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

photocredit: japanfocus.org

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

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

It looks good! There were a few areas where I saw some room for improvement:

p. 1  "China ... has started to deliver development assistance..."

As you know, I'm sure, China "started" to deliver aid to sub-Saharan Africa around 1960. Recently aid has increased, but it's still fairly modest and not new. This is important because it helps dispel the myth that China just arrived as part of a desperate search for resources. This engagement is much more complex.

p. ii. "China has developed close relationships with African regimes that the international community, or more specifically, Western countries, only engage
with in a manner that is conditional on improvements in governance."

Perhaps you mean Western governments only provide aid "in a manner that is conditional on improvements in governance"? (even this is debatable: see Egypt for example...). Western companies have lots of engagement except when specifically banned, which is extremely rare (Sudan). And Western governments "engage" with all sorts of poorly-governed and/or non-democratic countries: Angola, Nigeria; Egypt; Chad; DRC; Guinea; Equatorial Guinea ... and even Sudan and Zimbabwe.

One statement is quite inaccurate:

p. ix  "As part of China’s wider participation in Africa’s infrastructure development, Chinese finance and companies had been involved in the construction of 25 dams in Africa by 2008."

I've seen the report you cite. The authors did a good job of compiling media reports. However, the figure of 25 is far from the real story.

Here's how these 25 projects break down:  4 refer to projects, usually quite small, completed between 1982 and 1996; 3 refer to repairs or expansions of hydropower plants (i.e. new turbines, etc.), not dams; 2 have construction contracts signed recently & seem to have financing lined up, but haven't started construction & so could still fall apart (Ethiopia-Neshi; Togo-Adjarala); 10 appear at the present moment to have been MOUs or expressions of interest that went nowhere; as of 2011 only 6 of the listed projects are dams currently under construction or completed recently (Ethiopia-Tekeze; Ghana-Bui; Congo-Imboulou; Sudan-Merowe; Botswana-Dikgatlhong; Gabon-Grand Poubara).

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

Understanding China

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

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

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

Chinese President Hu Jintao and President Kibaki of Kenya

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

Has China's Export Financing Met Its Match?

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

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

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

GE won the contract. 

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

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

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

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

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

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

Murder of Chinese Manager at Zambian Mine

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

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

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

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

How Many Chinese Workers?

Senegalese & Chinese. AFP for the BBC

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

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

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

US Far Outstrips China in Arms Sales to Dictators

Kristin Jones reports for the South China Morning Post on the surprising result of a new Norwegian study that examined US versus Chinese arms exports. She also quotes some of my reservations on the study's methodology:   US far outstrips China in arms sales to dictators
Kristin Jones in New York Jan 03, 2011
When it comes to arming autocrats in Africa, upstart China is no match for the United States, a study of arms exports finds. China's sales of weapons to dictatorial regimes such as Sudan and Zimbabwe have sparked outrage from human rights advocates, academics and officials in the West. Some say that Beijing is undermining the development of democracy and rights in Africa. In a State Department cable recently released by WikiLeaks, the top US diplomat for Africa, Johnnie Carson, summed up the basic sentiment for an audience of oil executives in Lagos, Nigeria, in February last year when he noted: "China is a very aggressive and pernicious economic competitor with no morals." But compared with the US, China actually shows a preference for relatively democratic clients such as Zambia and Namibia, according to a review of arms transfers from the end of the cold war until 2006. And morals or not, the US tends to favour autocrats and human rights abusers - most notably its ally Egypt. "The US is promoting its strategic interests even if it means promoting authoritarian regimes, while China is more interested in economic relationships," said Paul Midford, who co-authored the study with Indra de Soysa using data compiled by the Stockholm International Peace Research Institute. The findings turned common wisdom on its head, said Barry Sautman, a political scientist at Hong Kong University of Science and Technology. "People naturally assume that because China is an authoritarian state, it will want to sell arms to other authoritarian states, and that the US will do the opposite," Sautman said. The actual record is more complicated. In Sudan, a state with an egregious record of atrocities against its people, China has indeed supplied weaponry. But it is not the most important supplier of arms, the authors note. From 2001 to 2008, as international attention to China's involvement in Sudan grew, Russia sold five times more arms to Khartoum, according to the Stockholm data. More of China's arms went to Egypt - its biggest market in Africa. But there, Beijing's sales were dwarfed by the US. From 1989 to 2006, the US provided Egypt with billions of dollars worth of fighter jets, tanks, missiles and other arms. Hosni Mubarak, Egypt's president, has ruled since 1981 under "emergency" law that allows the government to detain people without charge. Torture by police and security forces is routine. "This is not to excuse Chinese arms sales to undemocratic or human rights-violating regimes," says Ian Taylor, a professor of international relations at the University of St Andrews who has written about China's role in Africa. "But we need to remember that firstly, China is not the worst culprit in this - the United States is, by far." The Stockholm data includes sales of things like tanks, military helicopters, and fighter aircraft. But it doesn't include small arms and dual-use equipment, which are often sold through brokers rather than by direct government-to-government arrangements. This omission was significant, said Deborah Brautigam, an expert in China-Africa relations at American University in Washington DC. Small arms, including AK-47s and ammunition, comprised the bulk of Chinese weaponry sold in places like Zimbabwe. And the trend, she added, may be towards more Chinese arms sales across Africa - not fewer. The authors might have come up with different results, she suggested, by looking at a shorter and more recent time span. "China's export of arms, like all its other exports, are likely on a sharp rise year by year," Brautigam said. But Chinese arms sales did not signify an effort to challenge values like rights and democracy, Brautigam and other specialists said. To those who had painted a picture of an emergent superpower that sought to create a "Beijing consensus" of authoritarian states, the data from Stockholm illustrated that "there may not be anything to that", Sautman said. Midford and de Soysa are both political science professors at the Norwegian University of Science and Technology. Their research was initially presented at an international studies conference in New Orleans in February, and is under review for publication in an academic journal.

