China in the Indigenization Trap

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From Brooking’s Africa in Focus blog:

Zimbabwe clamped down with the enforcement of its controversial indigenization law—requiring foreign companies with assets of more than $500,000 to transfer or sell a 51 percent stake to indigenous Zimbabweans this month. The deadline of April 1 had been set earlier in March in accordance with the controversial 2008 indigenization law requiring foreign companies to submit plans for such indigenization or face the risk of closure. […]

According to Chinese statistics, China has been the largest foreign investor in Zimbabwe for years, with total FDI of more than $600 million in 2013. Among all African destinations for Chinese investment, Zimbabwe has ranked among top three in the past three years.According to official Chinese media, currently there are more than 10,000 Chinese nationals living and working in Zimbabwe. Many Chinese companies in Zimbabwe are actively engaged in contractor services, including telecommunications, irrigation, power, and construction. […]

Chinese investment in the diamond mining industry seems to have taken the worst hit. Indeed, the indigenization of diamond mining industry has been interpreted by Chinese analysts as the government’s “nationalization” of the diamond mines. The two Chinese diamond companies, Anjin and Jinan, began their mining operations in Marange in 2012, reportedly with the Zimbabwean partner holding 51 percent of the share. Nevertheless, the Zimbabwean government ordered forced evictions of the companies in February, unless they become a part of the Zimbabwe Consolidated Diamond Company (ZCDC). The ZCDC, founded in 2015, is believed to be the government’s puppet to consolidate the ownership of diamond mines. Anjin has filed a law suit at the Zimbabwean Supreme Court to dispute the government’s decision.

Very interesting look at China’s competing interests (political vs. economical) and perspectives in Zimbabwe, as well as a broader discussion of the indigenization policy of Zimbabwe’s government.

Chinese Loans in Africa

If you read anything about Africa you have probably come across the discussion that surrounds China’s economic activities on the continent. It can be a quite divisive topic, though one that isn’t really based on a good empirical insights. There simply isn’t a lot of good data in the public domain on China’s economic impact and decisions in Africa.

The China Africa Research Initiative at John Hopkins University has just made a big step to change this deplorable state of affairs. Long time China in Africa blogger Deborah Brautigam and several of her colleagues took the wraps off a comprehensive database of Chinese loans to development projects in Africa.

There has been a lot of hype around Chinese money flowing into Africa, with some commentators alleging that these kind of loans have been increasing exponentially in recent years. And because loans to infrastructure and resource development projects are the main form of Chinese assistance to African governments, understanding the scale of this phenomenon really matters for understanding China’s Africa politics at large.

If you are at all interested in the issue, be sure to check out the full briefing. If you just want a best of, read on.

First of all, we are talking about much less money than some of the hype would want you to believe. From 2000 to 2014, Chinese banks, contractors and government agencies extended $86.9 billion worth of loans to African governments. The largest share of this, $59.6 billion, was contributed by China Eximbank, which leaves the World Bank as the single largest funder of African development. Simply put, Western angst about being overrun by China in Africa are largely unfounded, especially because the growth of Chinese loans to African recipient is linear, not exponential.

China is also targeting its loans pretty narrowly. More than 50 percent of the total was disbursed to just five countries: Angola, Ethiopia, Sudan, Kenya and the DR Congo, with Angola alone receiving 23 percent. Angola also received five of the 22 lines of financing worth $1 billion or more, though all of these were loans at commercial rates to the state-owned oil company Sonangol. Almost all loans to Angola were designed to be paid back in oil.

Roughly two thirds of loans went to Infrastructure or mining projects, with transport and energy taking the lion’s share at 48 percent.

From these numbers, it is pretty clear to me that China is playing a pretty rational economic game with respect to its interests in Africa. On the one hand it is investing heavily in natural resources, especially oil. That is understandable, given China’s position as the world’s workbench and increasing domestic consumption of energy. Because China is pretty flush with foreign currency reserves, providing lines of credit backed by resources is a smart strategy.

