Other local constraints

Limits to the legal framework and implementation problems are, as noted earlier, not the only constraint to developmental Chinese investment. Local conditions are sometimes not conducive and this limits the contribution of Chinese firms.

Claude Kabemba's picture

Director of the Southern Africa Resource Watch (SARW)

October 11th, 2012

Limits to the legal framework and implementation problems are, as noted earlier, not the only constraint to developmental Chinese investment. Local conditions are sometimes not conducive and this limits the contribution of Chinese firms.

In Angola, investments in oil exploration in the Cabinda enclave are being made amidst continued armed attacks by different factions of the Front of Liberation of the Enclave of Cabinda (FLEC) in areas close to oil prospection and exploration bases. In 2010, Sonangol was forced to suspend oil prospecting because of an armed attack by a secessionist faction in which 12 fighters and government soldiers died. Despite political assurances that government controls the enclave, the situation continues to be very tense and many human rights activists have been arrested and imprisoned (with others going underground). The enclave is separated from mainland Angola by a 60 km strip of DRC, and is completely isolated from the rest of the country. Information is fully controlled and censored by the government’s information and security services.

The DRC, despite its abundant and diversified natural resources, is among the poorest countries in the world. It has had no effective government since the collapse of the Mobutu dictatorship in 1997. Its education system has all but collapsed, and the state lacks the organisational capacity to engage powerful partners like China on an equal footing. Political instability discourages a long-term mining investment strategy.

In Mozambique, one element that influences China’s preference for importing logs is the risk involved in paying in advance for sawn timber. Exporters claim that there is a risk of receiving products that are of low quality or otherwise unsuitable. For this reason, exporters are reluctant to ship sawn wood in case it gets rejected. These problems primarily reflect the poor governance and reputation of Mozambique’s timber industry. Yet, as long as a preference for unprocessed timber exists, Mozambique will have little opportunity to gain added value from the timber industry.

South Africa offers China a significant and relatively wealthy market, good infrastructure, political stability, the absence of civil unrest or religious conflict, rich mineral and human resources. But Chinese officials complain of high levels of crime directed at Chinese citizens. They also list impediments to expanding commercial operations, including difficulty in obtaining work permits for Chinese project managers and engineers, restrictive labour laws, poor communications, logistical problems, lack of worker skills, low productivity, and language barriers. Factors which could undermine South Africa’s attractiveness as an investment destination include rising labour costs and higher prices for electricity. An improvement in South Africa’s overall investment environment could be a catalyst for new and significant Chinese FDI. Several Chinese companies are interested in investing in South Africa and other African countries, but are obstructed by difficult local conditions.

Despite a growing global demand for raw materials, South Africa has not seen a flood of new investment from China (or elsewhere). Factors inhibiting new investments include:

•                closure of mines owing to accidents;

•                curtailment of electricity supply (due to an over-demand across the country and poor planning on the part of suppliers);

•                infrastructure constraints (undercapitalised rail, port, housing and roads);

•                delays in procuring necessary goods and services;

•                regulatory constraints, especially environmental permits;

•                high cost of labour;

•                low capital and labour productivity;

•                over-regulated labour market;

•                high HIV and AIDS rates among miners;

•                complex BEE requirements.

All these factors have delayed expansion and development of the mining sector, and act as a severe impediment to Chinese investors unfamiliar with conditions in South Africa. A significant increase in Chinese investment is thus not expected in the short-term. More recently, growing debate on the advantages and disadvantages of mine nationalisation in South Africa has further undermined international investor confidence. Government officials have confirmed that the nationalisation of mines is not on the agenda, but could be raised at the ANC’s next policy conference in 2012. At the same time, SACP Deputy General Secretary Jeremy Cronin has suggested that nationalisation would have no positive impact on job creation, or beneficiation. It would simply be a wealth redistribution strategy, with a significantly negative impact on the economy as a whole. Overall, South Africa is officially estimated to have lost approximately US$5 billion in mining investment as a consequence of an unattractive investment environment. The loss in investment also implies a loss of new job creation and growth for the economy.

Vested interests in the mining sector are well entrenched, making it difficult for external actors to enter the market. Over the longer term, Chinese corporate strategies are expected to focus on expanding ownership of South African mining assets, as a way of ensuring guaranteed supply at competitive prices.

Conclusion: The Answer Lies Within

The evidence presented by all our studies tells a clear story – the problems associated with Chinese investment are primarily domestic problems.

Whether the cause is government incapacity or collusion between Chinese investors and local elites (or both), it is clear that states in Southern Africa are not doing nearly enough to ensure that Chinese investment enhances local living standards and contributes to development. Again, the ‘problem’ of Chinese investment is found to be a symptom of a much wider problem – domestic constraints which prevent states from using foreign investment to grow their economies and societies. A reform agenda which seeks to ensure that Chinese resources develop African societies needs to start with a strategy which places at its centre ways of making governments in host countries more effective and more responsive to their citizens.

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.

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