From Sandton to Shanghai

Africa’s New Colonialists

Julian Hewitt
Published 5 April 2008

“India and China have become Africa’s new colonialists,” declared respected international financier, George Soros, during a Reuters interview earlier this year. More recently, the Economist ran with a cover story titled “The new colonialists”, which detailed China’s huge appetite for acquiring global resources.

The real question is whether there is any fire behind this talk of “colonialist” smoke.

While Beijing has gone to great efforts to play down any comparison with Africa’s former colonial masters, this tag will probably not be far from the surface of the Africa-China debate as China’s substantial financial and political investment on the continent starts to show dividends.

One only needs to take a look at recent trade and investment numbers between China and Africa to tell that something significant has happened within a really short space of time.

China’s bilateral trade with Africa has gone from a negligible $12-million in 1956 to $73,6-billion in 2007, making China Africa’s third-largest trading partner in the process. Forecasts predict that this figure will surpass $100-billion by 2010.

Further signs have been profound. Last year was a watershed year for Chinese investment into Africa. Firstly, a $9-billion financial and infrastructural package was signed with the mineral-rich Democratic Republic of Congo. This would be China’s single biggest country-to-country investment to date.

Then, a few months later, China’s largest bank, ICBC, bought a 20% equity stake in Standard Bank for $5,5-billion — which, at the time, was one of both Africa and China’s largest transactions and clearly signalled the fact that the Chinese powers that be were embarking on a holistic investment approach to Africa.

However, to really get a sense of China’s unfolding relationship with Africa and whether it warrants “colonialist” warning bells going off, it is worth unpacking the key drivers that have given rise to the present situation.

Firstly, the timing perspective is important to comprehend. When China emerged on the global scene through its “Go-Out Strategy” in 1991, it saw Africa from another viewpoint to the basket case of poverty, corruption and violence that Africa had largely been written off as by the rest of the world.

The continent that China saw was one that was emerging from decades of post-colonial chaos to a period of increased socio-political stability. Most importantly, though, Africa was also home to the world’s largest untapped oil and raw materials that China so desperately needed to meet its vast industrialisation requirements.

With the most accessible and economically viable natural resources already sewn up by the developed world, China had few other places to turn to.

Secondly, it is important to keep in mind that China’s foreign policy has been virtually unwavering from its stand of “non-interference” in an external country’s domestic issues. This stance distances China from the traditional definition of colonialism that involves political, territorial control. The flipside, though, is that China is not morally selective about which regimes it has dealt with.

There is, however, a definite political element to China’s African relations. Most Chinese companies that have invested in Africa are still state-owned and are pursuing national resource mandates. To a large degree, China’s heavy government to government involvement has been essential in limiting the risks of investing in some of Africa’s most unstable countries such as Sudan and the Democratic Republic of Congo.

But it is probably the scale of Chinese commercial infrastructure in Africa that should be the biggest cause for colonial unease. China is building almost 5 000km of rail network to connect mines with harbours, while also investing heavily in port facilities in many African countries along the Indian and Atlantic seaboard.

Furthermore, Chinese sources are already projecting that 40% of its oil and gas imports will originate from Africa, and countries such as Sudan, Nigeria and Angola have all seen heavy investment in oil-related infrastructure.

Over time, it is logical to assume that as China’s economic interests in Africa deepen, so too should its political impetus. This is where the lines with neocolonialism get blurred.

Nevertheless, China’s current ambitions clearly do not involve the same institutionalisation of political and economic jurisdiction that countries such as Britain, France, Belgium and Portugal exerted in days gone by.

To its credit, China has been ultra cautious about ensuring it projects a relationship of equals with its African partners. While it is definitely the chief instigator in China-Africa affairs, keep in mind that it was not too long ago when China itself was at the receiving end of colonialism’s darker side.

No nation in the world can truly claim to be void of self-interested tendencies and this is very much how China’s relationship with Africa should be described. Painting China with broad colonial brush strokes does not accurately assess its current role on the continent.

Still, a note of caution is needed. When Mao Zedong was once asked what he thought of the French Revolution, he famously responded: “It’s too early to tell.” In a similar vein, maybe the same can be said for the merits of China’s relationship with Africa.

