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September 6, 2018

From roads to retail trade: Inside China’s growing stake in Africa

By Ugandan journalist Frederic Musisi, first published in Daily Monitor on 3 September. 

In downtown Ouagadougou central market in Burkina Faso Chinese nationals going about their business, either retailing China-made phones or electronic appliances, are a common sight.

During a recent visit to the West African country as I curiously ambled through the market in the central business district, I could mentally connect the spectacle of downtown Kampala. This is increasingly becoming a common practice in many towns where Chinese-owned supermarkets or retail shops are spread out.

The Chinese involvement in retail trade back home has for a while been a topic of national debate. In September 2016 MPs on the parliamentary committee on Trade, Industry and Cooperatives, in a futile attempt, gave foreigners three months to either invest in bigger projects or return to their countries.

The Parliamentary Committee on Equal Opportunities resurrected the case in July with a report recommending stringent measures, among others, the Trade ministry amending the Investment Code Act to inter-alia double the deposit from Shs368m (US$100,000) to Shs736m (US$200,000), to curb influx of foreigners engaging in petty, or retail trade.

En route to Ouagadougou, the Ethiopian Airliner from Addis Ababa made a brief stop in the Nigerien capital, Niamey, where a group of 15 Chinese nationals disembarked while another group of five continued to Bukina Faso, which concretised relations with China only recently after severing ties with Taiwan.

In west, central, east or south of Africa, the Chinese presence is noticeable, and is growing.

Some researchers have pointed to more than one million Chinese nationals living and working in Africa. Their presence is every other day generating debate among scholars, think tanks, economists, and geo-political analysts mostly from Western countries, some of whom are, albeit in jest, warning of a second colonisation of Africa by China.

Ties that bind

The first Chinese is said to have set foot in Africa some 600 years ago on the Kenyan coast during the Ming dynasty, for mainly trade purposes. The next noteworthy arrival is said to be around the 1900s when 60,000 Chinese miners worked in South Africa’s gold mines.

Half a century later, Mao Zedong, the founding father of present day China, is said to have sent multitude of Chinese agricultural and construction workers to Africa to offer African countries recovering from European colonialism a helping hand in the fresh start that set a stage for the China-Africa ties.

In East Africa, the ties were cemented between 1963 and 1964 when Chinese premier Zhou Enlai visited 10 African countries and laid out the “Eight Principles of Foreign Economic and Technological Assistance”—a policy blueprint, which emphasised among things that, “China always bases itself on the principle of equality and mutual benefit in providing aid to other nations.”

The first known infrastructure project bankrolled by China was the Tazara railway line linking Tanzania’s Dar es Salaam port to Zambia’s Copper fields.

Uganda established diplomatic relations with China in 1962, and the latter was among the first countries to acknowledge her independence from Britain.

Over the years, China’s relations with East Africa, and nearly all countries on the continent, have expanded to exponential levels. This has not only become a talking point in contemporary politics, but also become a concern to Africa’s former colonial masters.

Available records, for example, indicate that by 1990, China-Africa trade was estimated at Shs3.6 trillion (US$1b) but by 2000 had surged to Shs36 trillion (US$10b).

By the end of last year, according to China’s ministry of commerce, the China-Africa import-export trade had risen to Shs626 trillion (US$170b)—in effect becoming Africa’s biggest trading partner.

Likewise as regards official development assistance or foreign aid, China which not so long ago was a recipient, is now a big time giver competing with the United States, and World Bank.

Research lab AidData in a report released last October, showed that between 2000 and 2014, Chinese “official finance” was at US$354.3 billion and the United States’ was US$394.6 billion.

According to Organisation for Economic Co-operation and Development (OECD), the forum of 34 aid giving countries, official finance includes official development assistance (ODA)/aid, grants and concessional and non-concessional loans, and other official flows for development purposes (including refinancing loans).

Yet still, according to AidData, China formally opted out of international reporting systems such as OECD’s creditor reporting system and the international aid transparency initiative, so it is not easy to track how much money the country is dishing out.

