While in the 1980s, the IMF and the World Bank appeared to be the only major source of funding for African development, Chinese and Indian interest in the continent’s more recently discovered mineral and oil resources have opened up alternative offers of investment. In this week’s Pambazuka News, Renu Modi and Seema consider the benefits new players China and India bring to Africa.
The ‘there is no alternative’ (TINA) discourse, to the IMF/World Bank as the major source of funding, that prevailed through out the 1980s has changed with the discovery of mineral and oil resources on the African continent. This has set off a ‘new scramble’ for the assets that are much in demand globally. Africa has been on the move and the centre of world stage for positive reasons. It is the world’s powerhouse as it has massive reserves of oil and natural gas that are yet to be explored and utilised. In addition, ‘it has 99 per cent of the world’s chrome resources, 85 per cent of platinum, 70 per cent of tantile, 68 per cent of its cobalt, and 54 per cent of its gold and other minerals. It also has the largest reserve of gem quality diamond in the world.’ (Tom Nevin, 2008:18)
Africa has resources and investment opportunities to offer and therefore in academic discourse it is called the ‘new frontier’. In addition to Africa’s traditional trading allies from the West, India and China, the two main Asian drivers have emerged as the major trading partners and investors since the 1990s. The two emerging economies are now an integral part of the international market and formidable financial powers with sustained growth rates of about 7-8 per cent. The demand for Africa’s natural resources and their imports to these two Asian drivers, in addition to other factors, has spurred the prices of primary commodities on the continent. This has in turn buoyed the economy of several African countries that are enmeshed in the global economy through their exports of natural resources.
In the 1980s several African governments were victims of the disastrous structural adjustment programmes (SAPs) that were economic conditionalities imposed by the World Bank and the International Monetary Fund (IMF), primary lenders that attempted to reorient the African economies to the free market model. In addition, the tenets of the Washington Consensus – understood in common parlance as a term that includes liberalisation, privatisation and globalisation (LPG), the deregulation and fiscal austerity that were expected to lay the basis for economic reforms and lead to economic growth and prosperity, insisted on the introduction of western style multiparty democracy, good governance and human rights in Africa. However, the African governments did not appreciate the audits, but there was a kind of complacency and acceptance to this consensus in the absence of any other major avenues of funding, until the post Cold War era.
Currently, Indian and Chinese economic engagements are a part of this alternative source of trade and investment scenario.
The surge was in large part related to investments in extractive industries, though FDI rose in service industries as well (WIR07: 35). FDI to Africa amounted to US$36 billion in 2006. The following year Africa registered a FDI growth of US$53 billion in 2007 mainly because of booming commodity markets (WIR 08: xvii). The FDI investments rose to US$88 billion in 2008, despite the global financial and economic crisis.(WIR 09) The resources were in high demand globally in general, and in countries like China and India in particular, that have made massive investments in mainly the extractive and mining sector. FDIs have brought to Africa not only capital for development but new technology and managerial skills as well.
AFRICA, CHINA AND INDIA: MUTUAL INTERESTS
There is a significant increase in the trade and investments between Africa and its Asian partners China, India, Singapore, Malaysia, South Korea and Japan. However, its recent economic engagement with the dragon and the elephant are of particular significance because of the complimentarity of interest between the two emergent Asian partners. The Africans – who are impressed with the sustained growth rates achieved by their long term, mainly ideological allies, India and China – have welcomed the increased economic interactions with these two emergent Asian economic powers in particular.
For Africa, the Indian economic model offers lessons in how democracy and development are not antithetical but in fact complement each other. The GDP growth rate of India is projected at 7-8 per cent in 2008-2009 – at a time when the IMF had projected the global growth in 2008 at 3.7 per cent, showing the strength of her economy (RBI, 21 April 2009).
For several countries in Africa that are trying to rebuild their economic and political systems, achieve high growth rates, overcome income inequalities and shore up the democratic credentials of their political systems, India is certainly a model to emulate.
China’s economic achievements on the other hand are considered spectacular the world over. The most impressive and inspiring achievement that Africa wishes to emulate is China’s success with poverty alleviation and the manner in which the country can turn an adverse situation into an opportunity.
It is estimated by the World Bank that China has lifted 300 million people out of poverty. Studies suggest that a number ranging from 250 to 400 million have been lifted from earnings of US$1 per day. (For details see Francois Bourguignon, 2003, cited in Ramo J.C: 11)
The manner in which China used the shocking Severe Acute Respiratory Syndrome (SARS) crisis to its advantage was impressive. Though the country was shut down for about eight weeks, it registered a record growth for 2003. SARS sent alarm bells ringing and the country acknowledged the cracks in their decrepit public health system and worked towards overhauling it. It gave the fourth generation leaders, Hu Jintao and Wen Jiabao a chance to establish themselves.
