Published Articles

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.

DRC’s sun rises in the East

Last modified on 2007-12-09 13:13:43 GMT. 0 comments. Top.

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.

From Sandton to Shanghai

Last modified on 2007-12-09 13:19:02 GMT. 0 comments. Top.

From Sandton to Shanghai

Julian Hewitt
11 April 2007 11:59

Yesterday started with a walk to our local expo centre - the one whose white, wave-like roofs catch my eye very time I stare out at the view from our 20th-floor alcony.

Normally, a R10 taxi ride would have sufficed to get to the expo centre in Shanghai. There is something eeply gratifying about walking to a place when you now other people would have travelled across the world to get to the same spot.

Business people from around the world make the long lights, expensive hotels and jet lag part of the price ag to get into the city now at the centre of the world economy.

After a scenic riverside walk, we arrived at our destination half an hour later, showing our international passports to get in free of charge. The trade fair is one of Shanghai’s largest and one that fills up every inch of space that nine aircraft-hanger-like halls can offer. Last year, the six-day fair brought in USD3,3-billion (about R24-billion) of business, not far off the GDP of many African economies.

Walking through rows and rows of consumer goods, sports equipment, ornaments and clothing, it was easy to start imagining the same products lining the shelves of Clicks, Mr Price and Cardies back at home. The Chinese mean business and this is a place of one-stop deal-making. Not only can you purchase just about any consumable the Chinese economy can deliver, there are fancy restaurants to charm the buyers, meeting rooms to
negotiate the deal, translators to bridge the language divide, legal services to
help with contracts, police offices for disputes and freight companies to get the
goods safely home.

Later, we found ourselves in a much smaller school hall helping to sort out clothing donations from expats that were being boxed up and sent to far away, poverty-stricken Yunnan Province. These are just some of the contrasts that make up daily life in Shanghai.

It was not that long ago that I had the idea of moving from our Sandton home to live in Dube, Soweto. I wanted to experience a different dimension of our country. My Zulu was conversational at best, but I had spent time working with a number of primary schools in Soweto and felt drawn by the strong sense of community.

But Wayne Gretzky, Canada’s renowned hockey player, once famously said that the trick is not about skating to where the puck is, but rather skating to where the puck is going to be. And, from a South African point of view, China looked like the place to be heading to — not only is the world becoming a smaller place, but China is playing an increasingly bigger role in the global goldfish bowl.

And so, instead of Soweto, my wife and I have now been living in Shanghai for half a year. As opposed to brushing up on my Zulu, I have been studying Mandarin at a top local university for the past semester. It seems like two incompatible decisions — Shanghai or Soweto — but life nowadays is all about dealing with paradoxes. In this case, it was a question of balancing local knowledge and global awareness.

While China is part of the daily business news in South Africa, while companies like Sasol, SABMiller and Naspers have made big strides in China and while Africa is a big part of China’s global picture, the bridges that straddle these divides are not very wide. Take Shanghai as an example. Shanghai is a city of 20-million people and the financial face of China. In the whole city, there are a total of three South Africans studying at local
universities and, at a guess, less than 10 young professionals making a career here.

On the governmental side, although South Africa has good relations with its Chinese counterparts, I have been told that there are few if any Mandarin speakers in either the department of trade and industry or the department foreign affairs.

Compare this to Australia, which has a whole team of Mandarin speakers working within their governmental trade negotiation unit. Perhaps we are catching up. In July this year, the first employees of the department of foreign affairs leave Beijing as fluent Mandarin speakers after an intensive language programme.

But the point remains: for all the opportunities that China opens up to South Africa, and for all the challenges it poses, there is much scope for us to learn the language and understand the business and cultural aspects of a society that is rapidly shaping international affairs.

China Changes Rules of Resource Game

Last modified on 2007-12-09 13:15:35 GMT. 0 comments. Top.

China changes rules of resource game

Julian Hewitt: COMMENT
13 February 2007

When I left South Africa, a talk by Clem Sunter titled “China’s Game” was ringing in
my ears. Clem talked about the rules of the game China is playing in its
unprecedented drive to industrialise a 1,3-billion strong population. What struck me
was China’s dependence on natural resources to continue its impressive growth
trajectory. One of the major rules of China’s game requires it to establish massive
and sustainable supply lines to secure resources that fuel its vast factory-floor
economic model.