(Platinum Ore. Source: DK Images)

Here is a straight forward prediction for years 2008 and 2009: A Chinese mining company will buy a minority stake in a major South African platinum mine.

China’s automobile production has skyrocketed in recent years. In Beijing if you are a successful government official you drive a black Audi and if you are a successful entrepreneur (or at least want your friends to think so), then your vehicle of choice is a black BMW. Driving a car is a great status symbol and the only difference with most of South Africa’s up and coming black professionals is that in China, you first buy your house, then a depreciating asset.

As China gets richer, so the local vehicle market is hotting up and major cities like Beijing are experiencing huge traffic congestion on roads that were predominated by bicycles a generation ago.

Shanghai is smarter on the car front. Firstly, people are happier to catch public transport as image is not as important is its political rival to the north. Elevated highways, sometimes 4 layers deep and stretching up to 10 floors above the hum drum of congested traffic lights spirit traffic along at a speedier rate. But probably the biggest deterrent is that while an entry level car will cost just over R30 000, you need to participate in an auction process to buy a Shanghai license plate. Without this you are relegated to driving along non arterial roads. At the end of 2007, buying your local Shanghai license plate was a whopping R55 000 - nearing double the price of your car!

China now produces in excess of 7 million cars per annum and is second only to the USA in vehicle manufacture. In 1999, China adopted the Euro 1 emission standard that required all domestically produced vehicles to be fitted with catalytic converters and almost all of China’s vehicle exports are to countries with emissions standards in place.

Currently, catalytic converters account for over 60% of platinum consumption. Only one Chinese mining company on the planet has a direct interest in a platinum mine and this is not even an operational development yet. South Africa has over 77% of the global platinum supply with 50% of this is processed locally.

While platinum was not one of China’s strategic resources, it is fast becoming more important as China powers up the global car manufacturing rankings. All this points to South Africa sooner than later…

(Charting a new course to the mainland? Photo: Julian Hewitt)

In a busy week for China - Taiwan relations, Malawi switched its diplomatic allegiance to China after officially recognizing Taiwan for the past 4 decades. The rumoured USD6 billion dollar cash incentive will easily smooth over any transition challenges.

Taiwan have also just concluded their parliamentary elections, with the Nationalist Party (KMT) winning an overwhelming majority from the ‘splitist’ rhetoric of Chen Shui-bian and his Democratic Progressive Party that has been a thorn in China’s side for the last few years.

With Malawi in the China fold, it is now a case of ‘1 more country down, 23 to go’ in China’s 59-year long sovereignty tussle with Taiwan. On the other side of the fence, Taiwan is quite literally playing its end game with some of the most random countries in the world.

It was in 1949 when China’s Nationalist Party (KMT) took refuge on the island of Taiwan after fleeing from Mao’s Communist Party. It was from their island base that they continued to claim ‘rightful rulership’ over China. For a while thereafter, the threat of global communism went a long way for most Western countries to support their claim.

However time and economics are the great levelers. Today, Taiwan is home to 23 million people while China boasts over 1.3 billion inhabitants.

China’s coup de grace came way back in 1971 when it not only replaced Taiwan as a UN member country but also ascended to the lofty heights of the 5-member UN Security Council. Not only did most of the big economies shift diplomatic ties around this period, but China’s power of veto has precluded any Taiwan membership applications ever since.

The interesting thing is that Taiwan has never officially claimed independence from China. It still clings doggedly to the notion that it holds the mandate of heaven for Chinese people. As this becomes a more and more remote possibility, Taiwan’s threats of independence have become more amplified as a last desperate straw. It is this independence proposition that gets the China - Taiwan relationship on edge more than anything else.

While South Africa enjoys 10 years of diplomatic relations with China this year, Taiwan is still recognized by 4 African countries: Swaziland, Sao Tome and Principe, Burkina Faso, and Gambia. It is only in Central America that Taiwan still holds some semblance of sway with diplomatic relations to countries like Belize, El Salvador, Guatemala, Honduras, Panama and Nicaragua.

However, there is one country that still retains Taiwan links that carries the weighting of at least the other 22 countries combined. This country is a key cornerstone in China’s foreign policy and actually has some serious bargaining power with no hindrance of political time pressure.

