[miningmx.com] — AFRICA needs high level investment to achieve long-term sustainable economic growth and reduce poverty. Foreign investors are often able to provide this investment, bringing with them additional benefits such as skills transfer, tax revenues and formal employment.
One of the foreign investors currently making bold moves in Africa is China. Although Africa’s trade with China is relatively small compared to its trade with the industrialised countries, it has grown very rapidly over the last five years. With the Democrats now holding the balance of power in Washington, the US-China relationship should become a rather interesting issue. At the same time, the China-Africa relationship should become further entrenched, not only economically, but also from a political and geo-strategic viewpoint.
China’s approach to Africa goes back to the 15th century when the Chinese first landed in Mombasa and it differs significantly to European and North American companies, governments or aid agencies that focus on profit maximisation and short pay-back times. The Chinese have a much longer time horizon, more staying power through the challenging times and will step in where Western companies or governments have stepped out, such as in the case of Sierra Leone.
China is hungry for resources and raw materials and Africa can provide. Despite some encouraging growth across Africa, the picture of poverty and unemployment remains bleak. African governments have been quick to seize upon Chinese advances in a desperate attempt to find quick short-term solutions to problems facing the continent.
China’s political stance is one of “non-interference” in the counterparty’s internal affairs, with no strings attached. But inevitably international political benefits do flow from these trade arrangements. Support for China from world bodies such as the United Nations (UN) led to the formation of the Forum for China Africa Co-operation (FOCAC). China shows it can reciprocate and in 2003 cancelled $1.27bn in debts owed by 31 African countries.
During 2006, China-African trade grew to approximately $50bn, with the surplus in favour of China. China predominantly imported a limited number of products and, in turn, exported final consumption goods. But the net effect of trade is not always in Africa’s our favour and we need to keep a check on this. For example, China’s ability to export low-value clothing and textile products has caused harm to certain African economies, as is the case with the textile industry in South Africa.
We have recently seen China Vision Resources buying a stake in Anglo American, South Africa’s biggest company, for approximately $800m from E. Oppenheimer & Sons. We also saw Zijin Mining pay $20 million for a 20% stake in Mpumalanga’s Ridge Mining.
China is becoming increasingly hungry for oil and its energy policy is dominated by this growing dependence on imported oil, which accounts for more than half of its total demand. China’s efforts, therefore, focus on managing its import needs through supply diversification. In this regard Chinese international diplomacy in Africa has played a major role in securing supply through bilateral agreements with African countries.
Chinese leadership was stung by the US Congress decision to oppose the sale of UNOCAL, the eighth largest US oil producer, to CNOOC (China National Offshore Oil Corporation) despite the fact that most of its reserves were in East Asia. China consumes approximately 8 million barrels of oil per day, second only to the US, and is keen to ensure supply stability.
So it now turns towards Africa, where oil is cheap and abundant, albeit in problematic states. At present, Africa produces approximately 5 million barrels per day, with Nigeria and Angola dominating. Countries such as Chad, Equatorial Guinea, Gabon, Algeria, Sudan and Mauritania are emerging as new players in this area.
China has made its move in Angola, granting the Angolan government a $2bn line of credit and a further $1.4bn of investments for a stake in Angolan oil fields. In Nigeria, China offered to build rail systems and power stations estimated at $4bn in exchange for drilling licences.
The withdrawal of a Canadian oil company from Sudan on human rights grounds gave China control of the Sudanese oil fields, which produce some 300,000 barrels a day, transported by a 1,600km Chinese-built pipeline guarded by Chinese troops. Sudan is also currently home to some 24,000 Chinese nationals. Tying energy issues to other strategic considerations with these African countries has ensured access to promising oilfields in Africa.
As the trade relationship with this superpower grows, the economic agenda becomes more complex and demanding. Africa must use the leverage of China’s resource demands to ensure that the trade regime with China is fair. For Africa to benefit, it must ensure that it uses this opportunity to maximise its own economic needs for long-term sustainability.
China is presently negotiating with 53 different states, each with its own agenda and negotiating teams. To exchange valuable resources such as oil for the building of courthouses, presidential palaces and the like is short-sighted and tantamount to selling the family silver.
Ideally we need to negotiate as one unified trade bloc rather than as 53 separate states, to ensure that Africa’s vast resources are not plundered but rather used to ensure the well-being of its long-suffering citizens. FOCAC is the appropriate forum, but the organs of the African union, specifically Nepad, must be involved to ensure that Africa does not lose out.
There is no doubt that China can bring new technology and assist with badly needed infrastructure. However, it is up to Africa to seize the opportunity appropriately and for the right reasons so that all of its people share in the benefits.
Stanley Subramoney is deputy CEO, PricewaterhouseCoopers Southern Africa and Director of the Nepad Business Foundation
