Links I Liked

(1) The relatively liberal Chinese magazine Caixin did an interview with me on April 7, 2013.  (Sorry, it's all in Chinese but if you use Google Chrome, it will translate for you).

(2) The stirring video, complete with "Exodus" soundtrack, of the China Eximbank-financed Kribi Deep Sea Port in Cameroon, Phase I. More on Kribi: here. This one notes the problems with compensation, disruption, pollution, and also that the construction is being overseen by Louis Berger, a US company. Interesting.

(3) Chinese companies are increasingly cognizant of the risks they face overseas. That's why it was so interesting to me to see that in December 2012, huge Chinese construction company CCECC joined with British partners to improve its risk-assessment capacities: "With the support of China Commerce Ministry and China International Contractors Association, CRCC, CREC, Shanghai Construction Group, CCECC, CHEC, Sino-hydro and Shanghai Jiaotong University as Chinese sponsors together with ICE, British Imperial College, Mott McDonald Consulting Company and SIP as British sponsors initiated the mission of Sino-British Overseas Projects Risk Management Task."

(4) China's appetite for illegal timber, in a report by the Environmental Investigation Agency.

(5) Good data from the US Government Geological Service on Chinese and Western mining in Africa. Would be useful for comparison studies. 

(6) An interesting commentary on the blog "Africa is a Country" : the micropolitics and sociology of Chinese shopkeepers and Basotho media in Lesotho. A hat tip to Winslow Robertson.

(7) A China Africa Project interview with the Western world's top expert on China's Sicomines project in the DRC, Johanna Jansson. This podcast also has Johanna's comments on the AidData debate.

AidData: Why it is not Wikipedia

The debate about AidData's "crowd-sourcing" methodology is heating up (see comments on my post from April 30). A recent note on Development Gateway in support of AidData compared AidData's methodology to Wikipedia, saying that this kind of crowd-sourcing of information can be productive.

I'm actually a big fan of Wikipedia. It is open, transparent, and often very clear and helpful. But I am not using it as a database for cross-country regressions. Many Wikipedia articles are "stubs" or have notes that controversy exists. We can take that into consideration when we read the article. That's also possible if someone is "reading" AidData's dataset. But let's face it, the purpose of having this data is to test relationships. I would be very surprised if users are going to "read" the data and pick and choose which numbers to include.

As Philippa Brant pointed out at the Lowy Institute, nearly half of the cases in the dataset -- 47 percent -- have only one source. That's almost 800 "projects" (1700 * .47). That level of uncertainty is not good enough for publication. AidData should have done more cleaning themselves before publishing this data.

AidData has responded to my critique in part by pointing out that they realize that many deals are not confirmed. That's not how it looks to me. The table we are discussing has a column on status. Of the nearly 1700 projects, 687 have a status of "Pipeline: Commitment" or "Pipeline: Pledge". None were coded "Pipeline: Vague" or "Suspended".  As many others have noted, an African ministry official's press conference about a popular public works project does not mean a commitment or pledge has occurred. Those of us who work on China and Africa have seen this multiple, multiple times. (Note: it is very rarely a Chinese announcement of a project commitment: when the Chinese government announces that it is financing a deal, a project is much more likely -- although not always -- goes ahead).

Finally, although AidData authors stress in their comments that their results are tentative, that they can't vouch for much of the data, they didn't write like that when discussing the numbers. We read about the "top recipients" of Chinese finance as though each of the numbers aggregated on their list is equally firm. That's simply not the case, as their own database points out.

Rubbery Numbers for Chinese Aid to Africa

Today, a new paper and media-based dataset on Chinese aid/finance was released by the AidData project, in an event at the Center for Global Development. AidData collected these numbers over the past 18 months, from media reports. According to AidData, the Chinese have committed $75 billion in official development finance to Africa, 2000 to 2011.

I've been getting a lot of emails asking what I think of this study.

Sigh.

I've already provided my comments to the authors in an earlier draft, and warned them about the pitfalls of this approach. Here's my conclusion: this number is way off. Yes, it's a start, and yes, the goal is a good one, but the approach, and the publication of this data at this early stage, is a problem, for several reasons.

First, reliance on media reports for data collection on Chinese finance is a very dicey methodology. I elaborate below.

Second, as with the land grab databases, publishing the database before it has been adequately cleaned will solidify what look like rubbish numbers. Data-driven researchers won't wait around to have someone clean the data. They'll start using it and publishing with it and setting these numbers into stone. Yet with errors of the order of magnitude of those I describe below, what kind of results will they be getting and what kind of conclusions will they be drawing?