With 1.1 billion members around the world, the Holy See of Vatican City still recognizes Taiwan above China. However, relationships are already thawing with China and when the Vatican City inevitably switches flags (I give it 5 - 10 years), this will truly be the last diplomatic nail in the Taiwan’s coffin and a big boost for Christianity in China’s largely spiritual vacuum.

(In this article, China refers to ‘The People’s Republic of China’. Taiwan is officially known as ‘The Republic of China’ or ROC. Taiwan is actually the name of the largest island under ROC leadership)

(If your career is 45 years long and you wanted to follow the global megatrends of your generation, which way would you turn? Photo: Julian Hewitt, Moganshan, China)

The ‘Billion Club‘ - China, India and Africa - seem to have an analogous recent past and are being thrust together in parallel evolving economic futures. As this takes place, so too will their bearing on the state of world affairs. Putting this into context, if you want to capitalize on the global megatrends of our generation, here is the counsel that inspired my wife and I to move to China 16 months ago.

I leave you with the very wise words of Dr Cees Bruggemans, the Chief Economist of First National Bank. In an insightful article penned in 2005 and titled ‘Modern China: An Out of Body Experience’ this was his final paragraph:

“As to sagely advice for anyone under 25, having completed the educational stage of life or doing so shortly, here are a few thoughts:

• Consider your remaining educational ambitions, in quantity and quality, and then double (or triple) them. Much more effort and skill accumulation (differentiation) will be required for what you will be facing in the short productive life that remains you. It is your luck that it will coincide with the most momentous collision in history as developing Asia transforms the world.
• As to how to participate most meaningfully in what is being unleashed during your productive years, I suggest you spend the next 15 years in China (or in activities dealing with its opportunities), then shift for the following 15 years to an Indian exposure, and complete the line-up with a final 15 years in an African context. This way you will be riding each stupendous regional development wave at its peak intensity in turn. If that doesn’t make you filthy rich, nothing will.
• It will also mean retirement at 70. Consider that a futuristic omen.

Most of all enjoy the coming challenges. As an old Chinese curse had it: ‘May you live in interesting times’. The global opportunities opening up certainly will be endless for a long time to come.”

(Its China’s encore for now as it leads the ‘Billion Club’ but will India and Africa come to the party? Photo: Ena Hewitt - Hangzhou, China )

The triple axis of China, India and Africa represent more than half of mankind and Africa is soon to become the newest addition to the world’s ‘1 Billion Club’. According to the latest data from the United Nations Population Division, Africa’s population currently stands at 962 million will climb beyond 1 billion people to join ranks with China and India in 2009.

After their troubled recent history, this massive emerging-market triumvir is slowly rotating into the global spotlight. China is leading the pack having sustained almost 3 decades of economic growth in excess of 10%. India’s economy is starting to pick up pace with its Asian rival and has seen impressive growth of over 8% since 2004.

Africa’s Economic Prognosis

Even Africa is starting to come to the party with its economy having expanded at a rate of 5.4% for the past decade. At a macro level, the continent is definitely heading on the right track. Step back in time 20 years in time and what is now SADC was a very troubled region. Angola, Mozambique and Namibia were all experiencing a civil war. The DRC was hardly any better and apartheid violence was peaking in South Africa. Fast forward to the present and outside of isolated issues in the DRC’s diamond and gold hotspots, it is just our northern neighbours that somewhat ruins a rosy picture.

With more and more democratic elections (the next step is working on more ‘free and fair’ democratic elections) and the advent of pan African ‘from-Africa for-Africa’ institutions such as NEPAD and the AU, the continent is slowly shaking off the doom and gloom shackles that is has been synonymous with for so long. Africa is showing signs of promise on the technological front too. Cell phone penetration has reached 17% of the continent leapfrogging cumbersome landline technology. A 10 000 km undersea cable is being built that will connect 21 countries to the digital age of cheap and fast bandwidth.

A note of caution is that Africa’s economic growth is still largely fuelled by the global commodity boom. Here, China is a key catalyst. Not only has China buoyed international demand for raw materials and is driving their price to all time highs, but China is also investing heavily in raw materials and oil in Africa. These two factors have also seen an increase in Indian and even recently Japanese investment suitors on the continent. This resource money is buffering the national coffers of Africa’s largely trade driven economy and smoothing over some of the more challenging aspects of African society today.

