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Poisoned Chalice or Fuel for Development?

Posted on: 17-May-2012

Poisoned Chalice or Fuel for Development?

African public intellectuals debate the future of Chinese investment on the continent.   

In the first of a series of OUCAN debates, two renowned African public intellectuals give their views on the pros and cons of the wave of investment and trade between China and Africa's 54 countries that is remaking the international political economy as we know it. Both concerned with job creation, economic growth and poverty reduction, they propose a radically different engagement with the People's Republic and draw our attention to the complexity of the debate and to a wide range of historical and contemporary examples that buttress their argument. Regardless of whether one agrees with them or not, they force to rethink our assumptions about the China-Africa relationship past, present and future.

 In the lead up to the fifth Ministerial Conference of the Forum for China Africa Cooperation to be held in Beijing later this year, OUCAN is launching a series of online debates on China-Africa relations by scholars, development specialists, business people, and civil society representatives from China, Africa and beyond.

The first debate pits two distinguished African intellectuals against each other in "Poisoned Chalice or Fuel for Development". The first debate goes live on Monday, 28th May. Professor George Ayittey is the first intellectual to give his views on Sino-African relations. The public will have the opportunity to comment on Professor's Ayittey views until the 27th May. On the 3rd June Dr Martyn Davies will continue the debate by introducing another viewpoint on Sino-African engagement.

Join us in the debate and post your questions, comments and suggestions online.

Please note that the discussion will be moderated and that views should be aired with respect for and consideration of the viewpoints of others.

Professor George Ayittey is a Ghanaian economist at American University and president of the Free Africa Foundation.

Dr Martyn Davies is the Chief Executive Officer of Frontier Advisory (Pty) Ltd and is based in South Africa.

"Dear Martyn,

Africa's infrastructure has collapsed after decades of abject neglect and destruction in civil wars. The World Bank claims that "the poor state of infrastructure in Sub-Saharan Africa cuts national economic growth by two percentage points every year and reduces productivity by as much as 40 percent." But the continent has abundant natural resources, which China needs to feed the voracious appetite of its economic machine galloping at a dizzying 9 percent. "Infrastructure-for-resources" swaps sound appealing and a blizzard of them have been signed in recent years. But they are not what they are cracked up to be; they are mostly scams, designed to fleece Africa.

Typically, the "infrastructure-for-resources" deals are arranged by shady Chinese middlemen or syndicates, who estimate the cost of infrastructure projects at grossly inflated prices and then seek financing from China's EX-IM bank. For repayment, they demand a huge quantum of resources to be shipped to China. Since construction is to be undertaken by a Chinese company, using Chinese labor and materials, there is every incentive to inflate the cost. The higher one's estimate, the bigger the loan. And the bigger the loan, the more resources China secures for repayment. To a cash-strapped African government with poor credit, a large loan might look like a political coup. It is essentially a "closed shop" deal; there is no open and competitive bidding. It is all stacked in China's favor and there is no protection against cost over-runs.

A typical case is the recent $23 billion deal China signed with Nigeria -- an oil-producing country that does not produce enough refined petroleum products for its people and must import 85% of them. China will build 3 refineries with a combined capacity of 750,000 barrels a day that exceeds the domestic demand of some 450,000 b/d. In exchange, China wants to grab one-sixth of Nigeria's 36 billion barrels of oil reserves (Financial Times, May 15, 2010).

Paolo Woods_2

$8 billion for a refinery with the capacity of 250,000 b/d is outrageous. In 2002, President Obasanjo laid the foundation stone of the $1.5 billion Tonwei Refinery in Bayelsa State. The refinery has an initial capacity of 100,000 bbl/d but can be ramped up to 200,000 bbl/d. Even more outrageous is what China is demanding in exchange -- a sixth of Nigeria's 36 billion oil reserves, which works out to be $642 billion at the current price of $107/barrel. Nice repayment for a $23 billion loan.

A similar deal has been offered to Ghana -- a $3 billion loan for infrastructure projects. In exchange, China seeks a daily supply of Ghana crude of 13,000 barrels for the next fifteen and half years! (Daily Guide, Feb 29, 2012) Simple calculation reveals that over the fifteen and half year period, 74 million barrels of oil will be shipped to China. The value at the current price of crude oil of $107 per barrel, works out to be $7.9 billion. Nice repayment for a loan of $3 billion.

In Angola, the Chinese Syndicate Queensway set up a joint venture with the government, called China Sonangol, to export oil. The terms under which China Sonangol buys oil from Luanda have never been made public. The Angolan president's son is a director of China Sonangol. According to the IMF and the World Bank, billions of dollars have disappeared from Sonangol's accounts. A 2011 report commissioned by the United Nations Development Fund "says that between 1990 and 2008, $34 billion disappeared from Angola's public coffers" (The Wall Street Journal, Oct 15-16, 2011; p.A10).

In return for Angolan oil, the syndicate promised to build infrastructure, including low-cost housing, public water-mains, hydroelectric plants, cross-country roads and railways. But in 2006, $2 billion of Chinese money intended for infrastructure projects disappeared (The Economist, Aug 13, 2011). Some housing and railway lines and the projects were at first financed by the syndicate. But in 2007,all work stopped and 2,000 Angolan day labourers were fired on the Benguela railway project. This forced the government to raise $3.5 billion to finance the projects. Meanwhile, more than 90% of the residents of Luanda remain without running water.