Methodology: We saw this early on with the Warner School student project on Chinese aid to Africa, which was used by the Congressional Research Service. This project defined all state-related activities as aid, collected media reports, and then produced the (preposterous) estimate of $18 billion in aid from China for 2007 alone.  We have also seen this with media reports of Chinese "land grabs" in Africa, which created the false impression that the Chinese were very active in land acquisitions in Africa. (Outside of Zambia, where Chinese companies and individuals have been investing since 1990, and a handful of former state-farm aid projects, now privatized with Chinese involvement, there is very little Chinese farming investment in Africa). We've also seen it with media-based data collection on Chinese involvement in hydropower dams in Africa (click here for my take on these efforts).

So, how does this latest effort fare? Not so well, I'm afraid. The main problem is that the teams that have been collecting the data and their supervisors simply don't know enough about China in Africa, or how to check media reports, track down the realities of a project, and dig into the story to find out what really happened. You can start with media reports, but it is highly problematic to stop there.

Mega-errors.  Table 2 in the paper provides a good example of the problems. It contains 20 Chinese "megadeals" totaling over US$38 billion. But only 6 of these 20 projects -- less than a third -- reflect actual deals (Ghana $3 bn CDB credit; Equatorial Guinea $2 bn credit; Angola Phase 1 $1.5 bn, CDB loan to Angola for agriculture $1.2 bn; Cameroon Memve'ele Dam $674 million; Nigeria light rail $673 million). That's around $9 billion.

Thirteen of the other "deals" never happened, are mistakes, or shouldn't be in the list. Some were under discussion but at least so far, have never happened or were cancelled. Others are simply mistakes of some magnitude. China and South Africa signed a vague agreement on economic cooperation and discussed investments worth $2.5 billion, this was not a loan. China's agricultural demonstration station in Mozambique is listed with a value of $700 million (it was actually 55 million RMB, or about US$ 8 million). Debt cancellation did happen but shouldn't be counted as new finance, or a "megadeal" as this is double counting. And so on.

According to this database, the top recipients of Chinese finance have been Ghana, Nigeria, and Mauritania. Yes, Mauritania. Anyone who knows something about China in Africa -- which these researchers do not pretend to -- would be surprised to see Angola missing from this list. My own data (supplemented by field research) suggest that the top three recipients of firm Chinese financial commitments have been Angola, the DRC, and Ethiopia, with Sudan closely following. Mauritania? Not even in the top fifteen. Nigeria? About the same as Niger.

Bottom Line:  The authors are striving for a database that can be replicated by anyone. But that's the problem. This is not research that can be done by just anyone, and especially not by only looking at media reports. That's why two teams -- both lightly criticized by the AidData authors -- have produced better results:  Derek Scissors and Kevin Gallagher, Amos Irwin, and Katherine Koleski. Their methodologies are eclectic, but they know that there is no substitute for painstaking, informed, expert, bi-lingual investigative research and digging into the cases.

Post script: These numbers, as I expected, are already being "spun" in media reports as "Chinese aid to Africa". For a kindred commentary on this, see Philippa Brant's blog post at the Lowy Institute. The controversy was discussed by Eric Voeten at the Monkeycage blog. A story on it appeared at Think Africa Press, and a lively podcast from the China Africa Project. The Witts China in Africa Reporting Project has a collection of many of the links for this debate.

China in Africa: Really Rubbery Numbers

An article in the South China Morning Post "Rubbery Numbers Add Up to Big Role for China in Africa," (March 29, 2013) illustrates the pitfalls of journalists relying on "experts" who parrot the conventional wisdom but don't really know what's going on. Here are three examples:

According to "expert" #1:

the cumulative Chinese investment in sub-Saharan Africa totals US$220 billion.

I hope the reporter simply got this quote wrong. It's actually quite close to the figure for China-Africa trade for 2012. But FDI?! 

The Chinese official figures are around $16 billion for cumulative investment in Africa. This is certainly an underestimate, but the real figure is nowhere near $220 billion! Even the figures provided by Derek Scissors' China Investment Tracker at Heritage, who tracks the value of all deals at $100 million and above (i.e. the expected value, not the actual investment flows), has a value of about $40 billion. It's silly figures like this that continue to create a distorted image of a frighteningly enormous dragon hoovering up resources across the continent.

Then we hear from "expert" #2: "There had been anti-China sentiment in African countries like Zambia, because of the Chinese workers brought in for large construction projects."

Yes, there was anti-China sentiment in Zambia, but it was largely over labor and safety standards in Chinese mines (Zambian workers were protesting this) and the presence of Chinese traders. It was not about Chinese workers brought in for construction projects, because most of the workers on those projects are Zambian. The film "When China Met Africa" illustrates those conflicts beautifully.

