CHINA’S NEW ROLE IN AFRICA

CHINA’S NEW ROLE IN AFRICA Ian Taylor School of International Relations, University of St Andrews

From China’s New Role in Africa, published by Lynne Rienner Publishers this year • Material and ideas based on fieldwork and interviews I conducted in: Botswana, Cape Verde, Eritrea, Ethiopia The Gambia, Mauritius, Namibia Nigeria, Senegal, Sierra Leone South Africa, Uganda, Zambia, Zimbabwe China (Beijing and Hong Kong) London and Washington, DC.

CONTENTS OF BOOK 1. CHINA’S AFRICA POLICY IN CONTEXT 2. OIL DIPLOMACY 3. THE IMPACT OF CHEAP CHINESE GOODS 4. THE ISSUE OF HUMAN RIGHTS 5. ARMS SALES 6. PEACEKEEPING IN AFRICA 7. WHAT DOES IT ALL MEAN?

OIL

Oil dominates the profile of Africa’s exports to China (around 70%) China’s dependence on imported oil rose to 47% of annual demand, an increase of 4.1 percent since 2005 - expected to rise to around 60% by 2020

FIVE KEY WAYS BEIJING SEEKS TO LESSEN PRESSURE • Increased energy conservation (this will only moderate growth in consumption) • Fuel switching—reducing the dependence on imported fuels by switching to renewable energy and coal, of which China has large domestic reserves (but the environment…) • Increase in domestic oil production by seeking out new resources and exploiting existing ones more efficiently (there have been new discoveries within China but not enough to satisfy demand).

Beijing encourages national oil companies (NOCs) to increase purchases in international oil markets • Beijing facilitates acquisition of oil reserves abroad through “sweetener deals” with foreign governments However, liberalization has resulted in a shift of power away from Beijing toward NOCs The ability by Beijing to tell the NOCs what to do is limited

Question: Are particular ventures a result of Beijing directing an NOC or the NOC seeking diplomatic assistance once it has identified a target oilfield? China lacks a central ministerial agency overseeing the oil industry

PROBLEM: Beijing has as yet been incapable of enforcing a geographical division of labour on the main NOCs Result: competition and overlap between: China National Petroleum Corporation (CNPC) China Petroleum & Chemical Corporation (Sinopec) China National Offshore Oil Company (CNOOC)

Example • CNPC and China Petroleum and Chemical Corporation (Sinopec) competed against each other for a pipeline project in Sudan.

The NOCs in fact view one another as rivals, competing not only for oil and gas assets, but also for political advantage. The more high-quality assets a company acquires, the more likely it is to obtain diplomatic and financial support from Beijing for its subsequent investments. • especially true for CNOOC, which does not have as much political influence as CNPC and Sinopec

This inter-firm competition is normal in the capitalist West, obviously, but puts a different take on “China Inc.” and its “oil strategy” in Africa.

Problem: the NOCs have the reputation to let the Chinese government take the dangerous consequences engendered by their foreign-oil and gas quest Thus commercial interests of Chinese NOCs can risk damaging Chinese government’s diplomacy and international reputation overseas • Same as some Western oil companies behave But government control over the actions of Chinese NOCs in Africa not be as easy as many seem to think in the West

IMPACT OF CHINESE IMPORTS

One of the more contentious issues in Sino-African relations • Cheap manufactured goods blamed for decline in African exports—particularly of clothing and textiles • African imports from China – 712% jump from $895m in 1996 to $7.3bn in 2005 • Many African observers see this as the cause of decline of Africa’s manufacturing sector • “Africa is becoming a dumping ground while African companies are dying” - quote from an African newspaper

INTERNATIONAL DYNAMICS African Growth and Opportunity Act (AGOA) (May 2000) offered incentives for African countries to open their economies and build “free markets” Modifications made permitting least developed African countries to employ materials from the cheapest contractors worldwide Effect was that global apparel industry took advantage of Africa’s unexploited quota access to EU and US via “quota hopping”

“Quota hopping” • various foreign companies, mostly Asian, set themselves up in Africa as a means to evade the obstacles placed on them by the Multi-Fibre Agreement The MFA allocated export quotas to low-cost developing countries and limited amount of imports for states whose domestic textile industries were negatively affected  targeted at imports from Asia and particularly China Triangular production networks thus developed whereby Asian firms made products in Africa for export to Western markets

Result: African exports of textiles and clothing to US boomed • In 2000, apparel exports to US = $776 m; by 2004 = $1,782 m - increase of 130 % • HOWEVER, this was artificial - vast majority of “African” clothing being exported to US was made using foreign fabrics: Lesotho = 98% Madagascar = 92% Kenya = 98% Mauritius = 64% Swaziland = 98% South Africa = 68% Namibia = 96% Malawi = 95% Botswana = 99%