Similar deals were arranged by the Queensway syndicate in Guinea, where the syndicate secured exclusive rights to new mineral concessions, including the right to negotiate oil-production contracts in the Gulf of Guinea. In return, the syndicate promised to invest up to $7 billion in housing, transport and public utilities. Guinea's GDP is about $4.5 billion. Queensway syndicate gave Guinea's then military ruler, Captain Moussa Dadis Camara, a helicopter as a gift.

In Zimbabwe, Queensway created a new company, Sino-Zimbabwe Development Limited, which received rights to extract oil and gas, and to mine gold, platinum and chromium. In return, the company publicly promised to build railways, airports and public housing. These pledges were valued at $8 billion by Robert Mugabe's government.

The Queensway syndicate seldom delivers on its obligations. It abandoned infrastructure projects in Angola. Zimbabwe never got a fraction of its promised infrastructure. Guinea never received the 100 public buses that were meant to arrive within 45 days of the 2009 deal. Worse, the deals, signed with mostly autocratic African governments, are not transparent and are secured through secrecy and outright bribery, often described as "gifts from China":building a presidential palace for Sudan's despot; donating the blue tiles that adorn Robert Mugabe's new £7m palace in Harare; and oversized sports stadiums in Congo and Guinea".

In July 2008, there was outcry over the China-Niger oil deal. Civil rights groups called for a parliamentary inquiry into the $5bn contract and for scrutiny of how funds will be spent. "A mining union in Niger said the deal with China took place in the greatest of secrecy and with contempt for regulation" (BBC, July 31, 2008). In November 2011, Niger vowed to commission an audit of the Soraz oil refinery being built by Chinese oil company, CNCP, with a capacity of 20,000 bbl/d., after the price tag rose to $980 million from $600 million (Reuters, Nov 24, 2011). Note: The same refinery with the same capacity built in Chad by the Chinese cost only $60 million. Even there, Chadian officials shut down the refinery, owned by China National Petroleum Corporation International in January in a row over pricing by the refinery (AFP, Jan 20, 2012). The list of scandals goes on. In July 2009, Namibian prosecutors began investigating allegations of kickbacks on government contracts with China. One involved a contract to supply Namibia with scanners at security checkpoints. The Beijing-based Nuctech Companies Limited that makes the scanners, was headed until 2008 by the son of Hu Jintao, China's president. Nuctech was accused of having paid $4.2 million in kickbacks to a Namibian front company (The New York Times, July 31, 2009; p.A4).

Finally let me say something about the devastating impact of these deals on local economies. First of all, the deals offer scant opportunities for employment of locals, as Chinese companies bring in their own workers and materials. The textile industries in Northern Nigeria, Lesotho, and South Africa have been destroyed by cheap Chinese textile imports. Hundreds of thousands have lost their jobs.

In 2007, South African unions threatened to boycott anyone selling Chinese products. In Nigeria, the influx of Chinese products has devastated the Northern manufacturing sector. In 1982, 500 factories churned out textile products in Kano, but fewer than 100 remain operational today, most at far less than full capacity. Kano's Kwari textile market, the biggest in West Africa, has swelled with stall after stall of Chinese fabrics and clothing. A decade ago, 80 percent of the fabric sold at Kwari was made in Nigeria, compared with 5 percent now. There are more beggars and other visible signs of poverty in Kano than ever before. It would not be far-fetched to link the rise of the terrorist group Boko Haram to the destitution caused by the collapse of the textile industry.

Second, the Chinese are also invading sectors traditionally reserved for locals. In August, Ghana began arresting foreign nationals, mostly Chinese, illegally engaged in artisanal mining; 27 were incarcerated in January 2012. In markets in Kampala, Dar-es-Salam and elsewhere, Chinese are illegally engaged in retail trade.

In conclusion, the African poor have not benefitted from China's growing presence on the African continent. Beijing's activities serve a Chinese agenda and enrich corrupt vampire elites in Angola, Nigeria, Sudan, Zimbabwe and elsewhere. Chinese aid, disingenuously described as having no strings attached, is propping up hideously repressive regimes in Ethiopia and Guinea. This aid is impeding both political and economic reform, as recipients have little incentive to reform their abominable systems. The West made its aid conditional on progress in several areas, including the rule of law, human rights and reduction of graft. But any rogue African government that turns its back on the Western powers, will now find China a willing partner. Indeed in 2003, when the IMF suspended $2 billion in aid to Angola, citing rampant corruption, China came to the rescue with a $2 billion oil deal. This is disastrous.

The initial enthusiasm that greeted China in Africa has now cooled. Former South African President Thabo Mbeki warned against allowing China's push for raw materials to become a "new form of neo-colonialist adventure" with African raw materials exchanged for shoddy manufactured imports and little attention to develop an impoverished continent. Rene N'Guetta Kouassi, head of the African Union's economic affairs department, echoed this warning: "Africa must not jump blindly from one type of neo-colonialism into Chinese-style neo-colonialism" (AFP, Sept 30, 2009). Some African commentators are less charitable, denouncing what they see as "chopsticks mercantilism," alluding to the chopsticks dexterity with which China picks off at its leisure platinum from Zimbabwe, copper from Zambia, and oil from Angola, Nigeria and Sudan. Surely, dear Martyn, you cannot possibly defend the ugly geopolitics your fellow Africans so resoundingly denounce?

Yours Sincerely,


Edited by: Editor: Dr. Harry Verhoeven



0 #3 Guest 2014-11-27 07:09
Touche. Outstanding arguments. Keep up the good effort.
0 #2 Guest 2014-11-21 03:59
Thanks for sharing your thoughts about Politics.
0 #1 Guest 2014-07-10 14:32
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It appears like some of the written text on your posts are running off the screen. Can someone else please provide feedback and let me know if this is happening to them
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