Prof Deborah Brautigam, the Johns Hopkins University’s School of Advanced International Studies director, in a 2016 study titled “Eastern Promises: New data on Chinese loans in Africa from 2000 to 2014” reinforced that it is widely believed that China Export-Import Bank (Exim Bank) provides more finance to Africa than the World Bank.

Prof Brautigam cited a 2011 survey by Fitch Ratings, one of the three world’s biggest credit rating agencies, documenting that Exim Bank lent about Shs247 trillion (US$67.2b) to sub-Saharan Africa between 2001 and 2010 compared with the World Bank’s Shs201 trillion (US$54.7b).

Between 2000 and 2014, Prof Brautigam noted that, Exim Bank nearly provided Shs217 trillion (US$59b) in official, medium to long-term finance to African governments and state-owned enterprises while the China Development Bank doled out Shs50.4 trillion (US$13.7b) to official African borrowers.

The Industrial and Commercial Bank of China (ICBC), China’s and the world’s largest bank by assets, provided Shs12.1 trillion (US$3.3b), and the Chinese government and other state-owned banks have disbursed at least Shs13 trillion (US$3.5b) in zero-interest and other loans.

Transport infrastructure development

The loans have mostly gone to transport infrastructure development in Africa to a tune of Shs88 trillion (US$24b), followed by the energy (power) sector to the tune of Shs64.7 trillion (US$17.6b), followed by mining/oil at Shs33 trillion (US$9b), and communication projects at Shs23 trillion (US$6.5b).

“The bulk of the rest are large lines of credit that fund projects in several sectors, or loans that have been signed, but the purpose is either undecided or unpublished,” Prof Brautigam wrote.

A 2017 Ernst & Young’s Attractiveness Programme Africa survey also indicated that foreign direct investments in Africa from China grew sharply with a 106 per cent rise in projects while those from the US and UK fell 5.2 and 46.8 per cent, respectively.

Currently in Uganda, Chinese companies are outcompeting each other for lucrative tenders in road construction and other civil construction works, including two hydropower, 600 megawatts and 183 megawatts dams, which combined cost Shs6.7 trillion (US$2.2b) and are due for completion later this year.

Some critics argue that China is only entrapping Africa with its loans while fast exploiting its resources from minerals, oil and gas, to buying large tracts of land to grow food to feed its population back home; its exports to Africa threaten local industries, and it is displacing Africa’s traditional partners.

In fact China, like Russia’s involvement in Africa is always under close watch by Western countries.

Former US Secretary of State Rex Tillerson during his maiden and last Africa trip in March warned African countries against accepting Chinese cash in agreements, which he said could “forfeit their sovereignty.”

“We are not in any way attempting to keep Chinese dollars from Africa,” Mr Tillerson was quoted by Reuters. “It is important that African countries carefully consider the terms of those agreements (with China) and not forfeit their sovereignty.”

China’s foreign minister Wang Yi later in a rejoinder said, “Africa’s concerns are China’s concerns. Africa’s priorities are China’s priorities.”

Why Africa is in love with China

A decade or so ago Africa was an uncontested space but now it is a training ground for foreign investment as China’s economy took off.

The mistrust between China and Western powers over Africa abound today, will likely grow stronger with time, especially as African countries continue to roll out massive development plans, mainly propelled by infrastructure—roads, dams, railway and industrial parks—to spur economic growth.

Yet, by the look of things only China seems to have spare cash to give away.

One of the stark differences between China and Western aid/loans, according to Pippa Morgan, a researcher and PhD candidate at Fudan University in China, is that Chinese development finance does not come with conditions on recipient countries’ domestic governance and institutions.

“That means that African countries that do not want to follow Western demands to make democratic reforms can turn to China instead, which may slow or hinder the development of democracy in certain African countries,” Ms Morgan told this newspaper in an email exchange.

Several African leaders, including Mr Museveni, in praise of Chinese aid have expressed similar sentiments.
During his swearing in ceremony in May 2016, President Museveni described China (and Russia) as the only “genuine (friend) of Uganda”, ostensibly because they did not criticise the controversial presidential election, two months earlier and the subsequent intimidating environment. For several decades, China’s investments in Africa were seen as aimed at propping political allies across the continent.

