of the plants as the entire project will be executed with loans sourced by NNPC and the Chinese firm. The refineries are to be managed by CSCEC consortium upon completion until the full recovery of their loan used on the project.

With this much detail, it sounds like the project(s) are indeed fairly advanced. They also sound like BOT (Build, Operate, Transfer), projects, rather than BOOT (Build, Own, Operate, Transfer). This would differ from the model set up with Sicomines in the DRC. Chinese lenders will expect the loans to be secured, probably with oil export proceeds sent to a Chinese escrow account. Also in contrast to the DRC, there is no talk of a resource concession linked directly to the deal.

SINOSURE is very conservative. If they do get involved in guaranteeing the loans, they will want to make very sure they don't lose their shirt.  But will the Nigerian government provide a sovereign guarantee? There could be more wrangling around sovereign guarantees such as we saw in the DRC with the $9 billion (now $6 billion) copper project.

Could this still be win-win for Nigeria? It would be terrific if Nigerians could finally refine their own oil. They presently import about 85% of their fuel needs, despite being a major oil producer. Some 20,000 Nigerians are expected to find direct and indirect employment through the construction and operation of the plants. But ultimately the benefit for Nigerians rests not just in employment and in the national pride of refining their oil, but in the cost of refining versus importing it. International tenders and competitive bidding are supposed to ensure that countries get value for their money. Not that this always works.

A quick search of refinery construction costs yielded one recent report of a refinery planned for Kuwait of 615,000 bbl/day capacity, for $19 billion ($30,894 per barrel of capacity). But that contract was canceled after opposition members objected that even though it was an international tender, it had not been done properly. (The companies were South Korean, Japanese, and American). The projected costs of the Nigerian project seem to be in line with the estimates for the proposed Kuwait construction. Another project proposed in South Africa was estimated to cost $10 bn for a 400,000 bbl/day capacity refinery, or $25,000 per barrel of capacity.

I remember analyzing the cost of producing irrigated wheat in Nigeria while on a World Bank mission there in 1987. We found that it cost 10 times as much in foreign exchange to produce irrigated wheat in Nigeria as was saved by not importing the wheat. If they do come to pass, let's hope these oil refineries are a more efficient venture. But if they don't come to pass, this will reinforce what Peter Bosshard said in response to my post on Nigerian power plants: 

Because of financial and political spoils, signing a contract for a big infrastructure project is more attractive than actually building and operating it. This is one reason why so many deals are announced but then never materialize. (See more on this in his blog post: Money for Nothing (Or How Corruption Fuels Dam Building in Nigeria).

So ... who wants to take bets on these projects going forward? A hat tip to Peter Lewis for this story.