China and Africa’s Natural Resource Sector: A View from South Africa

China’s appetite for Africa’s natural resources is fueled by the Asian giant’s expanding economic boom – a boom that makes it willing to invest not only in the extractive industries sector, but also in transport, telecommunications, tourism, and other areas even in high-risk countries, such as Sudan, Nigeria, and Angola. In view of what is perceived as China’s indifference to Africa’s democratic reform agenda, many in civil society organizations within and outside the continent have come to see Beijing’s ever-growing presence as nothing more than a self-interested mercantilist mission that threatens a new sort of colonialism, with China indirectly in control in league with African autocrats.

Yet, an understanding of China’s quest for Africa’s natural resources cannot be so easily fit into a colonialist/imperialist framework. Yes, China’s relationship with Africa is asymmetrical and fraught with imbalances, which make the continent a supplier of raw materials and a buyer of processed goods from Beijing. In contrast to the 19th century Scramble for Africa’s resources, however, this time a rising, ‘would-be hegemon’ is willing to make substantial investments in Africa’s infrastructure, even when that infrastructure is not directly related to resource extraction. This is winning grudging gratitude even from African democracy activists, because the building and rehabilitation of infrastructure are central to the continent’s development trajectory.

There are two compelling questions that need to be asked when trying to disaggregate China’s deepening involvement in Africa’s natural resource sector. (1) What is China’s endgame? And (2) what policy options exist and should be adopted to make China’s commodity investments in Africa more cogent and more aligned to promoting sustainable development?

Putting China's African commodity surge into perspective

To understand the full extent of China’s penetration of Africa’s natural resource sector and contextualize the speed with which China’s investments in the continent are expanding, the following facts must be considered:

Since 1996, China has been a major investor in Sudan. The state-owned China National Petroleum Corporation (CNPC), which invests not only in oil exploration but also in production and transportation infrastructure, owns a 40% stake in the Greater Nile Petroleum Operating Company. Sinopec (China Petroleum and Chemical Corporation), is currently constructing a 1,500 km pipeline to boost oil exports through Port Sudan. In 2001, Harbin Power Engineering Company (HPE) built the Sudan Power Station with the help of a $110 million loan by China Eximbank.
Since 1997, Chinese businessmen have invested $24 million in a textile mill in Zambia. In recent years, China has poured more than $300 million into mines, manufacturing projects, construction companies and agriculture.
Since 2003, Chinese companies have been prospecting in Algeria, Niger, and Chad.
Since 2004, Chinese companies have been prospecting in Tunisia and Mali.
In 2004, CNPC agreed to invest $1 million in an oil and gas exploration project in Mauritania. Sinopec signed a technical evaluation deal for three onshore oilfields in Gabonfor possible production-sharing contract. China’s Eximbank issued a $2 billion credit line to Angola to rebuild infrastructure, helping Sinopec to get concessions for further oil exploration. The loan was connected to the guaranteed delivery of 10,000 barrels of oil per day.
In 2006, CNOOC (China National Offshore Oil Corporation) signed a production-sharing contract in Equatorial Guinea. CNOOC bought a 45% stake in a Nigerianoil and gas field for $2.3 billion.
In 2007, Chinese oil exploration in Ethiopia’s Ogaden region came to the world’s attention when a test well drilled by Zhongyuan Petroleum Exploration Bureau, a Sinopec subsidiary, was attacked by rebels of the Ogaden National Liberation Front. Sixty-five Ethiopians and 9 Chinese were killed.
Source: various publicly available news articles in “China’s Commodity Hunger: Implications for Africa and Latin America”, Deutsche Bank Research, June 13, 2006, and other news reports.

Clearly, as this list indicates, energy is the primary interest driving China’s involvement in Africa’s natural resource sector. Since the mid-1990s, crude oil has been the dominant import from the continent, and China’s largest state-owned oil companies have increased their presence in the region at warp speed.

China’s interest in Africa is not confined only to oil, but extends to the continent’s other natural resource riches. With copper, base metals and wood being an integral part of China’s economic boom, Chinese companies are taking advantage of investment opportunities in these African markets. Meanwhile, reports suggest that between 700 and 800 Chinese companies, ranging from big corporations to small enterprises and covering an array of industries, have invested across the continent. Notable developments include

plans by COBEC, a Beijing-based company, to rehabilitate the Kamatanda copper and cobalt mines as well as three processing plants in Katanga province, Democratic Republic of the Congo, in a deal worth $27.5 million
a $3 billion investment led by China National and Machinery and Equipment Import and Export Corp to develop and mine iron ore in Gabon’s Belinga region
construction of a copper smelter in the Zambian copper belt region by China Nonferrous Metal Mining (Group) Ltd. to the value of $220 million, which will produce 800,000 tons of finished copper a year
a $230 million investment by Sinosteel in South Africa’s chrome industry
logging and shipping of timber products from Zambezi province in Mozambique to China
construction of the $1.8 billion hydropower Merowe Dam on the Nile River in Sudan by China International Water and Electric Corporation and Sinohydro Corporation
an $8.3 billion railway construction contract signed by Nigeria and China, under which the Chinese Civil Engineering Construction company will be responsible for completing the first phase of a railway modernization project that will link the economic capital of Lagos to Kano, the north’s largest commercial city

