Wednesday, April 15, 2009

China juggles its future in Africa

By Bright B Simons

ACCRA, Ghana - China isn't in Africa merely to snap up raw materials, exploit African labor, or build geopolitical influence. Rather, its goals blend a combination of all the above with a need to beta-test future global brands, open new markets, enhance its soft power through international organizations such as the International Standards Organization - where African votes carry more than a third of the weight - nurture a new diaspora and build a resilient microeconomic bridge by exporting entrepreneurs.

This consensus has taken a while to arrive, and even today there is a residual school of thought still enamored of the old "African commodities for Chinese cash - full stop" theory.

It appears we may have to shatter another myth: China is deserting Africa because its global priorities are changing in the face of the global recession.

China's engagement with Africa has barely begun. As far as the stock of foreign investment in Africa is concerned, the Asian giant is still dwarfed by the West 10 to 1, but not for long if Beijing has anything to do with it. For China, Africa is a strategic play, requiring the stamina for which its strategists have always been famous.

It is true that Beijing is hurting badly from the global economic crisis, much more than its Ministry of Commerce's massaged statistics will let on, but it would be analytically unsound to treat any perceived change in Sino-African trends as a panic-response dictated by the souring global economy. China is engaged in a deliberate, calculated, and carefully scheduled re-pricing of risk in its African project.

Its reversal of investment partnership policy in Guinea and the Democratic Republic of Congo, where Beijing had been expected to pour billions of dollars into the mineral-rich but impoverished and poorly governed countries for ambitious infrastructure projects, is being read in some circles to imply a retreat into Western-style, condition-governed, economic partnerships, and a potential continental trend for Chinese investment.

Insofar as Chinese economic partnerships in Africa had always come with strings attached (though certainly not the flocks of consultants and other hangers-on that attend Western-initiated projects), whether in terms of procurement guidelines or Taiwan, any suggestion that China's unease with Guinea's new junta is a sign of recidivism is pedestrian, to say the least. The reference to a global economic crisis, on the other hand, is pertinent, though not in the manner being discussed in some places.

The global downturn will, if it hasn't done so already, further weaken the position of the West in the African investment contest, reducing the cost of viable competition on the African continent in China's view. Prudently, Beijing is re-pricing the risk premium of its projects in Africa, as part of the realization that it need not pay more than necessary to strengthen its strategic position, whether in Congo, Guinea, Ethiopia or elsewhere. The fact that this re-visioning of competition dynamics cannot be uniform across Africa is evident in the observation that while Chinese telecom companies are trying to disengage from Congo, Chinese oil companies are offering a premium for stakes in Ghana's offshore oil sector, and also in the fact that dampening enthusiasm in Eritrea is being matched by growing fervor in Malawi.

Bolting the nail into the coffin of the "China desertion" theory is the clear empirical evidence of China actually expanding its economic engagement with the African continent, beyond the government-to-government, mega-project inspired, relationship of yesteryear. The China-Africa Development Fund (CADF) has already come on-stream, with a medium-term facility of US$2 billion, and a projection of $5 billion under management in five years. About $400 million has already been sunk into an array of prospects.

Rather than focus on the infrastructure behemoths that earlier Chinese inflows helped to put up, the CADF will emphasize entrepreneurial opportunities in a wide range of sectors where private-sector African operators could engage with their Chinese counterparts under the eagle eye of the state-appointed fund managers.

True to fashion, Chinese strategists had long sought to transition the Sino-African partnership to a more pluralistic model, and the CADF is a clear expression of that intent. All the evidence suggests that China has encouraged the continuing flow of Chinese private entrepreneurs into Africa in the clear belief that, as these dynamic opportunity-seekers familiarize themselves with the terrain, they will be "de-risking" the African project in readiness for even greater integration. In many local municipalities across West Africa, the sight of small-scale Chinese contractors working on minor drainage schemes, landfill sites and sidewalk electrification schemes has become commonplace, as has that of Chinese retailers, food vendors and brothel-shack managers.

As far as the impact of the global economic crisis is concerned, it has only served as a stark illustration of why China's perceived model of engagement with Africa couldn't have been sustained for very long, were it indeed the case that it was the model of engagement.

Consider the subprime situation: speculation drove largely imaginary house equity to seemingly unstoppable heights, artificially inflating the credit standing of mortgage borrowers, who could then secure additional debt against this dubious "equity" and thus fuel an artificial expansion of the consumables market, which in turn fed another cycle of "boom". On and on, until a few "improbable events" pulled the rug from underneath the tower of cards.

Now consider the mythological view of the Sino-African economic partnership, which is likewise built on a foundation of "commodity trade leverage": the more China bought, the higher prices rose, the more valuable the reserves became, and the greater the debts that could be secured against said reserves to be subsequently expended on shiploads of foreign junk. The foreign junk, increasingly of Chinese origin, boosted GDP numbers and in turn jacked up the cycle again by justifying the need to borrow more for poorly integrated infrastructure schemes rather than to increase domestic capital formation.

It is a good thing that this picture forms only a part and not the whole of the ongoing and incoming Sino-African economic partnership and that progress towards an increasingly more sophisticated relationship has always been embedded in the post-Dengist structure of Sino-Africanism.

One can only hope that the strategic vision of Beijing's Sino-African thinkers does not fail them before the chips of the unfolding new shape are all in place. Or to use a simpler idiom: that they catch the first set of balls before the next set falls.

Bright B Simons is affiliated with IMANI: The Center for Policy & Education in Accra, a think-tank adjudged the sixth-most influential in Africa by Foreign Policy Magazine in 2009.