In it for the Money: A Partnership for Profit

The clearest indication of China’s goals is offered by a closer look at some of its agreements with Southern African countries. Here it behaves as an economic actor looking to protect its interests, not as a benefactor or a coloniser seeking to trade economic advantage for political influence.

Claude Kabemba's picture

Director of the Southern Africa Resource Watch (SARW)

October 5th, 2012

The clearest indication of China’s goals is offered by a closer look at some of its agreements with Southern African countries. Here it behaves as an economic actor looking to protect its interests, not as a benefactor or a coloniser seeking to trade economic advantage for political influence.

Dealings with South Africa on trade imbalances are a case in point. South Africa sought to correct the imbalance by increasing higher value exports to China. It also urged China to invest more in South Africa with a view to job creation and promoting economic development. Then Deputy President Mlambo-Ngcuka specifically encouraged China to assist South Africa with technology transfer, skills development, and the encouragement of manufacturing. The objective is to promote a more equal and sustainable economic relationship and a move towards a balanced trade profile. China responded with a promise to address the trade imbalance and it agreed in 2006 to establish a more equitable trade balance --a ‘win-win’ trade relationship. Both sides thus agreed to the Partnership for Growth and Development (PGD), intended to institute measures which would establish a long-term balance in China-South African trade. The key objective of the PGD is to shift the structure of trade towards increasing the value of South African exports to China, by focussing on mineral beneficiation and the export of manufactured and processed agricultural products to the Chinese market. The PGD specifically commits China to support South Africa’s mineral beneficiation strategy and to establish a balanced bilateral investment flow over the longer term.

China, however, gave no clear idea how a greater balance would be achieved. No proposals to improve South Africa’s access to the Chinese market were tabled. Subsequent discussions with Chinese officials suggest that Beijing expects South Africa to be more competitive and to access the Chinese market via WTO rules the same way all other countries do. Discussions with Chinese officials also suggest that the ad hoc and unstructured arrangements emanating from the BNC will not produce significant outcomes. There is currently no mutually beneficial economic partnership agreement between China and South Africa. A well-structured agreement, similar to those being negotiated by Australia and New Zealand with China, would provide a means of accessing the Chinese economy, expanding South African exports, and creating jobs. Thus far, however, China has not been willing to make concrete commitments which meet South African concerns. While this may indicate that South African negotiators have settled for very little, it does show that hard progress will depend on hard bargaining, not South-South solidarity.

Analysis of the agreement establishing the China-DRC minerals joint venture suggests that the Congolese government risks committing itself at a loss: the money is paid in instalments. For their part, the Chinese administer the partnership and unilaterally import equipment and use Chinese personnel. In short, they do everything themselves. Critically important is the requirement in the contract which says that if the reserve in minerals given to the Chinese companies is not sufficient to recover or to pay back Chinese investment, the Congolese government must find other reserves. At one stage, the Chinese contended that the mines being given to them in Kolwezi would not be enough to repay their investment. For this reason, China suspended the second disbursement of funds (to the tune of US$1 billion) allocated for infrastructure development. But this position has since been refuted by the Congolese government which undertook a detailed geological survey analysis to demonstrate that the reserves were enough to repay the debt. At current prices, the value of deposits is estimated at US$80bn-US$85bn. The project has an estimated duration of 25 years, divided into three phases. During the first phase, all the profits of the joint venture will go to reimburse mine development and to build the infrastructure which the DRC hopes will radically improve the lives of its citizens. According to Global Witness, ‘Neither the Congolese nor the Chinese parties have properly explained how the minerals are to be priced, nor what infrastructure is to be built and at what cost. This ambiguity makes it very hard to measure whether pledges are being met. Much of the financial risk appears to be loaded onto the Congolese side of the bargain – take, for example, Congo’s risky guarantee that the Chinese companies will make a 19 percent profit.’ Again, China appears as a hard bargainer, not as a development partner.

Our Angola case notes that, at the end of that country’s conflict in 2002, China’s relationship with Angola shifted quickly from a defence and security basis to an economic one. China, it finds, requires raw materials to ensure its development. It is clear that its objectives are being met. The issue is whether Angola has been able to achieve its goals. Our Mozambican study demonstrates, in detail, that the prime purpose of the arrangement is to extract resources to meet China’s appetite for a resource – timber. Our Zimbabwe study notes that the fact that investment from the east took place during the most difficult years in Zimbabwe’s economic history puts China in an advantageous position. Zimbabwe indeed has the resources that emerging giants require to sustain their high rates of development and to satisfy the appetite of their growing middle and wealthy classes. China, in turn, has the resources to invest in extracting (and probably beneficiating) the mineral resources. Whether this relationship will be a ‘win-win’ relationship or an exploitative one will depend on a number of factors, including compliance with the requirements of the Indigenisation and Economic Empowerment Act, the level of beneficiation engaged in before exportation, and technology transfer. Exports of Chrome ore were suspended by the government of Zimbabwe to encourage beneficiation in 2011. Throughout this analysis is the assumption that the outcome will depend on bargaining and on strategy, not on mutual solidarity.