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

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

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

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

China-Africa Economic and Trade Cooperation White Paper

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

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

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

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

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

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

China's Resource-backed Weapons Exports: Norinco

book cover: Harper Collins

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

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

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

Moises Naim and the $9 Billion Dollar Myth

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

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

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

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

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

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

China's "Rogue Aid": Japan Times

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

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

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

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

This methodology has two obvious problems. First, investment, export credits, supplier finance, etc., is not "aid" but commercial in nature, and should not be counted as official development assistance. Second, the fraction of projects mentioned in the media that actually go forward is small, no matter who is financing them. This overstates the size of Chinese engagement. While the CRS report claimed that China gave $18 billion in "aid" to Africa in 2007, by my estimates, the real figure of official aid disbursed in 2007 was less than 8 percent of that.

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

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

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

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

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

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

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

China's DRC Roads Redux

Chinese road construction in DRC. photo Kilogold.net

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

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

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

Khartoum Refinery. photo credit: KRCSD.com

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

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

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

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

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

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

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

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

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

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

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

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

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

Ghana and China presidents toast deal: WSJ photo credit

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

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

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

(1) According to this official press release, the total line of credit amount is less than the  $13 billion we were reading about in the papers:  still $3 billion from CDB but "only" $5.9 billion from Eximbank, or a total of $8.9 billion). [2015 update: the $5.9 billion from Eximbank never materialized, no doubt because Ghana--as we later saw--simply did not have the absorptive capacity for so much debt.]

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

(3) The large deals are explicitly at commercial, not concessionary, rates, although Ghana also received a separate foreign aid package of a grant, zero-interest loan, and concessional loan/preferential export credit of $250 million at 2%.  This latter package is quite similar to the kind of packages offered to Mauritius, Namibia, and other credit-worthy middle income countries in Africa.
 
In September I had lunch in Beijing with Roger Nord, a senior adviser to the Africa Department of the IMF, and we talked quite intensely about the structure of these deals. I was pleased to read Roger voicing to Reuters a reassuring "good opportunity for Ghana" take on these deals in Reuters. At the same time, the difference between the September and October figures for China Eximbank, and the delay in the press release, suggest that some behind the scenes negotiating on debt sustainability may have been going on. This also happened, but with much more rancor, in the DRC, where the initial Chinese loan package was reduced from some $9 billion, to some $6 billion.

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

African Public Opinion on China

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

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

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

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

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

African Traders in China and Substandard Goods

photo credit: Evan Osnos, The New Yorker

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One of the primary complaints I hear on China-in-Africa is the issue of substandard Chinese goods in African markets. Clearly, Chinese traders are bringing in a lot of these goods. But an under reported factor is the role of African traders in the supply chain.

As many as 20,000 African traders and entrepreneurs live, visit, and work in a suburb of the city of Guangzhou (Canton) called by locals "Chocolate City". The suburb is divided into different neighborhoods -- Nigerian, Malian, Benin and so on. From time to time the local police crack down on traders who have overstayed their visas.

A report by Bill Schiller in The Star (Canada) on a crackdown last year caught my eye recently because it contained an illuminating reference to practices of some of the African traders and how substandard goods enter African markets. A Nigerian trader explains:

"My brother came here first to seize the opportunity. So I came, too. Everything is so much cheaper here," he said one recent afternoon.

He and other African buyers tour local factories regularly, he says, looking to buy "seconds" with minor imperfections.

A pair of blue jeans can be had for as little as 15 Chinese yuan, the equivalent of $2.45, he says. These he can sell right here at his stall for 28 yuan, or about $4.60. But back home they can fetch as much as 45 yuan or $7.35, maybe even more.