Based on mutuality of interests, the African engagement with the two Asian drivers has been upbeat and reshaped the world’s investment landscape to the point of no return. (Ramo: 11-12) For China and India, Africa is a preferred investment destination. It offered the highest profitability among the developing regions in 2006- 2007 and a more conducive investment environment, in relative terms, due to improved policies adopted by several African countries.
CHINA IN AFRICA
Africa has always been interested in China as a source of funds for its major infrastructure and development projects that the continent so desperately needs. In its endeavour to build its own support base, China provided funds for infrastructural projects such as for the 1,860 kilometre long Tanganyika–Zambia Railways (known as the TANZAM or TAZARA), sent medical missions and extended diplomatic and military support to anti-colonial movements in southern Africa. This was done to garner the support that it needed against its two powerful adversaries and to lobby and claim for itself a seat at the United Nations Security Council (UNSC).
China’s willingness to provide a US$500 million loan, free of interest charges in the early 1970s, was welcomed by Mwalimu Nyerere’s government in Tanzania following the refusal by the Western donors, the World Bank and the United Nations to finance the project. ’The news was greeted with alarm in the West. The Wall Street Journal warned that “the prospect of hundreds and perhaps thousands of Red Guards descending upon an already troubled Africa is a chilling one for the West”. One US Congressman luridly described it as a “great steel arm of China thrusting its way into the African interior.”’ (Jamie Monson, 2009)
The TAZARA was built with expertise from the People’s Republic of China, an anti imperialist power at the height of the Apartheid years; the railroad provided an alternative route for the transportation of copper from the landlocked state of Zambia through the Tanzanian seaports. The rail line was complete in 1975 and operational a year later in 1976, two years ahead of schedule. In the1970s, the TANZAM was the largest aid project in Africa and China’s most spectacular aid intervention in the Third World. In return the newly independent states had to contend with Sino-Soviet rivalry for influence on the continent as well as support China on the vexed question of Taiwan.
However, with the disintegration of the USSR into its independent constituents in 1991 and the collapse of the Cold War, the scramble for ‘ideological influence’ in international relations effectively ended. Subsequently in the 1990s, following the massacre at Tiannamen Square, China too metamorphosed decisively its political, economic, social and its outlook on foreign policy. The post Deng Xiaoping generation led by Jiang Zemin steered the country through economic liberalisation and accelerated the reforms, though the process had already begun post 1978.
China’s economic engagement with Africa in the 1990s has been driven by pragmatism of the market. In the 1990s the Chinese medicos and aid workers were replaced by the gigantic State backed Chinese multinationals or small entrepreneurs that traded in cheap consumer goods or ran Chinese eateries across Africa, for instance on the streets of Kariakoo in Dar es Salam or Kamawala in Lusaka. This matched and suited the concerns of African states that welcomed a more economically oriented engagement, though the influence of China in Africa had continued in the 1970s and 1980s through the African’s enthusiasm for the Chinese martial arts movies. Most of the states desperately needed to diversify their source of funding to run their beleaguered economies and come out of poverty and stagnation.
Africa–China relations have been on the upturn since 1996, when the former Chinese President Jiang Zemin went on a tour to six African countries. He did the spadework for the establishment of the Forum on China–Africa Co-operation (FOCAC) in October 2000. It marked the 50th anniversary of the diplomatic, economic, political and ideological engagement between the two partners. The Beijing FOCAC summit of 2006 pledged a ‘new type of strategic partnership’ and a package of aid, investments, debt cancellations, technical trainings and scholarships for Africans. It defines the contemporary phase of Africa-China co-operation, mainly economic and political, based on inter-alia, ‘mutual trust’, ‘friendship’ and a ‘win-win economic co-operation’. (Hu Jintao’s Speech at the opening ceremony of the Beijing Summit, 4 November 2006, See also Modi Renu, November 2006-January 2007)
As its economy booms, China is intent on getting the resources needed to sustain its rapid growth, and procure sources of oil and other necessary raw materials across the globe. In addition China has investments in the non energy sector as well, that include infrastructure telecommunications, agriculture and the manufacturing sectors. Over the past few years, China has become Africa’s important partner for trade (exports and imports) and economic cooperation. Trade between Africa and China increased from US$11 billion in 2000 to US$56 billion in 2006. China’s FDI stock in Africa had reached US$1.6 billion by 2005, with Chinese companies present in 48 African countries, although Africa still accounts for only 3 per cent of China’s outward FDI. A few African countries have attracted the bulk of China’s FDI: Sudan is the largest recipient (and the ninth largest recipient of Chinese FDI worldwide), followed by Algeria (eighteenth) and Zambia (nineteenth). (UNCTAD/PRESS/PR/2007/005, 27/03/07) As per UNCTAD and UNDP sources, China is the third largest trade partner, following the United States and France and in 2007, China invested US$50 billion in 48 African countries and it aims to raise its trade to US$100 billion 2010. (China Daily, 2007, cited in Ibid)
More recently, in Guinea on the west coast of Africa, on 9 October 2009, the minister of mines Mohammed Thiam announced that the Hong-Kong based China International Fund (CIF) signed a US$7-9 billion deal for the extraction of minerals, oil and natural and infrastructure projects, with Captain Moussa Dadis Camara's military junta in Guinea. This is the same junta that open fire and killed 157 people who were demonstrating against the military regime in September.