Just Another Investor?

Information gathered from our case studies suggests that China is no better – but no worse – than other investors in Southern Africa. This implies, of course, that the relationship between China and the countries of the region is not fundamentally different to that with other countries.

In the DRC, our research finds that early Chinese investments show that Chinese corporate activity is not very different to that of Indians, Lebanese, Pakistanis and certain western companies. As Jian Junbao has argued, Chinese companies in the Katanga province ‘simply focus on profits regardless of their harmful influences on African society, such as environmental pollution, excessive development and exploitation of local labour.’ The Congolese government has been criticised for engaging in major contractual arrangements without the capacity to effectively manage these arrangements, but this criticism affects all the contracts the DRC has signed with western or Asian governments and companies. In Angola, the Chinese are not the only beneficiaries of current oil and gas production. While the Chinese market has been the destiny for Mozambican timber, the players involved in the industry are far from exclusively Chinese.

In Zimbabwe, transfer of ownership of a mining company to Chinese interests produced no change in human resource policy. There are doubts about the company’s HIV and AIDS policy, but again this observation is not unique to companies with Chinese involvement. Nor are all Chinese companies operating in Zimbabwe the same. There are the large corporations and there are the small-scale individual investors. The latter, in the main, tend to capitalise on the excellent bilateral relations between Harare and Beijing to ease themselves into the mining sector. Some of Chinese companies in Zimbabwe include: Anjin Investments, San He Mining Company Private Limited  Zimbabwe,  China Africa Sunlight Company which is doing exploration for coal and methane gas in Gwayi-Shangane concession area and ZIMASCO. Most have violated every rule that has been laid down for those wishing to participate in this sector. However, their activities have been exposed by the government audit into the mining sector, and the reaction of the Zimbabwean government (which has become increasingly sensitive about the exploitation of the country’s mineral resources) will be a test of the ‘all weather friendship’ tag that is placed on China-Zimbabwe relations.

While Zimbabwe’s Look East policy has been trumpeted as a special arrangement, research into whether there were any special incentives given to Chinese investors in view of the government’s declared policy and the special relationship between the two countries found that there were not. Responses from the responsible ministry and field interviews showed that Zimbabwe had an open-door policy to investment from all sources, and there is no particular incentive for any region. Although many companies from different countries could be exploiting the loopholes presented by the lack of policy coordination at the local and national levels, Chinese companies have been singled out in a report on investors.

Some of this evidence suggests that Chinese investment may have been judged too harshly, others that it may not have been judged harshly enough. What this evidence and that gathered in Chapter 4 (on development impact) and Chapter 5 (on work conditions and corporate social responsibility) show is that the difference between China and other investors is far smaller than much analysis seems to suggest. China is seeking to gain economic advantage from its relationship with Africa – in some cases, this is contributing to development, in others it is not. But it confirms the point made here – that the relationship is an economic one and needs to be treated accordingly.

The strategic implications are clear. Chinese investment will become more developmental not because African governments have appealed effectively to South-South solidarity but because they have decided to negotiate more effectively, to legislate to protect their interests, and to ensure that laws and rules are implemented. This is a task for governments but one in which civil society will have an important role because it can hold governments accountable and make it more likely that they will meet their obligations to their citizens to ensure that resources which flow into Southern African countries contribute to the development of their societies. Before discussing this, however, it is necessary to look in greater detail at the development impact of Chinese investment and its effect on the workplace and society. It is to this that we now turn.

 

About the author(s)

Claude Kabemba is the Director of the Southern Africa Resource Watch (SARW). In 2006, the Open Society Initiative for Southern Africa (OSISA) asked him to spearhead the formation of SARW. He holds a PhD in International Relations (Political economy) at the University of the Witwatersrand (Thesis: Democratisation and the Political Economy of a Dysfunctional State: The Case of the Democratic Republic of Congo). Before joining SARW, he worked at the Human Sciences Research Council and the Electoral institute of Southern Africa as a Chief Research Manager and Research Manager respectively. He has also worked at the Development Bank of Southern Africa and the Centre for Policy Studies as Policy Analyst. Dr. Kabemba’s main areas of research interest include: Political economy of Sub Saharan Africa with focus on Southern and Central Africa looking specifically on issues of democratization and governance, natural resources governance, election politics, citizen participation, conflicts, media, political parties, civil society and social policies. He has consulted for international organizations such Oxfam, UNHCR, The Norwegian People’s Aid, Electoral Commissions and the African Union. He has undertaken various evaluations related to the work of Electoral Commissions and civil society groups interventions in the electoral process in many African countries. He is regularly approached by both local and international media for comments on political and social issues on the continent. His publication record spans from books (as editor), book chapters, journal articles, monographs, research reports, and newspaper articles.

Contacts

  • 1 Hood Avenue/148 Jan Smuts; Rosebank, GP 2196; South Africa
  • T. +27 (0)11 587 5000
  • F. +27 (0)11 587 5099