The SCMP article ends with this quotation from "expert" #3:

"The problem for China is it prefers to cultivate relationships with African leaders who kowtow like deferential courtiers. When the people in these countries feel left out and vote out their disconnected leaders, what will China have?"

It's a good sound-bite. But what evidence do we actually have that "China" prefers to cultivate relationships like this? And what evidence do we have that regime change away from governments friendly to the Chinese leads to losses for "China" or its businesses? 

I'm not sure how we should measure the cultivation of relationships in Africa: frequency of visits by top leaders? Size of economic engagement? From frequency of visits, the top countries are Egypt, Tanzania, South Africa and Morocco -- they've each had four visits from China's top leaders (president or premier) since 1995. From the economic data, it looks as though China's largest economic relationships in Africa are with Angola, South Africa, and Algeria. These don't strike me as countries led by China's "deferential courtiers". 

And contrary to the assumption in this quotation, when governments viewed as friendly to the Chinese have been voted (or thrown) out, the Chinese do not seem to experience business losses. Zambia, Ghana, Niger, and Guinea are all good examples of this. On the other hand, the Chinese have had huge losses in Libya, but they had a very sour relationship with Gadaffi, so this doesn't fit the assumption either. Reporting that confirms prejudices rather than investigating the reality of a situation does no service to our understanding of this complex relationship.

China's Pledge of $20 Billion to Africa: Aid or Not?

At the fifth ministerial meeting of the Forum on China Africa Cooperation held in Beijing last summer, the Chinese announced a new pledge of a $20 billion line of credit "for Africa". Almost immediately, reporters began to call this pledge of credit "Chinese aid" to Africa. Jane Perlez at the New York Times probably influenced many when she called it "Chinese aid". Others confidently labeled the $20 billion in finance "concessional".

But was this aid? Was it concessional? I doubted it. But I was on vacation in the Olympic Penninsula National Park at the time, and kayaking in the San Juan Islands. I couldn't check it out, and then it receded as a hot issue.

Yesterday, for a paper I am writing, I went back to examine the Chinese discussion around this $20 billion. The very first source I found -- the Action Plan that summarizes the next steps for the FOCAC -- was very clear that this pledge is not about official assistance but business.  

Former President Hu Jintao made the pledge in his July 19, 2012 address to the Beijing meeting. The first of five priority areas was to "expand cooperation in investment and financing". Hu said "China will provide $20 billion dollars of credit" to African countries. This was followed by the second priority area, "to increase assistance to Africa." The new loans are clearly not being positioned as assistance. There is also no mention of their being concessional or preferential. 

Further evidence comes from the Action Plan issued by the FOCAC. Beijing's pledge comes under the heading 4.5 Cooperation in Banking and Finance. I quote it below:  

4.5.1 The two sides were delighted to see the steady progress in China-Africa financial and banking cooperation in recent years, which has played a positive role in supporting the growth of businesses from both sides and boosting China-Africa business cooperation.

4.5.2 China will expand its cooperation with Africa in investment and financing to help boost Africa's sustainable development. China will provide a credit line of US$20 billion to African countries to mainly support the development of infrastructure, agriculture, manufacturing, and development of small and medium-sized enterprises in Africa.

Later, under Section 5.1, the Action Plan focuses on "Development Assistance".  The Chinese pledge here is not specific and talks only of "scaling up" assistance and making "active use" of foreign aid instruments: grants, zero-interest loans, and concessional loans:

5.1.2 China pledged to scale up its assistance to Africa and to create new ways of assistance and make the assistance more effective.

5.1.3 China will make active use of the grants, interest-free loans and concessional loans to help the development of African countries.

So why did the pledge of $20 billion in investment and bank finance get interpreted as "concessional aid"? In the West, we are so used to seeing Africa as a place that needs our aid, rather than a place where our banks can do a rousing business. Africans are also used to big countries pledging big aid -- as urged by Bono and Jeffrey Sachs. The Chinese clearly see it differently. There are risks here -- a downturn in China, lower demand for African commodities, difficulties with repayment, a new debt crisis? So far, these remain hypothetical. Reporters and observers need to reboot their view of Chinese engagement in Africa. This is not about altruism. It's "mutual benefit" in intention: Chinese loans, Chinese companies doing the work, African infrastructure being built, and (probably) repaid by African exports.

China Eximbank and US Eximbank to Co-Finance?

I just came across this really interesting story of China Eximbank potentially co-financing a project in Ghana with US Eximbank.  Will follow up to see what happened.

