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February 13, 2015

Zuma’s State of the Nation Address: a Chinasque reading

SONA2015By Bob Wekesa

On February 12 2015, South African President Jacob Gedleyihlekisa Zuma delivered his sixth State of the Nation Address (SONA 2015). Apart from the pomp, ceremony and drama that has become the hallmark of SONA, a geopolitical reading of the speech can provide insights international interests and linkages top of the agenda in Zuma’s South Africa.

Just how do countries which the South African nation and state do business with feature in SONA 2015?

Of particular interest would be a “Chinasque” reading of SONA 2015. After all, official rhetoric has it that “China is South Africa's single largest trading partner, while South Africa is China's largest trading partner in Africa” with volume of trade approaching R300 billion, according to Brand South Africa.

Indeed, it speaks volumes that China received the highest mentions of any other country in Zuma’s SONA 2015. In the context of achievements and plans in the agriculture sector, the speech had the following: “We will further enhance our agro-processing exports which have been growing rapidly especially to new markets in Africa and China. For example, we have concluded agricultural trade protocols for the export of South African maize and apples to China”.

As expected, the BRICS formation in which South Africa and China are members featured prominently in the address. One must always remember that it is China which pushed for the inclusion of South Africa in the BRICS.

Zuma’s address comes at a time when South Africa is going through a period of debilitating electric power shortages commonly referred to as “load shedding”. Thus, a substantial part of Zuma’s speech focused on his government’s plans to plug the energy shortages.

He indicated that South Africa would be looking to import power from the “gas rich countries” in its neighborhood. This would mean that South Africa will be looking to countries such as Angola, Mozambique and Tanzania for gas-generated power to stem state electricity generator, transmitter and distributor, Eskom’s shortfalls.

What implications would South Africa’s gunning for the gas-generated energy from its neighbours portend for other global powers generally and China specifically?

The matter of China’s engagement in Africa’s natural gas in the energy sector is so well thumbed it has spawned a cottage industry in academia with phraseology characterizing China as an “energy-hungry” nation being a staple trope. China has huge interests in the three Southern Africa countries – Angola, Mozambique and Tanzania - that South Africa now seems to target as the source of natural gas. These interests count for multi-million investments encompassing bilateral agreements; financing often through concessional loans especially by Exim Bank and China Development Bank; and the involvement of explorers-cum-extraction companies such as state owned China National Offshore Oil Company (CNOOC), China Petroleum and Chemical Corporation (Sinopec) and China National Petroleum Corporation (CNPC).

From one perspective, South Africa’s enhanced importation of energy from a region where China has a stake can be a boon for all. Because Chinese investments in these countries must be paid for, the resources South Africa would expend on stepped-up energy importation would put Angola, Mozambique and Tanzania in good stead to meet their obligations towards their Chinese debts. However, it is also well known that a good percentage of the onshore and offshore gas (oil) deals are structured via a resources-for-infrastructure, the so-called Angola Mode. In this second dimension, South Africa would struggle to insert itself in deals where China has since the early 2000s made payments to governments in the region to develop their energy infrastructure. Still, South Africa could learn from the Chinese approach such that it (South Africa) evolves a system of locking in energy supplies by investment in the exploratory, development and transmission systems in energy-endowed countries in the region. This could in turn lead to competition between China and South Africa and hopefully this could be healthy competition. At any rate, if South Africa steps up energy procurement from the region as stated by Zuma in his SONA 2015, the region could see better prices for their energy commodities.

The President also pointed out that “Operation Phakisa Ocean Economy initiative, launched last year (2014), also promises to unveil more oil and gas resources”. Interpreted, this would mean that aside from importing from the region – perhaps for the short term – South Africa also looks to hop on the offshore oil and gas bandwagon. Would the Chinese model of financing offshore oil and gas projects in Africa be of any value for South Africa? Or would South Africa opt for a different model for exploration, development and transmission of its offshore oil and gas resources – assuming recoverable quantities will be discovered.

Zuma’s SONA 2015 also indicated that South Africa would be looking to exploit the recently “discovered shale gas deposits in our own Karoo region”. Estimated at 390 trillion cubic feet, South Africa venture into shale gas is very much at its formative stages. China on the other hand is one of the three countries that have already put to use the relatively new “fracking” technology used for recovering shale gas. The other two countries whose energy companies have successfully used the fracking technology – itself controversial as far as environmental concerns go – are the US and Canada. It is possible that South Africa has the financial and technological capacity to undertake its own shale recovery but this is highly unlikely. The more rational route for South Africa would perhaps be to open up shale gas exploitation to global energy companies. In so doing, competition between Canadian, Chinese and US firms will be on the cards. Would Chinese companies outbid their western counterparts in such a scenario? Would Chinese companies opt to collaborate with their western competitors? These will be some of the questions going forward on this aspect of Zuma’s SONA 2015.

As far as South Africa’s plans for “the procurement of the 9600 megawatts nuclear build programme” is concerned, analysts will have to wait and see which among the bidding countries clinch the deal. In his SONA 2015 Zuma indicated that the US, South Korea, Russia, France and China are all lined up with proposals for South Africa’s entry into the nuclear energy age. It would appear however that Russia has a head start going by the highly publicized presence of nuclear energy experts from Russia’s state atomic energy company, Rosatom, in South Africa last year. However, since the R 1 trillion programme with Russia has not been concluded and given the controversies surrounding South Africa’s engagement with Rosatom, it would be rational to give the other countries, China included, the benefit of doubt.

Of the other points of note, one can see China’s hand in many. His praise for the performance of the automotive industry can be read together with investments by Chinese companies such as FAW, Beiqi and Jac Motors – a matter that could be seen, in the China-Africa parlance, as “win-win”. A statement such as “some of the loss making international routes (plied by South African Airways) will be phased out” can be read with the recent stoppage of the non-stop Johannesburg – Beijing flight as, speculatively, an indication of poor cargo and passenger prospects.


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