China Africa Trade 2008

Drawing contours of a new world order
By William Wallis

Published: January 24 2008 02:00 | Last updated: January 24 2008 02:00

Chinese delegates observing the recent European Union-Africa summit must have left reassured that their own relations with the continent are the more dynamic. Try as they did, Europe's leaders were unable to quash recriminations from their African counterparts over trade, or smother controversy among their own nationals about the invitation of Robert Mugabe, Zimbabwe's leader.

Ghosts from the colonial past haunted the agenda, even though the Lisbon meeting was billed as the occasion to exorcise them and move on.

By contrast, China's own Africa summit a year earlier seemed more about the future. Forty-three African heads of state turned up, 48 governments were represented and much of Beijing was adorned with billboards welcoming them.

When the Chinese sketched out the terms of their engagement, they were marking for Africa potentially the most significant shift in external relations since the end of the cold war.

The contours of a new order are still being drawn, but China's growing stake in the continent has already shaken up an old and fraying one dominated by cautious western donors and former colonial powers.

Wen Jibao, China's prime minister, forecast last month that trade between China and Africa would reach $100bn before 2010 - a more than 10-fold increase in a decade that should see China overtake the US and Europe as sub-Saharan Africa's foremost trading partner. In the first nine months of 2007, trade flows surged to $50.6bn, up 42 per cent on the same period in 2006, driven by Chinese demand for the natural resources Africa has in abundance and African imports of manufactured goods the Chinese produce at low cost.

Asian demand for African commodities has brought about a revival in the terms on which the continent trades, contributing to stronger growth. This in turn has encouraged investors from elsewhere to look at Africa with different eyes, correcting what Standard Chartered calls the "undervaluation of African assets".

As recently as 2004, nearly half of foreign direct investment (FDI) from China into Africa was concentrated in Sudan, where the Chinese National Offshore Oil Corporation (CNOOC) helped develop the country's oilfields, hampering in the process US efforts to ostracise the Khartoum regime. Today, FDI from China is spreading across dozens of African countries as Chinese companies expand their search for raw materials from cotton to zinc and tens of thousands of entrepreneurs arrive in the slipstream of big state-backed deals.

China's largest acquisitions abroad have been in Africa, including the $5.5bn that Industrial and Commercial Bank of China paid for a 20.5 per cent share in South Africa's Standard bank last year. At the other end of the scale, it is possible to find Chinese foot massage parlours in Chad, doughnut hawkers in Cameroon and vegetable producers in Khartoum's market.

In total, an estimated 800 Chinese state companies are operating on the continent. They have mining operations in 13 countries and are prospecting in more. From Port Sudan to Luanda, they are building dams, oil refineries, roads and railways. By some estimates, Chinese contractors are winning 50 per cent of all new public works projects in Africa, edging out competitors with higher overheads, although concerns about quality persist.

For Africa's traditional allies in the west, which as recently as the 2005 summit of industrialised nations at Gleneagles were overhauling their own commitments to the continent, the terrain has shifted. In a matter of a few years, Chinese funding of infrastructure, trade and development in Africa has grown to rival theirs, surpassing lending by multilateral agencies such as the World Bank and the International Monetary Fund.

Beijing's willingness to extend credit without conditions - according to a principle of non-interference in the affairs of other states - has put traditional donors on the back foot. It is challenging the bureaucracy around development aid and making it harder for the west to proselytise about democracy and good governance. "China's approach to our needs is simply better adapted than the slow and sometimes patronising post-colonial approach of European investors, donor organisations and non-governmental organisations," argues Abdoulaye Wade, president of Senegal in a guest column for this report. Yet, for all the excitement and, in some quarters, alarm, it is unclear how effective China's push will be in fostering development. "The Chinese have been remarkably successful at generating expectations. There's almost a mythical sense that they are walking on water in Africa whereas in reality they are running up against many of the same difficulties," says Daniel Large, director of the Asia Africa centre at London's School of Oriental and African Studies.

They are also facing fresh dilemmas of their own making. The People's Daily, mouthpiece for the Communist party, writing on the post-election crisis in Kenya last week, said democracy was not suited to Africans.This infuriated politicians and opposition groups across the continent, some of whom may one day find themselves in power. The furore underlined the risks China is taking longer term, by tying up its commercial interests so closely with those of some of Africa's most repressive regimes, notably Sudan's.

The Senegalese government meanwhile still relies on its traditional allies, led by France, to finance yawning budget deficits. While Beijing's financial muscle is hard to match, Chinese companies are facing stiffening competition from other emerging nations seeking opportunities in Africa, such as Russia, Brazil and India. Nor have they always come out on top when up against multinationals in their bid to secure control of oil. There is interest in Nigerian acreage from all over the world. Analysts believe China has had to pay above the odds to get its foot in the door.

For African governments the advantage is that they can play these suitors off against each other. More-over, there is a wariness evolving in some African countries about forming any fresh dependency on a single foreign ally. "China has an important role to play because it's providing a huge financing for our economy. But our policy is really to diversify," says Aguinaldo Jaime, deputy prime minister in Angola, the single largest recipient of Chinese loans.

There is also concern that while the direction of trade is changing, its nature, involving raw material exports and manufactured imports, is not.

"The challenge is that you could then indeed develop a relationship between China and the African continent which in reality isn't different from the relationship that developed between Africa and the former colonising powers," Thabo Mbeki, South Africa's president, told the FT last year.

China's part in infrastructure development could help open up the continent and make business more competitive. As their own labour costs rise, the Chinese, among others, may eventually see advantages in moving some manufacturing to Africa. In a less favourable scenario, China will contribute to reversing recent progress towards more accountable rule, its cheap imports will devastate African industry and its grandiose infrastructure projects will end up more like the white elephants of the past. The ball is largely in Africa's court.

"Of course they [the Chinese] have their mercantile interest. That is normal," says Donald Kaberuka, president of the African Development Bank. "My take on this is that it is Africa and Africans who should try to define and influence the relationship."
Copyright The Financial Times Limited 2008

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