On the other hand, China is using its credit to develop export opportunities. Ethiopia doesn’t have a lot of oil, but it has made a real push in terms of extending basic transport infrastructure and developing its hydro power generation potential over the last two decades. China happens to have a lot of expertise and very competitive companies in these sectors, because it underwent the same transition a few years earlier.

The Chinese government via its banks and Chinese suppliers are basically providing African governments with the cash they need to pay Chinese companies to build these infrastructure projects. I imagine that in many cases, the money doesn’t even leave China but only travels overseas on paper.

I doubt that any Western government would handle things differently under similar circumstances. That doesn’t mean, though, that I think this approach is completely unproblematic.

With Sudan, Angola and Ethiopia in the top spots of Chinese loan recipients, it is clear that China doesn’t care about the impacts its money has on African domestic politics. The Chinese government isn’t specifically seeking out dictatorships to cooperate with (after all, Kenya and Ghana are on top spots as well), it just doesn’t care. At all.

There isn’t much sense in whining about this, especially when Western governments don’t seem to care much as well. A more constructive approach would be to ask how decision making incentives could be shaped differently, to make all governments more interested in the effects of their development assistance/financial assistance on local politics.

Podcast: China in Africa with Deborah Brautigam

In this edition of the podcast, we are joined by Deborah Brautigam, author of Will Africa feed China and The Dragon’s Gift: The Real Story of China in Africa to talk about China-Africa relations and misconceptions of China’s role on the African continent.

Rich Links: Diamonds, Oil and Charcoal

Diamonds from Zimbabwe return to European markets

According to a Zimbabwean newspaper, the European Union has begun the process of delisting the Zimbabwe Mining Development Corporation (ZMDC) from the E.U. sanctions list. That would allow the ZMDC, a state-owned enterprise, to sell diamonds from the controversial Marange mine in the E.U. Main proponent of the lifting of the sanction was Belgium, which also hosts the biggest market for diamonds in the E.U. AllAfrica

Blockage of Libyan oil harbours continues

Militias continue to block most oil exports in Libya, reports the German tageszeitung. These militias want to strengthen their position in negotiations with the government about regional autonomy and religious questions. Libya depends heavily on oil for its export earnings. taz

United Nations want Gulf states to crack down on Somali charcoal smuggling

The U.N. has urged the governments of the countries in the Arabic Gulf, especially the United Arab Emirates, to respect a U.N. embargo on the export of charcoal from Somalia. The charcoal trade is one of the main sources of income for Al Shabaab, an Islamist militia fighting against the U.N. supported government in Somalia. Its main trading partners are traders from the UAE. Shabelle Media

African governments are pushing for better resource deals with China

China finds it harder to impose its own terms for resource deals in Africa. African governments are keen on setting the rules for infrastructure development and environmental protection. New York Times

Son of Liberia’s president steps down from national oil company

Ellen Johnson Sirleaf was widely criticised for putting her son into a powerful position, heading the national oil company. Now he stepped down, citing the recently achieved completion of the sector reform process, with which his work would be complete. Baobab

Arms deals in Africa

Update: This article was just picked up and republished by A Peace of Conflict. You can find the (largely identical version) here, but be sure to check out the excellent “this week in conflict” reports on their page as well!

SIPRI just published a new report on arms deals and weapons flows in sub-saharan Africa (SSA). The report offers little news for those who are familiar with the weapons market in SSA, but this actually makes it only more important. I don’t want to summarize the whole report here (it has a good two page summary included), but discuss some issues in more detail that I think are crucial to the arms transfers debate in Africa.

A Ugandan soldier trains with his foreign supplied assault rifle. Photo by Flickr user US Army Africa, CC-BY

Transparency of arms transfers

This is a main point of the report and with good reason. The SIPRI is considered the best source on arms transfers and deals which is accessible to the public, but even they can only estimate the amount and types of weapons which flow into SSA each year. The reason for this is simple: neither the delivering countries, nor the recipients have a great interest in making their transfers public.