MCC8-led Consortium secures US$ 47 million from US EXIM Bank for the Projects in Ghana

Date:2012-3-1   |   Read:1710

Washington, Accra, Hong Kong and Shenzhen--  On February 23, 2012, the Export-Import Bank of the United States (US EXIM Bank) confirmed the basic terms underlying a proposed US$ 47 million loan to finance Sunyani Water Supply System Expansion and Rehabilitation Project (Sunyani Water) and Western Corridor Oil & Gas Enclave Road project (Oil & Gas Road) in Ghana. MCC8 and its US partner—Lemna International, Inc, arrange the loan facilities. According to the agreement between the Export-Import Bank of China (China EXIM Bank) and Ministry of Finance and Economic Planning, Ghana, this debt facility for Sunyani Water will be led by the China EXIM Bank committing US$ 93 million concessionary export buyer’s credit facility (85%) and US EXIM Bank to fund US$ 15 million (15%) with 18 years repayment period and the interest rate 3.17% per annum as counterpart funds. The Oil & Gas Road is one of Twelve (12) eligible projects which have been identified and confirmed for financing under the debt facility of US$ 3 billion approved by Ghana Government and China Development Bank (CDB) on December 16, 2011. CDB provides 85% of the project contract price with 10 years repayment period with 3 years Grace Period and the interest rate 6 month LIBOR plus 2.85% per annum. US EXIM Bank provides US$ 32 million with 15 years repayment period and the interest rate 3.17% per annum as counterpart funds. Senior Vice President of US EXIM Bank, John A. McAdams, said, “Our review of the participant and product information in the application indicates that EXIM Bank is available for this transaction. If, however, the US exporter is facing foreign competition which is supported by foreign export credit facility agency offering more favourable financing terms, EXIM Bank may consider matching those terms.” President of MCC8 International, Dr. He Yu, commented, “One of major factors hindering the execution of the two projects is the contribution of the counterpart funding by Ghana government. The US EXIM Bank loan facilities will help Ghana cover the 15 per cent and quicken the implementation of the two projects.” On July 27, 2011, the Consortium consisting of China MCC20 Group Corp., Ltd. and MCC8 Group Company Limited, represented by Dr. He Yu, the president of MCC8 International, signed the Memorandum of Understanding (MOU) for a general contracting of Sunyani Water Supply System Expansion and Rehabilitation Project in Ghana with the Ministry of Water Resources, Works and Housing of the Republic of Ghana, represented by Kweku Botwe, the Managing Director of Ghana Water Company Limited. On August 2, 2011, the Government of the Republic of Ghana represented by Deputy Minister of Roads and Highway (MRH), Dr. Nii Oakley Quaye-Kumah, signed the Memorandum of Understanding for the Design and Construction of the Western Corridor Natural Resources Enclave Road Project with the MCC20-MCC8 Consortium.

The Chinese-Congo Sicomine Project: New Analysis

Ph.D. student Johanna Jansson's new briefing, "The Sicomines agreement revisited: prudent Chinese banks and risk-taking Chinese companies," an analysis of the reportedly massive Chinese joint venture in the Congo -- Sicomines -- is right now available in an ungated version in a special issue at the Review of African Political Economy. Johanna is the world's foremost expert on this project, the focus of her Ph.D. dissertation. Her new analysis, based on earlier but also very recent research (December 2012) charts recent ups and downs of this project. To our surprise, after providing about $1 billion in finance for infrastructure, China Eximbank pulled out of the project. This may be a temporary step. Johanna points out that the risk of this project falls squarely on the two Chinese construction firms that are the major parties to the agreement. It's a fascinating story, highly recommended.

A year ago, I interviewed one of the early participants in the negotiations over this project, an expert in project finance and coordination who was then working for the China Railway Engineering Corporation (CREC), one of the major participants in the Sicomines project. His observations add new light to the origins of this project. It appears to go back further than we had thought. In around 2004, he said, the Chinese focus in Africa shifted toward infrastructure for resources packages. He was part of a special team focused on the DRC, Southern Sudan [yes, that's right, they were thinking ahead], and Angola.

"The Sicomines project idea came from the Congolese," he told me. In the 1990s, we [CREC]  approached them, to suggest that we build things for them. But they had no money. They said:  'we have a lot of copper." They also didn't want only Western miners in the country. They wanted to kick start the old mine, but this needs investment and infrastructure. So they needed something to secure the package." CREC invited Sinohydro. This was based on the project's needs, but also on who was already active in the DRC. Other Chinese companies can be competitors or cooperate. If we didn't bring them in, they might have competed with us."