Today, China cooperates with democracies as much as with authoritarian governments, and officials bask in the deep rooted fact that Beijing does not meddle in internal affairs of other countries.

Regarding debt concerns, Ms Morgan said the critical question is whether or not Chinese loans are used for viable, productive projects that generate growth (which is primarily the responsibility of the recipient government).

“If Chinese loans are used poorly for “white elephant” projects (as they likely will be in some cases), debt sustainability becomes a major issue, as these projects will not generate the growth needed to pay the loans back. However, I certainly do not think that China deliberately intends to create a situation of unsustainable debt in Africa,” she said.

“If African countries cannot repay Chinese loans, then it is a big problem for China as well as Africa, as Chinese lending institutions will not get their money back.”

The United States itself, for years, appeared laidback in countering China’s growing stake, including efforts like FOCAC and woke up to this fact much later.

In 2014, at the tail-end of his presidency, President Obama convened the US-Africa leaders’ summit to engage African political executives on trade, investment and security cooperation. His successor, President Trump, has so far showed little interest in Africa.

Other emerging economies such as India are likewise on an Africa charm. African trade with India is expected to reach Shs430 trillion (US$117b) by 2020-21, according to the Indian chamber of commerce account of the revived Africa-Indian ties. Turkey, Brazil, and South Korea, are equally moving in at a terrific speed.

Money makes the world go round

Besides individual discussions with each of the 52 African countries China maintains relations with, top on the agenda of the FOCAC summit in Beijing is the nascent Belt and Road Initiative (BRI), launched by President Xi Jinping in 2013 to enhance connectivity through some 65 countries and gathering 62 per cent of the world population from mainland China through Asia, Europe and Africa.

At the first high level FOCAC meeting in South Africa in 2015, President Xi announced an investments stimulus package of $60 billion for Africa, most of which officials say, has been disbursed.

There is divisive debate on the BRI; some analysts argue it is network of interlinked infrastructure (roads and railway) while others say it is a “smart power strategy”—a mishmash of cultural power and economic power through which China envisions to become the next big power, by first enmeshing in the emerging economies of Eurasia, Africa and South America.

Speaking early this year in the Rwandan capital, Kigali, Yi described FOCAC as a medium for collective China-Africa dialogue and deepening mutually beneficial cooperation.

According to a statement on China’s Foreign Affairs ministry website, Mr Yi said many African countries appreciate and support the BRI and as thus Beijing hoped to “inject fresh and strong impetus into China-Africa mutually beneficial cooperation, elevate it to a new level, and push forward China-Africa comprehensive strategic cooperative partnership to a new stage.

“The Eurasia is the cradle of the “Belt and Road”, while Africa is the natural and historical extension of it. Therefore, Africa cannot be absent from the building of the BRI, as well as from the common development of China and the rest of the world,” the statement reads in part.

The proposed investments in the 65 countries through the BRI is about US$4 trillion.

The United States is closely watching the developments, and is mostly reinforcing its military ability across the Asia, through the Pacific, to North Africa and strengthening military cooperation with select countries in the regions, as a response.

Even on the military front, China last year opened its first overseas military base in North Africa in Djibouti, next to the US Africa Command, to buttress its peacekeeping operations in DR Congo, Mali and South Sudan, and as well manage its regional maritime operations.

Some critics argue that China’s expanding role in UN peacekeeping missions is a “systematic diplomatic instrument” to paint Beijing as both a friendly and responsible global power. China joined the United Nations in 1971, and has over the years been instrumental in pro-Africa policies both at the General Assembly and Security Council.

In fact, a 2016 Afrobarometer study showed that China’s growing presence in Africa is increasingly getting “positive popular reviews.” In Uganda, 41 per cent and 19 per cent rated the United States and China, respectively highly.
The study, which included a special series of questions on China, conducted in more than 36 African countries, suggests that Africans rank the United States and China No. 1 and 2, respectively, as development models for their own countries.

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