Africa still lacks large scale job creation and this is a pivotal factor needed to lift hundreds of millions above the poverty line. Most current economic growth is jobless and pure resource extraction minus the processing has limited community impact. Massive infrastructural investment is lacking to connect Africa not just to the rest of the world but to itself and this is a remnant of the serious conflict that has hamstrung the continent for so long. Education levels are still shocking inadequate and this is another area that needs urgent attention in parallel with other needs. Furthermore, formalising the informal sector and enshrining land ownership are two pillars of capitalism that Africa is still far, far behind on.

A positive sign is ‘Trade not Aid’ movement that is defining current African debates. Enabling business on the continent is where Africa’s redemption will come from. Making sure this trickles down will sustain this redemption. But if you are not a Chinese or South African company, or do not come from the FMCG, resources or communications sectors then a bit more patience might be prudent.

However, the writing is already on the wall. Continent-wide society political improvements and an enabling commodity surge have taken root and making it an ever more attractive investment destination. The question is now when not if…

DRC’s sun rises in the East

Julian Hewitt
05 October 2007

China’s recent announcement of a $5-billion loan to the Democratic Republic of
Congo to develop national infrastructure and mining interests seems to have taken
the world by surprise.

International mining companies and institutions such as the World Bank,
International Monetary Fund and African Development Bank have been scrambling
to find out more details of the Chinese deal that might have severe repercussions on
their own activities in the country.

China’s move, however, is far from unexpected. In fact it makes complete sense
from a Chinese perspective. The DRC is one of the most mineral-rich countries in
the world. It has an abundance of raw materials, such as copper, cobalt, diamonds,
uranium, manganese and gold. Of these copper, uranium and manganese occupy
top spots on China’s hit list of minerals that have strategic national value. The loan repayment terms will be primarily in the form of mining concessions to
Chinese companies.

China missed out on the first scramble for Africa and has had to settle on riskier
environments to satisfy its voracious mineral appetite. It took only two years after the
dust settled on Angola’s protracted civil war before Chinese oil companies were
setting up shop in the country. Further examples of China’s risk aversion include significant oil interests in Sudan and the recent purchase of a ferrochrome mining company in Zimbabwe.

What counts massively in China’s favour is the high-level diplomatic support that
accompanies its mineral and energy investments in Africa. Having direct government
backing helps to decrease the vulnerability of doing business with unstable regimes.
China has another ace up its sleeve that is unmatched by global mining companies.
This is the huge infrastructural backing it can lend to countries such as the DRC.
Instead of benefiting from its enormous mineral wealth, the DRC has been racked by
a 30-year-long civil war, leaving its economy in tatters and the country lagging near
the bottom of the world’s poorest nations list.

A 2005 Organisation for Economic Cooperation and Development country report
says 80% of the DRC’s population lives on less than $0,2 a day. Only 5,7% of the
population have access to electricity and less than 5% of the country’s 57 700km
road network is tarred. What mineral wealth the DRC has is being whisked out the
country’s porous back doors.

Although only 1% of the country’s arable land is under cultivation, the agricultural
sector was responsible for a staggering 50% of the country’s GDP in 2003.
As part of the loan agreement with China, $3billion will be allocated to infrastructural
projects. These include a 3 400km highway, a 3 200km railway link with Matadi on the Atlantic Ocean, 31 hospitals, 145 health clinics and two universities. One has to
wonder how much more favourable the global reaction would have been if it was the
World Bank announcing these terms rather than China.

The other major value add from the Chinese perspective is that the Zambian
Copperbelt cuts a swathe through the southeastern corner of the DRC. China has
invested more in Zambia’s mineral resources than in any other African country. The
Zambian Copperbelt is the location of China’s first special economic zone in Africa.
In addition, China’s proposed highway will link up to Zambia, which puts the DRC and
its mineral reserves in easy grasp of the TanZam Railway to Dar es Salaam.
Despite institutional misgivings about all things Chinese in Africa, China’s forays into
the DRC can only add value to a country that has been going nowhere slowly for
three decades. In fact, it is hard to imagine a better lifeline coming from anywhere
else.