Other reporting elaborates on these practices. Here's an excerpt from the English translation of an article on Chocolate City that appeared in Southern Weekend (courtesy of Africafeed.com):

“Every day after noon, “Chocolate City” begins to turn lively. Tens of thousands of black people seem to erupt from the ground in groups of twos and threes. Carrying large black plastic bags or wearing backpacks, they look through the stalls along the street. The stalls are filled with “tail goods” (excess production that did not meet quality standards) from thousands of small factories throughout Guangdong: blue jeans, unbranded television sets, hand-assembled cell phones.”

For more visuals on Africans in China, click here for Evan Osnos's great slide show from the New Yorker.

Complaints about substandard Chinese goods in African markets abound. Here's one way these goods enter, and why. The price differentials also help explain why African manufacturers are having such trouble competing with Chinese firms. In a future post I'll link to a paper on ways in which consumers in one Tanzanian market are successfully dealing with these challenges.

China, Malawi's Fertilizer Subsidies, and Monsanto

Photo: Intl. Center for Tropical Agriculture

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Now that five years have gone by, the success of Malawi in increasing food production through using fertilizer subsidies appears to be pretty well established, and interest in replicating Malawi's experience is growing.

An overview by Yasmine Ryan on the African Agriculture Blog: "Can Fertilizer Subsidies Grow Africa's Green Revolution?" provides interesting insights. What Malawi apparently did was not simply subsidize fertilizer, but hybrid maize seeds. A big beneficiary of this policy turned out to be Monsanto, which had an entree into the hybrid maize markets in Africa. "Is it philanthropy, PR, or simply shrewd business?" asks Ryan.

This made me think of the Chinese effort to boost their own seed companies and their hybrid rice seeds, in part through the 20 agro-technology demonstration centers in Africa that mix China's foreign aid funds and Chinese business incentives. "Is it philanthropy, PR, or simply shrewd business?" Time will tell. 

A (More) Transparent Chinese Mining Deal in Mozambique

 Coal mining: Image courtesy of Reuters

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Many people (including me) who study China-in-Africa were not well-versed in the standard operating procedures for large commercial deals in mining, power generation, and so on. I've learned a lot about this over the past few years, in particular, about the lack of transparency that is common across the board (ergo the need for organizations like Transparency International).

Several weeks ago I was invited to lunch with staff from a major US oil company with operations in Africa. I asked them what their "standard" practices were in offering signing bonuses, negotiating royalty rates, and so on. They were completely tight-lipped about all of this, citing commercial reasons for confidentiality.

Similarly, someone I know who has been advising on a complex power deal in Africa, in which Chinese banks are involved, told me that no details could be divulged, as it was standard practice on deals like this (not specifically Chinese deals) for all the parties to sign non-disclosure agreements while the deal was being negotiated. 

It was thus interesting to learn some details about an MOU signed between Australian firm Riversdale, and China's Wuhan Iron & Steel Corp (Wisco) and China Communications Construction Company, in Mozambique (Zambeze & Benga). The deal would grant Wisco "the right to buy 40% of the coking coal produced from the Zambeze project ... and at least 10% of the coking coal produced from the nearby Benga coal mine." The $800 million deal would give Wisco 40% of the Zambeze project, and 8% of Riversdale's shares. It would be payable in three tranches:

The first $200-million would be paid upon the completion and signing of a definitive agreement covering the joint venture.

A further $150-million would be payable on the successful completion of a feasibility study for Zambeze, subject to meeting certain milestones, including establishing the commercial viability of developing and operating the Zambeze project to produce no less than 30-million run-of-mine tons of coal a year.

A further $450-million would be payable on the granting of the mining contract, mining licence, final environmental approval and other necessary regulatory approvals required to proceed with the development of the project.

Wisco, CCCC and other Chinese companies will conduct "a comprehensive study of mine-to-ship logistics to enable the export of large tons of coal products from the Zambeze project to ports for export markets." The stages that this deal must pass through are no doubt similar to those for many of the other mining MOUs signed by Chinese companies. (These uncertainties help explain why so many signed MOUs do not result in actual projects.)



 

China's New Debt Cancellation & Aid Pledges

At the Millennium Development Goals summit in New York about ten days ago, Chinese Premier Wen Jiabao announced the latest figures on China's accumulated debt cancellation so far:  25.6 billion yuan of debt "for the heavily indebted poor countries and the least developed ones". [This comes to about $3.83 billion at an exchange rate of US$1.00 = RMB yuan 6.69.]

He also announced a continuation of China's MDG pledges:  Over the next five years (i.e. before 2015), China will contribute:

• construction of 200 schools
• 3000 Chinese medical experts
• train 5000 medical staff from developing countries
• provide medical equipment and medicines for the 100 hospitals built earlier

This raises a few questions. What happened to the earlier pledge to train people for the schools being built? Are the Chinese medical experts the same as the teams of doctors traditionally sent to African countries, or is this something different? How are the medical staff going to be trained? Is this a full degree, or M.D. or nursing course being offered? Or simply a few weeks of training? 

More details on all of this would be helpful.

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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