While many in the west continue to criticise China’s approach to business in Africa, the recent China-Africa Cooperation Forum in Beijing ended with a large number of business deals being signed by representatives of the two regions.
For instance, Algeria’s biggest corporation, Sonatrach, which over the years has been reluctant to open up to foreign companies, signed a deal with the China National Petroleum Corporation (CNPC) -- an extension of the petroleum cooperation protocol the two corporations signed two years ago.
Sonatrach is planning to construct a refinery at Tiaret, in western Algeria, with CNPC cooperation. Even before the summit, CNPC had commenced drilling activities at the Tenere block in Niger Republic, and has had the Nigerien president’s nod to begin similar activities in the Bilma area of the country.
The latest deals are not CNPC’s first in Africa. In 1996, eight years after its founding, CNPC commenced its African operation in Sudan. Today, the company also operates in Mauritania, Nigeria, Chad, and Egypt.
Reports indicate that CNPC is currently considering the construction of new oil pipelines linking northern and western Africa. A senior CNPC official was recently quoted in the Wall Street Journal as saying that one pipeline will connect Sudan, Chad and Niger while another will go north, linking Algeria’s Mediterranean seaports with Mauritania. Nigeria is expected to connect to these two pipelines via Niger. CNPC is already joined by two other leading Chinese oil companies operating in Nigeria, CNOOC and Sinopec. It is a very ambitious project, which partly explains why concerns are mounting over the issue of corporate social responsibility.
China’s growing importance in world energy markets and the global environment requires that we all pay close attention, particularly since the country’s position in the world can only grow stronger as time goes by. China has already set a goal to quadruple its economy by 2020. If it meets this target, the country’s annual energy consumption is expected to grow by at least 12%, which would exert tremendous pressure on oil-producing countries in Africa.
China’s desire for energy security drives its strategy of procuring controlling equity positions overseas, particularly in Africa. The scenario poses a dilemma for other emerging economies who would like to achieve security of supply, but who may not possess the same financial muscle as China. For African leaders, most of whom were at the summit in Beijing, the most interesting thing may be the increased bargaining power that the unfolding situation presents. Nearly all of the 46 African heads of state that were in Beijing last month came home smiling, buoyed by promises of increased development assistance.
The Beijing summit secured a decision by China to double its assistance to Africa by 2009. The country will also provide US$3 billion preferential loans and $2 billion preferential credit to Africa over the next three years. The China-Africa Development Fund was established – to the tune of US$5 billion – to encourage Chinese companies to invest in Africa. China has promised to open its market to Africa by increasing the number of export items from 190 to 440 and receiving zero-tariff treatment from the least developed African countries that have diplomatic ties with China. Over the next three years, China has also pledged to train 15,000 African professionals and build 30 hospitals and malaria prevention centres in Africa.
In addition, China has decided to dispatch 300 youth volunteers to Africa, build 100 rural schools and increase the number of Chinese government scholarships to Africa from 2,000 to 4,000 per year by 2009. Ordinarily, these gestures would allay fears among Africans about the determination of Chinese enterprises to be good corporate citizens on the continent. But has it?
As a participant in the United Nations Global Compact Learning Forum held last month in Accra, Ghana, I was fortunate enough to have moderated one of the sessions, entitled “China in Africa: concerns over corporate social responsibility”. At the end of the deliberations it was clear that there is justification for some concern about China in Africa. China does seem to have demonstrated a different investment model than most of the receiving countries had seen in previous trade relations. But participants noted that there are some negative consequences – environmental and social – that will need to be recognised; and check measures need to be put in place to ensure that there is a balance between the positive and negative effects.
“The greatest challenges in times to come would be local job losses caused by changes in manufacturing structure due to growing imports of cheaper goods from China; friction due to reactions from locals to successful Chinese nationals who will become embedded in the society; and from a loss of local government flexibility in managing such situations,” said a Ghanaian attendee.
There was also the issue of economic diversification, which some observers believe has been relegated to the background by most countries currently witnessing massive investment in the extractive industries. The Organisation for Economic Cooperation and Development (OECD) noted in a recent report that China’s booming demand for commodities has reduced the incentive for most receiving countries to diversify their economies away from commodities, making them vulnerable to sudden swings in global prices.
Participants agreed that African governments need to ensure that investing Chinese enterprises adhere to best practices and respect labour laws. They should also ensure locals will benefit from the investment, in terms of employment, competitive wages and the availability of an infrastructure that will pave the way for further socio-economic development. While it might not be a magic formula, most of the participants believed that this would help to reduce poverty in host communities, while also ensuring a peaceful atmosphere for business.
Whatever one’s opinion on China’s rise, the summit saw it as a trend that the international community has no choice but to accommodate. Georg Kell, Executive Director of UN Global Compact, says: “If you allow African entrepreneurship to evolve, to compete and to learn from foreign investors – partly working with them and partly competing with them – you are sure to have great success stories emerging. The more you can take advantage of revenues from natural resources to invest in the long term, the better.”
Godwin Nnanna is assistant editor at Business Day Nigeria and winner of the Kalaam Award for Consumer Journalism 2005.
Homepage photo by Easten Law
Also by Godwin Nnnanna on chinadialogue: The new face of Nigeria's oil industry