While the report stresses that some arms transfers are legitimate and actually have the potential to improve the security situation, I think it is safe to say that most arms flows in SSA are ambiguous at best and outright dangerous at worst. The report confirms that it is common for African countries to meddle in each others affairs by delivering arms to the government or rebel groups. Western and Eastern nations frequently use preferential arms deals as a means to gain political favors. And while the total value of the African arms market is little (only 1.5% of the global market), it remains a lucrative business to deliver arms to those places where they are actually used: the 20 or so African states that experienced conflict over the last five years.

The lack of information about arms transfers is also contributing to a lack of knowledge on how exactly fresh arms influence security in volatile regions. This makes targeted political actions close to impossible, if one tries to influence conflicts through providing or limiting arms supply. So from a policy perspective, the most important step would be to have the principle exporters (China, Russia and Ukraine) and ideally the African states sign up to a weapons transfer database. But as even the EU has difficulties providing timely data on arms deals, I have little hope that we will see progress in this quarter soon.

Effectiveness of arms control regimes

Sometimes, the UN security council actually gets its act together and issues an arms embargo against a state or individuals. This is great in theory, but these embargoes (and other arms control regimes) are often beset with so many problems, that one has to ask oneself if they are worth the paper they are written on.

Take the arms embargo against the region of Darfur for example. The SIPRI report details that it had little practical effect, as the government in Khartoum was still allowed to receive arms transfers as long as it guaranteed the sender that these arms would not be used in Darfur. I imagine this looks something like this:

Chinese/Russian/Ukrainian arms dealer: Thanks very much for your order Mr. Bashir. We will be happy to provide you with the AK-74s/MIG bombers/tanks you requested. Just one last formality; We will need some form of guarantee that you won’t be using these weapons in Darfur.

Mr. Bashir: Oh no problem. I’ll give you my word that we will only use these shiny new killing machines when parading around in our baracks and in case Egypt tries to invade us!

Arms dealer: Great! That’s settled then.

The deadliest of all good-will gifts

While a huge motivation for arms transfers is still monetary gain, the SIPRI report also points out to the frequent practice of using preferential arms deals as political gifts. This is common for the main arms exporters (think China’s interest in Sudanese oil) as well as for African states (who frequently support one party of a conflict for ideological/political reasons).

Western powers are not above using arms as a political tool as well. This is showcased by the recent support of the (former) rebels in Libya (though not SSA), as well as by the acceptance of western allies Ethiopia and Kenya arming militias in Somalia in their fight against islamists.

This aspect is probably one of the most worrying issues. The current situation in Syria shows that political patronage (in this case by Russia) can have disastrous effects on the possibility to resolve conflicts. African countries are no strangers to political maneuvering by foreign powers and African elites have repeatedly shown that staying in power through the use of guns is an option they will gladly consider, if it is made available to them.

Conclusion

Especially when it comes to small arms and light weapons (SALW, like AK-74s), decades-old thinking needs to be revised. We finally need a political push – probably on UN level – for a comprehensive treaty on transparency in arms transfers. This would be the first step towards more effective arms control regimes, which could reign in the use of weapons as political gifts.

For this to succeed, western nations would have to push this topic onto the international agenda. It remains to be seen if the recent experiences of the Arab Spring (where western sourced weapons were used to fire on peaceful demonstrators) provide sufficient reason for policy makers to rethink stance on arms exports. Only if the West manages to agree on ethical standarts and tight control of their arms exports, getting others to sign up to such rules will be realistic. For Africa, it would be a good development.

For those of you who want to dive deeper into the details of arms deals in Africa, you can find the main report here and various other reports, detailing the role of South Africa, Ukraine, Israel, Somalia and Zimbabwe here. If you can read German, you can find an interesting article on the German weapons company Heckler&Koch and its shady business here.