Of course, this is the major pillar behind African-Chinese trade. Africa has the
undeveloped resources China so desperately wants. In testimony to this growing
trade and development cooperation, Chinese President Hu Jintao has visited Africa
five times since 1999 and Premier Wen Jiabao has already toured the continent on
three separate occasions. Depending on which side of the fence you sit on, much
has been said about China’s new “colonial” role in Africa or the massive development
opportunity for the continent to dovetail on China’s great economic ambitions.

There are a couple of interesting factors that make up China’s drive to secure
mineral resources and energy assets. The first is the sheer scale of the undertaking.
China has a massive population and burgeoning economy to support. The other is
the role of the state in securing these resources. This is a national prerogative, which
is not unique in itself. However, the fundamental difference is that the Chinese
government plays a prominent role in meeting these strategic requirements, while
most other governments rely largely on the invisible hand to meet a rising supply and
demand needs.

At China’s disposal is an army of state operated enterprises (SOEs). Long a
backbone of a previous, more socialistically inclined, era, the more effective SOEs
have subsequently embraced a world of initial public offerings (IPOs), international
acquisitions and foreign contracts.

China’s ruling party has entrusted them with a mandate to pursue resources deemed
to be of strategic national interest — iron ore, nickel, zinc, oil and gas and copper,
among others. The SOEs have political backing, massive credit lines from local
banking institutions and increasing international business acumen.

A sign of things to come is the Belinga Project in Gabon. Purported to be the largest
untapped iron-ore reserves in the world, a Chinese consortium came head to head in
the contract bidding with Brazil’s CVRD — the world’s largest iron-ore producer.
Because Gabon’s iron-ore reserves are situated deep in equatorial forests, massive
infrastructural costs have excluded previous iron-ore suitors. Enter the Chinese
consortium, which offered to a) build a new railway line 560km into the jungle, b)
construct a deep-water harbour from which to export the iron ore, c) develop a
hydro-electric dam to supply electricity to the project, d) finance the initiative, e) bring
in Chinese labourers to build it and f) offer to buy the entire mined output.

Not surprisingly, CVRD got blown out of the water in the bidding process — few
companies on Earth would be able to compete with such a comprehensive undertaking.

A recent “secret” meeting at the World Economic Forum in Davos, Switzerland, was
held between the heads of more than a dozen of the world’s largest mining
companies. The six-hour think tank highlighted what a growing concern Chinese
encroachment in Africa was becoming. The group — ironically given the
colonialesque title of “the governors” — sought to find ways of curtailing China’s
immense interest in Africa, which is rapidly displacing their exposure on the
continent. They are considering appealing to the World Bank and United Nations for
help. What “the governors” are rapidly realising is that competing with
government-backed Chinese companies is beyond their capacity. The World Bank
estimates that, last year alone, China spent more than $10-billion on infrastructural
projects in Africa as part of its capacity for-resources exchange.

There is a flip-side to China’s foreign mining exploits. The debate started in earnest
when in 2005 China’s Minmetals made an audacious takeover bid to acquire
Canadian miner Noranda — then the world’s ninth-largest copper and third-largest
zinc producer. A strong nationalistic Canadian backlash revolved around the
argument that Minmetals was a state-owned company and local officials were not
comfortable with a foreign SOE acquiring an important industry on home turf. The
deal was eventually scuppered and other Chinese SOEs have faced many similar
subsequent acquisition challenges.

Bear in mind that China has more than a trillion dollars in foreign reserves from
spiralingtrade surpluses. One of the reasons it is reluctant to completely open its
currency to market forces is the inevitable appreciation of the Chinese yuan against
major currencies such as the United States dollar. Even a “small” 10% depreciation
will wipe off $100-billion from Chinese reserves — enough to finance the estimated
project costs of Gabon’s Belinga Project 169 times over. It has to be tempting for
China to reduce currency exposure on its monolithic foreign reserves by investing in
foreign resources, killing the proverbial two birds with one stone.

Whatever the future holds for China’s quest to build its resource supplies, the rules of
the game will definitely be different from those of the corporate game being played at
present.

And Africa will be a key part of the playing field making us all rather interested
participants or observers.

From Sandton to Shanghai