Saturday, August 7, 2010

The dragon in Africa: An overview of China's presence on the continent

China, an emerging global superpower which will likely become the world's biggest economy within fifteen years, has planted itself deeply into the vast continent of Africa -- a land of huge untapped natural resources and incredible growth potential.

It would seem to be an ideal marriage -- China possesses immense intellectual capital and an inexhaustible appetite for commodities to keep its economic engines running, while much of Africa remains poor and in dire need of external assistance.

“Africa has an abundance of resources and is regarded by many as a frontier market that has strong growth prospects,” said Avior Research (Pty) Ltd., an equity research firm based in Johannesburg, South Africa.

“China is well aware of their need for resources as their own economy grows and, therefore, it is in China’s interest to gain a strong foothold on the African continent if it wants have access to those resources. China’s biggest investments into Africa have been in infrastructure, mining and banks.”

The two-way trade between China and Africa is expected to exceed $100-billion this year -- but that is only a pittance of what the future holds.
China's interests in Africa is nothing new, of course, but only in the past two decades have these giant entities established a firm and burgeoning economic cooperative.

Africa is the source of at least one-third of the world’s commodities, Avior Research estimates, and from the perspective that China needs raw materials “it is understandable that they are determined to build roads, ports, and railroads all over Africa.”

It could be argued that China moved into Africa only after the U.S. and Russia began to scale back their presence on the continent after decades of using it as a 'Cold War' chessboard.

Avior Research explains that as an emerging economy, China is arguably ideologically more aligned to Africa, than what the U.S. or Russia currently is.
“Much of the US/Russian interests arose out of the Cold War crisis between these countries,” Avior stated. “However, once hostilities ceased, a lot of the U.S and Russia’s political drive to economically re-colonize Africa lost momentum.”

In its recent approach to Africa, China could not be more different from the West, Avior Research added.
“It has focused on trade and commercially justified investment, rather than aid grants and heavily subsidized loans. It has declined to tell African governments how they should run their countries, or to make its investments contingent on government reform. China has moved quickly and decisively, especially in comparison to many Western aid establishments.”

In October 2000, Beijing created the Forum on China-Africa Cooperation, which regularly holds summits between Chinese leaders and various African rulers to discuss and formalize deeper relations. China has become one of the continent's leading investors and creditors.

From constructing a housing project in Algeria, to running a huge mining and infrastructure complex in Guinea, to an iron ore project in Liberia, to a massive dam enterprise in Ghana, to a highway construction endeavor in Rwanda, China has its fingerprints all over Africa. Indeed, China has established joint committees in at least 43 African nations to discuss and deepen economic and trade relations.

Of course, China's incursions into Africa has drawn much criticism, particularly from the West which fears that China is simply using Africa to feed her own economy at the expense of indigent Africans (which, of course, was the same charge leveled at the European colonialists for centuries).

Chinese officials have also come under attack for their lack of transparency and accountability regarding its numerous activities in Africa and its apparent unwillingness to reduce political corruption on the continent.

In response to such criticism, Fu Ziying, the senior trade official in charge of China's Africa portfolio, was recently quoted as saying: "China's presence in Africa is becoming more and more market-driven, the actors operating there are diverse, there are many models, and the areas they are in are broad.

The Chinese government is more and more aware that as the economic and trade cooperation between China and Africa evolves, there need to be some laws and protections in place."

In fact, China herself developed and modernized its own economy back in the 1970s and 1980s by talking loans from wealthier powers (in this case, Japan, among others) in exchange for mineral resources and oil. Within a few decades, China became an economic heavyweight and correspondingly became a net importer of commodities, rather than an exporter.

It would appear that the Chinese are now doing something similar with resource-backed lending in Africa (with China now as the dominant benefactor).

In "The Dragon's Gift: The Real Story of China in Africa" a book by Deborah Brautigam, a professor at American University and an expert on China-Africa relations, she points out that while the Chinese presence in Africa is largely benevolent, there are many problems associated with this complex relationship. For one thing, working conditions in many China-funded projects in Africa are very poor; and the Chinese do not seem to view the destruction of the ecosystem and environment with much concern.

However, she also indicates that China has made tremendous infrastructure investments in countries like Rwanda, Kenya and Senegal, which lack significant commodities -- thereby refuting the notion that China seeks only to 'exploit' Africa.

Moreover, China's financial investments remains far below the capital that flows to the continent from Western sources.

Brautigam estimates that in 2007, Chinese investment in Africa totaled about $1.4 billion, far smaller than the outlays by the U.S., European Union and World Bank of $7.6 billion, $5.4 billion, and $6.9 billion, respectively, for that year.

Nonetheless, China will surely deepen its involvement in Africa in the years to come. Only time will tell how much the Africans benefit from this relationship.