Since China is now being held “responsible” for post-MFA collapse of Africa’s clothing industry, we should note that a sizeable proportion of the fabric in question was actually Chinese

CLOTHING’S “BIG BANG” MFA expired January 1, 2005, affecting 87% of US quotas and 73% of EU’s Market share enjoyed by African exporters now taken over by Chinese manufacturers - also, many Chinese companies that had relocated to Africa during the MFA moved back to China African textile and clothing manufacturers exports to US fell by 16% from 2004-05 US imports from China went up by 44% EU imports from China went up by 78%

IS AFRICA COMPETITIVE? Very difficult to assess whether African textiles could compete with Chinese imports because the playing field is not level African manufacturers have to contend with chronic energy and transport issues Example: Nigeria has world’s 10th largest reserve of gas but generates only 3,000 mw of electricity, even though domestic demand is 6,000 mw  Cost of doing business high and products expensive

World Bank: if Zambian and Kenyan power systems were of same quality as the Chinese the cost savings for Zambian and Kenyan firms would be equivalent to their entire wage bills South Africa has been losing clothing jobs since acceding to the WTO - the industry was highly protected during apartheid but is basically uncompetitive today

The popular image

THE REALITY • Africa’s industries have been in decline for a long time • Between 1975-2000, Ghana’s textile output feel by 50% and employment in the sector by 80% • In Zambia, employment in the clothing and textile sector fell from 25,000 in 1980s to below 10,000 in 2002 • In Kenya, number of large-scale garment manufacturers dropped from 110 in 1980s to 55 in 2000s

Africa’s textile exporting success in mid-2000s was an artificial boom for an industry that lost its competitive edge long ago • Only factor supporting the growth of much of Africa’s export-oriented clothing sector = preferential access to overseas markets • When these privileges were abolished, Africa’s success in the clothing and textile sectors evaporated

Poor organizational procedures, low levels of skill, and inadequate management • Ghanaian manufacturers of textiles have to face the imposition of an illegal 20% duty by Côte d’Ivoire, a “transit tax” collected at Benin and extortion by Nigerian authorities • Poor packaging, poor finishing of products (quality/conformity to standards), inability of some manufacturers to meet export orders on schedule also come into play

World Bank estimates that the cost of doing business in Africa is 20–40 % above that for other developing regions due to: • Unpredictable property rights • Ineffective/corrupt judiciary systems • policy uncertainty • unfair competition from politically connected companies, which results in a few large firms holding very dominant market shares

Finished goods from China are arriving into African markets with few domestic competitors, wiped out not only by low prices of Chinese imports but by African conditions • BUT “the Chinese” are being blamed for African governments’ failings

Policymakers in Beijing will have to address negative impressions • Big challenge = increasing Sinophobic resentment vs. Chinese traders whose products dominate local African markets

KEY POINTS Two main points stand out: 1.Degree of irrational hostility to China in Africa. 2. It is up to African leaders to manage their relations with China to benefit their own economies and citizens

IRRATIONAL HOSTILITY Chinese trade with Africa has become, in many ways, normalized, which is to say diverse, and involving multiple actors, rather than state directed and controlled Yet people still talk of “China” in Africa, as if all actions by Chinese actors represents official Chinese foreign policy

Much of Africa’s manufacturing industry collapsed long ago, well before Chinese imports appeared on the scene Besides, it is not only African producers who have had to adjust to competition — between 1995 and 2002, more than 15 million factory jobs, representing 15% of the total manufacturing workforce, were lost in China

It is possible that some Chinese exports may block avenues for Africa’s diversificationaway from its traditional exports • If Africa is to escape its dependent relationship on the global economy and move on from being simply an exporter of primary commodities, it needs to start manufacturing • But domestic problems figure more significantly in African manufacturers’ plight

Plus, Africans themselves import a huge amount of Chinese-made products - go to Yiwu! • Those that are shoddy or counterfeit should be regulated and controlled by African governments • But these corrupt governments instead prefer to blame “China.”

Beijing’s engagement with Africa is grounded in pragmatism à it is up to each African state to decide how and where it takes shape • China’s abandonment of ideology for economic growth gives Africa greater room to manoeuvre—but Africa’s elites must do so wisely, with an eye toward mutual benefit • In some countries, they will • In others, however, predatory elites at the apex of neopatrimonial regimes, unconcerned with promoting development, will forfeit the chance to make the most of renewed Chinese interest in Africa

THE END

CHINA’S NEW ROLE IN AFRICA