According to a report released by the Deutsche Bank in 2006 detailing China’s commodity hunger, Africa remains at the forefront of China’s ambitions. The report notes that

in 2004 Gabon, the Republic of Congo, Equatorial Guinea and Cameroon accounted for 14% of China’s rough wood imports
South Africa is China’s fourth largest supplier of iron ore
Gabon, South Africa, and Ghana are among China’s top five manganese suppliers and together accounted for 37% of China’s total manganese imports
Africa is China’s main supplier of cobalt, with 85% of imports coming from three countries: Republic of Congo, Democratic Republic of Congo and South Africa.

At last year’s FOCAC (Forum on China-Africa Cooperation) Summit, China announced that its total committed foreign direct investment in Africa through the end of 2006 amounted to $6.27 billion. Certainly, with the $1.9 billion in new investment deals concluded at the Summit, China’s penetration into Africa’s natural resource sector will continue. African resources will be playing a central role in helping China carry out its industrial policy, which aims at making the country a global mover and shaker in the automotive and construction sectors, as well as in information technology.

How should Africa respond?

Most African economies are rapidly becoming over-dependent on commodity exports to China. The IMF recently reported in its World Economic Outlook Report that sub-Saharan Africa’s growth rate could rise to 6.3% from the current 5%-5.5% range as a result of the rise in oil prices and the commodity boom.

China’s end game seems to be to bypass international market pricing by securing commodity assets at source. It may even consider establishing its own commodity exchanges – already having done so by setting up a diamond exchange in Shanghai to rival that in Antwerp. Thus, the price that China pays for specific commodities will be negotiated at source with recipient governments rather than determined by the ‘market.’ Hence, China will always be interested in assuring that it has cordial relations with African governments and will always be indifferent to the nature of the regimes they impose.

This end game is not favorable to the growth of African democracy, nor to Africa’s need
to better integrate itself into the global economy. To achieve the latter, Africa must shift its current dependence on the natural resource sector towards secondary and tertiary production.

And herein lies Africa’s dilemma. China is undeniably making a contribution to African economic growth, but it is not the continent’s development panacea. Africa’s future ought to be determined by Africa’s people and by democratically chosen African leaders.

The challenge for resource rich African countries is to invest the dividends from China’s commodity purchases into sustainable industrial policies that will bring about economic diversification and benefit citizens by creating jobs. Emboldened by resource wealth, however, the danger is that their governments will shy away from necessary political and economic reforms.

Nonetheless, there are some encouraging signs emerging in the continent with regard to sustainable resource management. Many African countries are signing up to the African Peer Review Mechanism (APRM) and others are signatories to the Extractive Industries Transparency Initiative (EITI), aimed at strengthening governance and accountability in the continent. These initiatives can be used to create a regulatory framework to assure that resource wealth is used to promote growth with equity. First, however, African pundits, analysts, and civil society organizations need to ask awkward questions about China’s role in the natural resource sector. Who is benefiting from Chinese derived revenue? What concessional contracts are being negotiated? What is the impact of these contracts on Africa’s environment? How many jobs is China creating in Africa for African rather than Chinese workers? Despite China’s mercantilist approach to business in Africa, and the good relations China has cultivated with less than democratic regimes, the political space does exist in the continent to push the agenda for more transparency in China’s commercial engagements. And this can be done if African leaders are committed to being transparent.

On the part of the Chinese, Beijing definitely has an interest in dispelling the idea that it is a new colonial power in Africa. This image can hardly be welcomed by a country that likes to portray itself as a partner and fellow developing country that has never colonized Africa nor enslaved any African. Beijing must be discreetly thinking about how it can be perceived as more friendly to Africa’s people and their desire for a better future for themselves and their children as it goes about conducting its business in Africa. Surely in the medium to long term, China’s engagement in Africa’s natural resource sector would be perceived more favorably if it were conducted in accord with the principles of the APRM. Continental and global codes should also be observed, including the OECD Guidelines for Multinational Corporations and the principles of the Publish What You Pay coalition. But the key is not to try and fit China into existing initiatives. Instead developing a constructive engagement with Beijing should be focused around how China can contribute towards strengthening these international benchmarks.

To this end, China should be pursuing a policy dialogue with African counterparts, including the NGO sector, aimed at reducing poverty and managing ways of engagement that do not impede improvements in governance and accountability. It would be in the long term interest both of China and African governments to bring to book the looters that rob Africa’s citizenry of a decent livelihood; otherwise their long-term strategic partnership will suffer.

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Sanusha Naidu is a research fellow at the Center for Chinese Studies based at Stellenbosch University in South Africa. These are her personal views. This article is adapted from “China Fuels its Future with Africa’s Riches,” South African Journal of International Affairs, Vol. 13 (2), Winter/Spring 2006, pp. 69-83 (co-author Dr. Martyn Davies). The article is available at the Center for Chinese Studies.

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