"The negotiations started in late 2003. The breakthrough was in 2006. There was a temporary lull because of the civil war, also the copper price was lower until 2005. As the asset value went up, the amount of infrastructure it could finance went up. Angola was also good timing with oil prices."

Doing these packages is "complicated," he said. "You have to involve Sinosure, MOFCOM, the Ministry of Finance. It's like running, running in circles. That's on the Chinese side. On the African side, it's the same thing. Back and forth. My job was to make sure each side understood how the other worked. You have to present a bankable feasibility study to the banks."

"Why do this complicated kind of project?" I asked.  He said: "You can generate the revenue to pay for the construction; this creates business for us in the DRC. It also helps with diversification of our company. To have mining assets makes us more attractive. And you are leveraging policy bank money. The policy banks have to use their funds. For them, short term trade finance is less important because Chinese commercial banks, Hong Kong banks will do that."

What about the terms of the finance? "Some of the DRC projects carried out by CREC and Sinohydro can be financed by concessional loans (you hui dai kuan) but these are not part of the package, they are not repaid from the mining project. Loans at LIBOR plus a margin have become very popular over the last five years. They can be bigger, they do not qualify for interest rate subsidies. The profit margin is low for the bank, but there is still a little spread [over their costs]. It has bigger potential."

"The mining loan was to be provided by CDB," he said. (This is also something I had heard from another Chinese analyst but I haven't seen this elsewhere and can't confirm it.). He thought that some of the other finance was coming from supplier credits to the companies involved.

One final point of interest: guanxi. CREC had a very useful person on their staff, someone they had hired from MCC (the China Metallurgical Corporation). This guy's father had a relationship with Joseph Kabila, the president of the DRC, from when he studied in China at the People's Liberation Army National Defense University in Beijing. This guy had also worked in Zambia. "He understood the technical, the economic, and the African perspective. This is rare."

photocredit:  China Africa Project.

Recent Setbacks in Chinese Engagement in Africa

A "snow day" here in Washington -- our universities have closed in anticipation, although outside our home, there's nothing but rain and sleet. Still, not complaining about a day of meetings being cancelled and time to read and write.

The China Africa Project has a nice summary of recent setbacks in Chinese engagement in Africa.

First, the Zambian government finally closed down the outrageously abusive Collum Coal Mine (this is the privately run mine where at least two Chinese managers have been murdered by their workers, and several Chinese managers have blasted protesting workers with bird shot. A really bad situation).

Also in the discussion: Botswana president Ian Khama complains about the quality of Chinese construction in a major power plant.

A hat tip to Henry Hall. 

US Eximbank $5 Billion Loan ... for Saudi Arabia

US companies active in Africa complain that they can't get support from the US government's official export credit agency, US Exim Bank, the way Chinese exporters and firms appear to get support from China Eximbank. Well, now I see why. While China Eximbank has been lining up billions for Chinese firms to get business in some of Africa's oil rich countries (Angola, Sudan), the US Exim Bank was apparently arranging a $5 billion loan for a joint venture between US firm Dow Chemicals and Saudi Arabia's state-owned oil company. (We know the Chinese provide finance with no strings attached. I wonder what kind of governance conditions we put on our mega-loans to this authoritarian dictatorship?  I also suppose this wasn't viewed as "giving 'aid' to get access to oil" on our part?)  With Saudi Arabia soaking up $5 billion, it's no wonder US exporters had to make due with far less  when they wanted to do business in Africa.  US Exim Bank provided only $1.4 billion for all of Africa in 2011.

China International Fund & Zimbabwe's Diamonds

South African journalist Khadija Sharife's article "Disappearing Diamonds" shines a spotlight on the links between the notorious Hong Kong company known as China International Fund (aka the 88 Queensway Group headed by Sam Pa) and the exploitative tragedy of the Marange diamond fields in Zimbabwe. Copiously documented and a fascinating, detailed read.

Khadija's focus on CIF should not obscure the fact that other foreign companies are actively exploiting the Marange diamond fields, including South Africa's New Reclamation Group. Apparently Diamond Mining Corporation and Mdaba Resources also have foreign investors as partners. Which countries do these firms call home? I tried to find out by using google but drew a blank. Does anyone else know?

Chinese Copper Mines in Zambia: Are they improving?

Human Rights Watch has published a follow up report to their critical 2012 study. The new report, "Zambia Safety Gaps Threaten Copper Miners," monitors changes (and lack of changes) at the Chinese state-owned CNMC copper mines in Zambia. According to HRW, "The report focuses on important labor rights improvements that have been made by CNMC's subsidiaries during the last year, along with challenges that still remain for both the Zambian government and CNMC in Zambia." A Chinese version is available here.

