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China in Africa
International Commentary by Gordon Feller
China’s commercial and diplomatic strategies in Africa are raising pointed concerns about the absence of transparency or corporate social responsibility by Chinese state- owned companies on the Continent.
China’s strategy of swapping infrastructure for resources in Africa is accelerating, with recent multi-billion dollar deals planned with Niger, Guinea, and the Democratic Republic of Congo (DRC). China’s ability to target resource-rich African nations with overwhelming diplomatic and financial leverage gives its firms a distinct competitive advantage-and in some cases, preferential terms-especially in high-risk countries that are desperate for infrastructure, such as the DRC. Looking ahead, the infrastructure-for- resources model will likely drive China’s commercial relations with a growing number of African countries, making the Senators’ concerns over transparency and social responsibility (or the lack thereof) increasingly poignant, especially as U.S. extractive firms face “publish what you pay” mandates from the US Congress in the future.
In June, China National Petroleum Corporation (CNPC) signed a three-year $5 billion contract with Niger to develop the country’s oil potential -a huge commitment considering the uncertain returns and high risks involved. Niger reportedly has 324 million barrels reserves and up to 10 billion cubic meters of natural gas, but this landlocked nation, which is currently battling a Tuareg rebel movement in the north, has never produced a drop of oil or natural gas. While China’s resource- backed loans to Angola and DRC can be fully repaid in oil and metals, Niger is a riskier bet, meaning Niger may have to offer up additional assets in the future, in all likelihood uranium (still dominated by Areva), or face indebtedness to Beijing.
Under the terms of the agreement, the Chinese plan to build a 20,000 barrel per day refinery and a 2,000 kilometer pipeline by 2012, both of which could become targets of Tuareg attacks, assuming they are even economical. The Tuaregs have increasingly targeted uranium concessions and workers over the last 18 months, arguing that since state mining revenues fund the government’s counter-insurgency campaigns, mining companies (including Sino-U and Areva) are fair Game.
While such risk factors on the ground deter most oil companies, they may make Niger more attractive to the Chinese, not less, by thinning out the competitive climate, as in war-torn and sanctioned Sudan, which exports over 50% of its oil to China. The sheer size of the investment-many times the value of Niger’s entire budget-along with additional perks such as a $300 million signing bonus and power sector investment for the capital Niamey ensures that the Chinese have positioned themselves in a dominant position, likely with preferential investment terms, as in the DRC mining sector following Beijing’s $9 billion commitment there. In that case, the Chinese-DRC mining joint venture will be exempt from most tax and royalty obligations as part of the repayment for thousands of miles of roads-at a time when other firms are facing tough renegotiations that will eat into their bottom lines.
In Guinea, new promises by China to help develop the dilapidated infrastructure including a $1 billion hydropower project-to be repaid in rights to mine bauxite-appears to have upended the investment climate. Guinean authorities may now be seeking to rescind Rio Tinto’s license in hopes of a getting a better deal from China; at a minimum, Guinean officials are using China’s largesse for negotiating leverage with multinationals, a familiar pattern also seen in DRC and Angola. Guinea is a case in point of how a strong Chinese play for resources, coupled with targeted infrastructure investment, can throw a relatively well-established commercial climate into upheaval almost overnight. China’s multi-billion dollar forays into the DRC, Guinea and Niger-braving serious risks in each case-underscore its commitment to the formula of swapping infrastructure for energy and mineral resources, placing Western firms at a competitive disadvantage in the process.
Unlike most Western companies, Chinese firms actually seek out high-risk countries such as Sudan, DRC, Guinea, and Niger, where there is less competition and where Beijing’s commitment to infrastructure guarantees government support. That support may come at a cost, however, particularly when the host government lacks broad legitimacy, as opposition forces, civil society and even rebel groups take aim at Chinese interests as a kind of proxy for the government, as in Sudan, Ethiopia, Zambia, and the DRC; some Chinese firms with cozy government relations could face contractual risks should the government be voted or forced out of office, as almost happened in Zambia. That said, China’s infrastructure deals, backed after all by resource guarantees, are designed not just as contract sweeteners upfront but as a form of insurance against these risks, helping to tilt the competitive field in China’s favor over time. |