This gross violation of human rights by the Camara regime has drawn severe criticism from the domestic and well as international states and the International Criminal Court. Though the ministry of foreign affairs in China has denied any formal agreement with between the CIF and the Guinean regime, international observors are sceptical about China’s denial. (Africa- Asia Confidential, October 2009)
Beijing’s military and financial links to other controversial regimes such as Guinea, Sudan and Zimbabwe – which are considered as pariahs by the West – have brought to light the scant regard that Beijing has for human rights on the African continent.
China’s current relations with Africa are purely market driven and pragmatic with little concern for any other factor, including human rights. Chinese investments have turned a full circle in Africa, from its investments in TAZARA in the 1970s for ideological reasons to its current investments to overhaul it for market reasons.
In 2008, China invested US$100 million to rebuild the TAZARA that was falling apart due to underinvestment and poor maintenance. (Perege Gumbo, 30 September 2008)
The purpose is to link two of China's Special Economic Zones (SEZs) in Chambishi (Zambia’s copper belt where China has huge investments) with SEZs in Dar es Salaam, where China has invested in the modernisation and extension of the port. The reconstructed TAZARA will link up in Zambia with the Benguela line crossing Angola to the Atlantic coast, which is also being rebuilt by China. The Beneguela and the TAZARA will create a first-ever functioning east-west corridor across the continent and facilitate the free movement of goods from the landlocked interiors of Zambia to the sea port of Dar es Salaam. ( See Jamie Monson, 2009)
INDIA IN AFRICA
India–Africa engagement has moved beyond the context of Afro-Asian solidarity, on grounds of a shared historical background of colonialism and the common ideological stance on the Non Aligned Movement as showcased by the Bandung Conference of 1955 and the Group of 77 (G–77). Since the early 1990s, in keeping with the changed domestic and international post Cold War scenario, there has been a marked shift in the diplomatic language as well, from that of historical, cultural links with the continent to one that is economic in content. The ministry of foreign affairs pursues an active economic diplomacy on the African continent, as exemplified by the India–Africa Summit of April 2008.
Africa is seen as a frontier for energy resources – because of its massive oil and natural gas resources in mainly the Gulf of Guinea, Nigeria, Sudan and Angola. India imports about 70 per cent of its oil and sources a significant percentage its oil imports from Africa. (RBI, 2008) Two aspects of this contemporary engagement are of essence.
First, as stated earlier, over the past decade the economic content of the India–Africa relationship has risen. This is evident from the fact that India’s trade with Africa has soared from US$965 million in 1991 to US$35 billion in 2008 due to rises in both exports to and imports from African countries and is expected to triple to reach US$100 billion over the next five years. (EXIM Bank cited in Indo- African Business – 8 November-January 2009: 5)
Second, the government of India has made a concerted effort to bolster trade with Africa and the range of products are diversified. The Government of India launched the ‘Focus: Africa’ programme under the Export–Import (EXIM) Bank in the period 2002-2007 and the ‘Go Global Policy’ to boost India’s trade with the sub Saharan African region. In the first phase of the ‘Focus: Africa’ programme, the target countries identified were Nigeria, South Africa, Mauritius, Kenya, Ethiopia, Tanzania and Ghana. These seven countries accounted for nearly 70 per cent of India’s total trade with the sub Saharan African Region during 2000-2001. Cotton yarn, fabrics and other textile items; drugs and pharmaceuticals; machinery and instruments; transport equipment; and telecommunication and information technology were exported.