A hat tip to Matt Wells.

"China and Africa: Think Again" lecture at JHU (Baltimore)

I will be giving a talk, "China and Africa: Think Again," at the main campus of Johns Hopkins University, Tuesday, February 19, 2013, 12 Noon -­ 1:30 PM, 526 Merganthaler. Sponsored by The Arrighi Center for Global Studies, Co-­sponsored by Department of Sociology’s Program in Global Social Change and Development, the East Asian Studies Program, and Center for Africana Studies.

USA and Chinese Engagement in Africa: GAO Study

A team at the US Government Accountability Office (GAO) has just released a long-awaited study comparing US and Chinese export financing (and development finance more broadly) in Africa, based on detailed case studies of three countries, Angola, Kenya, and Ghana.

I read it late last night and this morning. It is, quite simply, by far the best single analysis I have seen on China-Africa-US engagement in Africa. It is comprehensive, empirical, deep and broad, careful, and balanced. Readers of this blog will expect that I read it carefully. I did, and I'm almost surprised to find that I have nothing but applause for their work. A few highlights:

• Evidence from our Department of Commerce point out that European firms, not Chinese, are our main competitors for host-country government contracts in the three countries covered by the study. 
• Compared with the Chinese Eximbank, which supports its companies enthusiastically in the three case study countries, the U.S. Ex-Im has only provided a total of two loans to governments in the case study countries since 2001 (both to Ghana)
• "Chinese firms are innovating and adapting quickly to local markets, such as in Kenya, where a Chinese firm in this [telecoms] sector has established one of Kenya’s largest training centers."
• "Counterfeit goods and related products from China have adversely affected U.S. firms’ sales and reputation, especially in Kenya among our case-study countries."
• "The Angolan government’s requirement that foreign firms take local firms as partners has posed some challenges for U.S. firms, while the Ghanaian and Kenyan governments’ strict requirements that foreign firms hire local workers have resulted in Chinese firms’ hiring more local workers for construction projects in these countries."
• "China’s data also include data on the number of Chinese laborers in Africa and a few African countries, including Angola. The United States does not have comparable data on U.S. workers in Africa and in countries like Angola."

There is a lot more of interest in this study. The team first contacted me for an interview in April 2011, so they have been working on this for quite some time. Although I had some (infrequent) interaction with them, I admit that I approached the final report with some trepidation. I've seen some pretty awful "research" on China-Africa sponsored by other US government agencies, and error-filled studies done by researchers at the World Bank. But as citizens and taxpayers, we ought to be pleased by this careful account. I hope it gets the attention it deserves.

Reflection of a Chinese Investor in Africa: Guest Post

This guest post by KF is reproduced with permission from the Comments section of my blog post, Nigerians Protest Conditions at Chinese Construction Project. I welcome other guest posts, particularly from Africans and Chinese with experience in the field.
 

As Prof. Brautigam noted, there is a huge cultural conflict in terms of work／business ethics and expectations towards labour. However, in my experience, after many periods of labour disputes, the companies acclimatise themselves to the locales in which they operate over time.

My parents (retired) had no concept of a holiday and often wondered why businesses closed on Saturdays and Sundays. Understanding they had come to a foreign country to invest, it was natural to them to work all the time. My father (the Bwana) himself would often join in the labour to demonstrate the task or to modify the task to enhance efficiency or complete a more complex task- innovation to African contexts. Even I (still in high school) was drafted into a foreman capacity, secretary, and sales office when the occasion required (all unpaid, of course), while all my expat classmates holidayed in UK or South Africa at their parents' multinational employers' expense.

Should we view the mega Chinese-DRC project as "aid"?

A reader asked this excellent question:

Thanks for all your excellent articles and The Dragon's Gift - my understanding of Chinese involvement in Africa has been significantly improved. However, regarding this article (n.b. my article on The Economist) I wanted to question one comment on the Sicomines deal in DRC. You say "the Congo Sicomines project, which is financed by non-concessional loans from China Eximbank."
 
