Oxford University

China Africa Network

Poisoned Chalice or Fuel for Development? (Part III)

Posted on: 24-Jul-2012

Dear Martyn,

Let me make a couple of broader observations to strengthen my points and to refute your arguments. Firstly, the tendency to place the ongoing China-Africa discussion in geo-political context as you do is not helpful. It emanates from the notion that the West and China are two suitors vying for the affection of Africa and, therefore, what is good for China in Africa must be bad for the West. Of course, African leaders also fall into this trap and often operate from the fallacious notion that "the enemy (China) of my enemy (West) must be my friend". The problem is that such a perspective ignores the interests of the African people.

The second and more disturbing development has been the confusing use of the term "Africans.". Which Africans? A clear distinction must always be made between African leaders and the African people. The two are not necessarily synonymous since the vast majority of African leaders do not represent their people, nor care for them. A Chinese deal which benefits Zimbabwe does not necessarily benefit its citizens since whatever benefit that is derived is misappropriated by Robert Mugabe and his ZANU-PF gangsters. Countless examples can be drawn from Ethiopia, Kenya, Sudan and other African countries that show that the benefits from increased trade with China have not trickled down. The worst offenders are Angola and Nigeria, where despite expansive engagement with China, 60 percent of the people in both countries live in grinding poverty, earning less than $2 a day.

Africa has always been hospitable to foreigners. Trouble started when they abused African hospitality and imposed their rule on their hosts. The first to invade were the Arabs and then the Europeans. From the African perspective, there were no differences between them. Both were invaders, colonizers and enslavers. Both brought foreign religions into Africa. Neither Christianity nor Islam is indigenous to Africa. And while the Europeans ran the West African slave trade, the Arabs ran the East African counter-part.

 The new "invaders" are Chinese. To be sure, China is welcome to do business in Africa just like any other foreign country. However, given Africa's historical record of colonialism, exploitation, and oppression, there is nothing wrong with African people wanting to scrutinize any relationship with a potential trade partner to determine if it would be beneficial. And such scrutiny does not necessarily predispose one to be pro-West.

After a careful scrutiny of the deals African leaders have signed with China, several complaints have emerged. The first, which I explored in my opening statement, has been nature or structure of the deals – on barter terms – which are skewed in China's favor. The second is the opacity of the deals. They are not transparent and signed in secret and secured through bribery or kickbacks – such as building presidential palaces and football stadiums. Third, the potential for graft is enormous in the "infrastructure-for-resources" deals African leaders are signing with China.

This is in sharp contrast to the commodity-backed loans or deals China is offering to Latin America.

Under a typical scenario China gives Brazil a $3 billion loan at 10 percent compound for 5 years, backed with the country's oil production. Total payment after the 5 years would amount to $4.83 billion. Equal monthly repayments would come to $805,166. Each month, Brazil exports 8,000 barrels of oil to China. If the spot market price for oil is $110 per barrel, the value of the oil export is $880,000, which China places in Brazil's account. Then China subtracts $805,166 as loan repayment, leaving $74,834 in the account for Brazil. The loan is not tied to anything and Brazil can use it as it sees fit. It is a win-win for both countries.

By contrast, the typical "infrastructure-for-resources" deals being signed with African governments are arranged by shady Chinese middlemen, 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 the estimate, the larger the loan, which in turn means the more resources China secures for repayment.

All three partners have every incentive to reach a "big deal." To the Chinese construction company, it means greater profits and to the syndicate it means a huge amount of resources for repayment. To a cash-strapped African government with poor credit, a large loan opens up huge political opportunities. But ordinary people lose out.

There are two principal differences between the commodity-backed loans for Latin America and the infrastructure-for-resources deals for Africa. First, though the loan Brazil secured is commodity-backed, it is free to use the loan for whatever it likes. Second, the price of the commodity is taken from the spot market and can rise or fall. In the infrastructure-for-resources deals, the price of the resource is taken from today's price and used to make calculations well into the future. The African country clearly loses if the current price of oil at $110 is used as the basis for computing repayments into the future and the price rises to $200 in say five years. Third, it is a closed shop: It is a Chinese syndicate that does the feasibility study, a Chinese bank that provides the financing and a Chinese construction company that builds the infrastructural project, employing Chinese workers.

A far better arrangement would be for the African government to engage its own civil engineers to conduct the feasibility study. Eritrea, for instance, rehabilitated its railway system by recalling railway veterans from retirement and using students on national service without borrowing a single penny. If absolutely necessary, an African government can seek a loan from China's EX-IM Bank, but the project must be offered for competitive bidding and awarded to the company – regardless of its origin – with the lowest bid. For repayment of the loan, the country may ship a certain quantity of say bauxite, for example, 4,000 tons a year to China. This quantum of bauxite will be valued at the current market price. If the value exceeds the loan amortization amount, the excess will be placed in an escrow account. This way, it is a win-win for both Africa and China in contrast to the current arrangement. Wouldn't you agree that this is a better model for development than what we currently have in place?

Looking forward to your reply,



Edited by: Editor: Dr Harry Verhoeven



0 #2 Guest 2013-03-04 15:47
how come those outside goverment always have the best ideas? Its simple, if they are in goverment and are beneficiaries to the deals they simply shut up. those who dont benefit shout loudest. let prof goerge aryitey be in govt tomorrow. his prose will change completely. that is my beef
0 #1 Guest 2012-11-08 06:16
China’s development and economic aid to Africa is suspected of primarily serving China’s economic interests. China lacks humanitarian credibility because it is a one-party state which pays scant regard to human rights and the environment in its blinding sprint toward prosperity. Although its thriving economy is enviable, there is no desire to emulate China’s personal, political and press strictures.
Post-war reconstruction help for a defeated Germany and Japan from the United States, Britain and their Allies was forged in the crucible of the just world wars of the twentieth century. Great sacrifice had already been made to save humanity from the forces of Nazism, Fascism and Despotism. A tradition of heroic virtue and resuscitating vanquished foes certainly adds lustre to Western aid. Perhaps China's assistance remains suspect because it has not earnt the trust gained from to pulling the civilised world back from the brink of totalitarianism .

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