The EXIM Bank has extended lines of credit (LOC) to facilitate exports to Africa that are diversified. The share of Africa in India’s total exports has risen from 4.8 per cent in 2003 -04 to 7.1 per cent in 2007-08. India’s imports from Africa rose from 3.5 per cent to 5.9 per cent of the country’s total imports in the same period. (CII- EXIM Bank Conclave, 22-24 March 2009: 10)
A wide array of private and the public sectors operate on the Africa continent. Some of the major private sector players, inter-alia, are the Angelique International (agriculture), Apollo Group of Hospitals (healthcare), Kirloskar Brothers Limited (KBL) (agriculture equipments), ESSAR Group (infrastructure/ telecommunications), Fortis Escorts Hospitals (healthcare), Infrastructure Alliance (OIA) (infrastructure), WAPCOS (water resources, power and infrastructure), Larsen and Toubro Limited (engineering), Mahindra and Mahindra Limited (agricultural equipment), NIIT (information technology), Shapoorji Pallonji and Company Limited (construction), Tata Group (automobiles, chemicals and others). In fact, the Tata group was one of the first Indian companies that entered Africa almost six decades ago and Tata Motors was a well known brand in the truck segment way back in the 1960s. Today, through its affiliate TATA-Africa, the company has significant investments and has a presence in eleven African countries. (Indo- Asian News Service ( IANS),19 September 2008)
The Government of India (GOI) enterprises that have a presence in Africa are Telecommunications Consultants India Ltd (TCIL), Indian Telecom Industries (ITI) Limited, Rail India Technical and Economic Services (RITES), Konkan Railways, IRCON International Limited, Oil and Natural Gas Corporations (ONGC) Videsh Limited (OVL), Bharat Heavy Electricals Limited (BHEL) amongst others. More recently a laudable initiative by the by the ministry of external affairs (GOI) has been the US$500 billion worth investment in the Pan African e-network, the distance telemedicine programme launched in February 2009 as a part of its ‘Aid to Africa’ programme.
Two issues are of essence. First that the continent as whole is on the move as indicated by the increase in FDI to Africa, that has risen from US$6 billion in 1995 to US$36 billion in 2006.(WID, 2008). It rose further to US$88 billion in 2008 despite the global financial and economic crisis. This increased the FDI stock in the region to US$511 billion. Primary commodities have been the major source of investment attraction in the region. In 2008, of the total flows, southern Africa attracted a third of the total FDI inflows while West Africa recorded the largest percentage increase (63 per cent), while North Africa registered a decline. Developed countries were the leading sources of FDI in Africa, although their share in the region’s FDI stock has fallen over time. (WIR09: 15) However, this has been compensated largely due to increased investments from developing countries such as China, India, Singapore, Malaysia, South Korea and Japan, significant Asian investors to Africa.
The second issue worth noting is the fact that Africans have a basket of options from which they can choose their investors, for their oil fields, mines, agriculture, manufacturing and health, among other sectors. The African leaders, weary of the conditionality laden trade and aid with the West, have found the Chinese ‘no strings’ attached approach to trade and aid and without the sermons on human rights and good governance, as a bracing alternative to the ‘ Washington consensus’ (WC) and welcomed the Beijing consensus (BJC) wholeheartedly.
However, China’s investments with scant regard to human rights issues on the continent in ‘pariah’ states such as Guinea, Sudan, Zimbabwe for instance, has been controversial and much criticised on the continent and internationally.
The Chinese have the advantage of ‘deep pockets’, and a bulk of massive investments are backed by their state-owned enterprises (SOEs). However, the Chinese investments are largely in the extractive, oil and mining sector or in the informal sector, though lately there has been diversification to other sectors such as apparel, agriculture and telecommunications as well.
In the extractive sectors, China has flown in Chinese labourers instead of employing the local Africans Thus, several Chinese investments, such as in the extractive sector, have benefited the corrupt state elite and not the people at large, as they have not resulted in the transfer of skills or employment generation for the common man. The informal sector has been flooded with Chinese fake products at throw-away prices on the streets of Kamwala or Karikoo, and deprived the local African producer of their share of the market.
It is in this context the ‘New Delhi Consensus’ assumes significance. In contrast, Indian investments are more diversified in the agriculture, floriculture and manufacturing related, small and medium enterprise, health, telecommunications, infrastructure sector etc., can create job opportunities for the local populace as Indian companies do not import Indian labour and thus transfer of skills and generate employment for the African populace.
Africa’s outlook can be summed up in the words of the Africa Union (AU) Commission president Alpha Oumar Konare, who stated: ‘Resource-hungry economies that desire to extract the continent's resources will have to commit themselves to real investment that benefits Africa’. Konare’s asserts that ‘the terms and conditions should be set by us’. (cited in Elizabeth Sidiropoulous, October 2006:8)
Today the continent is on the move and ‘there are many alternatives’ (TAMA – to use the populist coinage of the World Social Forums) for Africa to fund its economic growth and development. It is for Africa to harness the available options to their advantage and prevent the misuse of resources by the scrounging state elite that amasses the proceeds of the country’s assets. Several countries are working towards upgrading their business environment facilitated through a code of conduct for investors, transparency in business deals that can encourage the utilisation of resources for employment generation for the common man.
BROUGHT TO YOU BY PAMBAZUKA NEWS
* Dr Renu Modi is director of the Centre for African Studies at the University of Mumbai. Dr Seema Shekhawat is a research associate at the University of Mumbai.
* A longer version of this article is forthcoming in Africa Quarterly (ICCR, New Delhi) in December – January, 2009-2010.
* Please send comments to [email protected] or comment online at Pambazuka News.