However, SAIIA Johanna Jansson's detailed paper on the Sicomines deal (http://www.saiia.org.za/occasional-papers/the-sicomines-agreement-change-and-continuity-in-the-democratic-republic-of-congo-s-international-relations.html) implies that the final version of the deal does comply with OECD-DAC ODA definitions:

pg. 12 The OECD–DAC classifies a loan to a developing country as official development assistance (ODA) if it is: provided by official agencies, including state and local governments, or by their executive agencies; ... is administered with the promotion of the economic development and welfare of developing countries as its main objective; and ... is concessional in character and conveys a grant element of at least 25 per cent. The loans extended by means of the Sicomines agreement are provided by China Exim Bank, which is owned by the Chinese government and thus to be seen as an official agency. The credit line’s main objective is to finance post-conflict reconstruction in the form of infrastructure construction and refurbishment, which is to be considered promotion of economic development. The third and last element of OECD–DAC’s ODA definition is the grant element. This is a way to calculate that the cost for the loan is low enough – that it is concessional.38 The loan conditions provided in the original 2008 agreement did not meet the requirements for concessionality. However, in the revised 2009 version, the interest rate for the infrastructure loans was reduced from 6.6% to 4.4%.39 Currently, the grant element is estimated by the IMF and the World Bank to be at least 42%, which far exceeds the 25% minimum level required by OECD–DAC.40 This means that in its revised form, the loans extended under the Sicomines framework comply with the OECD–DAC’s definition of ODA.

Could you comment further on this difference? I would be very interested to hear your thoughts. 

Here are my thoughts. The finance does not qualify as ODA. The main reason is that although the finance was (supposed to be) extended by an official executive agency of the Chinese government, China Eximbank, it is not China Eximbank that agreed to change the interest rate. Rather, the implementing consortium of companies agreed that if the (variable) interest rate from China Exim Bank, which was set at LIBOR plus 100 basis points, rose above the rate of 4.4% where it was when the agreement was signed, they would pay the difference. This was a business risk they undertook, not a foreign aid transfer.

I wrote about this case in a paper published in 2011; the link is on this blog under the research tab:

The Chinese consortium agreed that if the bank interest rate on the loan (LIBOR plus 100 basis points) rose higher than the rate of 22 April 2008 (about 4.4 per cent), the Chinese consortium would be responsible for the difference.

My source for this was this document: "Avenant No. 3 à la Convention de Collaboration Relative au Developpement d’un Projet Minier et d’un Projet d’Infrastructures en République Démocratique du Congo du 22 Avril 2008 – 2009, October." See Article 7. Note that this agreement is not signed by China Eximbank, but by the Chinese investing consortium members.

Interestingly, the financing that we thought had been lined up for this project appears to be less firm than we all thought. According to Johanna's latest research, as of December 2012, China Exim Bank has still not released any money, and it is increasingly looking as though they may not finance this project. The project sponsors have been shopping the project around to other banks. 

Nigerian workers protest conditions at Chinese construction projects

Breaking news: Nigerian workers protest employment conditions at CCECC Lagos-Badagry highway construction site. As reported by Business Day, Nigerian workers complained:

 ``The management does not have any medical facility for the workers. Our salaries are poor and there is no increment.

``The suffering is too much. I cannot pay the school fees of my children,’’ Johnson said.

Mr Jack Aguto, who has worked with the company for six years, said that he was hired as an electrical engineer but had been working in other areas with no additional wage.

``It is sad that the money CCECC pays as salary is meagre. We need a basic salary. We work for seven days in a week and earn peanuts,’’ Aguto said.

A carpenter, Mr Henry Okoye, told NAN that he was currently earning about N17, 000 monthly as a junior worker, after working for three years as a casual.

``We work every day -- both on public holidays and weekends -- with no allowances. I was hired as a carpenter, but I am forced to work as a gardener and bricklayer on the same pay,’’ Okoye said.

This is a huge cultural conflict. Aside from the long hours, some of this reflects Chinese cultural assumptions about flexibility: work is work, and if the need is to develop the garden or lay bricks, and there isn't a need for carpentry, then carpenters should lay bricks. I've seen this with Chinese supervisors, who appear to be flexible enough to pitch in and move wheelbarrows if one needs to be moved. I have a photo from a factory visit in Nigeria of the Chinese translator, sweating as he picked up and moved big boxes full of brake pads.

a h/t to Ndubisi Obiorah

School Construction: World Bank versus China

In The Dragon's Gift, I made the argument that the Chinese approach to funding aid projects employs a high degree of financial control. As one African official told me: "with the Chinese, you never see the money." This has drawbacks for ownership, but is likely to mean that corruption and embezzlement is lower with Chinese aid, and the promised projects actually get built. Maintenance of course is another issue, something I also addressed in the book.

A school in Tanzania         credit: Worldcrunch.org

      Over the past six years, the Chinese government has been fulfilling a commitment to build 100 (or so) primary schools across Africa. My (so far minimal) anecdotal research in two countries on this has turned up an interesting phenomenon: at least one school out of the typical three built in a given country has been located in the home town of the country's leader. The schools are also typically of a much higher, gold-plated standard, something that is a showpiece, but difficult to sustain.
Both of these findings support my argument that Chinese aid is all about politics, symbolism, and soft power -- and not a simple swap-for-resources, as it has often been portrayed. 
     How do we do it in the West? This morning I've been reading a dissertation by one of my students, Ryan Briggs. At one point he gives the startling example of a World Bank funded school construction project in Malawi. 
     Briggs reports that of the World Bank's target of 1600 classrooms, half were never built, and according to the World Bank's own report, 340 of the 858 classrooms that were built were "left unfinished ... implementation of this component was unsatisfactory and contributed to the premature depletion of funds" (World Bank, 2001: 8).  Further, "the Government failed to provide the necessary oversight ... accounts were not well maintained ... records were not properly kept ..." (2001: 15). 
     Neither approach seems terribly satisfactory for making an impact on education. But in terms of financing school construction, the Chinese at least are dealing pragmatically with governance as it is, rather than governance as we wish it to be.

A h/t to Ryan Briggs.

Source:  World Bank (2001) "Implementation completion report (IDA-28100; pp -p9380)
primary education project on a credit in the amount of SDR 15.1 (US$ million
equivalent) to the Republic of Malawi for a primary education project." Technical
report, World Bank.

Eastern Promise (and Eastern Errors) in Little Africa

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

credit: Jeffrey Lau           Guangzhou's Little Africa

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

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

Anyone who tracks FDI figures knows this is way wrong. In all of 2012, according to official figures at MOFCOM, China's entire overseas investment to the world amounted to USD77 billion:

 In 2012, Chinese investors made direct investment overseas in 4,425 enterprises in 141 countries and regions. Direct investment overseas amounted to US$ 77.22 billion, up by 28.6% year-on-year. Of which equity investments and other investments were US$ 62.82 billion, accounting for 81.4%, and earnings reinvested were US$ 14.4 billion, accounting for 18.6%.

As I noted in a recent presentation at New York University, Chinese direct investment in Africa is generally only a small fraction of that in the rest of the world: on average, maybe 5 percent. The total stock of Chinese FDI in Africa amounts to about USD14.5 billion, by official figures (unofficially it is likely higher, but not enormously so). I don't know where Kit got the preposterous figure of USD45 billion for just six months of flows. Possibly it was in Foreign Policy Journal, where a similar figure was posted. But it's a reminder that even when doing great micro-level research, it's important to make equal effort to present the big picture correctly.

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

New Report on China Development Bank

Adina Matisoff has come up with another hard-hitting look at Chinese development bank's overseas financing for Friends of the Earth and BankTrack: China Development Bank’s overseas investments: An assessment of environmental and social policies and practices. Here's a synopsis of the report, from a blog posting by Michelle Chan: 

"As one might guess, CDB is a major financier of natural resource and infrastructure projects abroad. The report dives into four examples of CDB’s overseas transactions: the Alberta tar sands, the Shwe oil and gas project in Burma, Reliance Power’s ultra mega coal power plants in India, and Asia Pulp and Paper’s notorious logging activities in Indonesia. As evidenced by these ‘Dodgy Deals,’ CDB’s portfolio is as full of environmentally and socially risky projects as any of its international peers. But critically, CDB’s environmental and social policies fall short compared to its competitors.

However, a new China Banking Regulatory Commission Directive offers some hope. A few years ago, the CBRC launched an impressive new policy, the Green Credit Policy, which essentially requires Chinese banks to ensure that large, environmentally risky projects are in compliance with environmental laws before the banks lend them money. The policy was the first of its kind in the world, but it was really oriented towards ensuring that projects in China were compliance with Chinese law. But in February 2012, the CBRC issued a new Directive to the Green Credit Policy, which specifically instructs Chinese banks to adhere to international environmental and social financing standards in overseas transactions.

The new directive provides an opportunity for communities around the world affected by Chinese bank-financed deals -- such as the massive Rio Blano mine in Peru or the Merowe dam in Sudan -- with a leverage point to stop or improve an environmentally and socially sensitive project.The Directive also offers sustainable finance advocates both in China and internationally a chance to promote the implementation of this pioneering new banking regulation, and to work with a new group of globally important banks.

Finally, it allows those promoting international social, environmental and financial norms -- such as the Extractive Industries Transparency Initiative on revenue transparency, the Equator Principles for project finance, and the UN Declaration on the Rights of Indigenous Peoples --  to enlist the participation of powerful Chinese players that have been generally absent from these initiatives."

It's high time that the big Chinese banks step up to the plate on the Equator Principles. A hat-tip to Richard Carey.