Volatile commodity markets and a change of government create uncertainty in Ghana’s relationship with China.
A fourth round of democratic elections in Ghana, and another predominantly peaceful change over of power represent another step forward for the nation’s much admired democracy. Nevertheless behind this veneer of success, an inexperienced new government heavily influenced by ex autocrat JJ Rawlings, may well struggle to chart Ghana’s path through the global financial crisis, and increasingly precarious national deficits.
Ghana, so long a symbol of hope in Sub Saharan Africa for good governance and sensible economic management, has in recent years become a recipient of the now ubiquitous Asian interest on the continent. Indian contractors completed an impressive new government building in 2008, while the Chinese government donated $5m of the $6.75m budget for Ghana’s new Ministry of Defense, built by Qingdao construction group. These projects represent the leading edge of the Asian charm offensive in Ghana.
Despite this attention Ghana remains working with its traditional Anglo-American partners. Ghana is one of the most attractive avenues for investment in Africa meaning that Chinese and Indian investors, dominant in less internationally attractive markets such as Sudan and Angola, have not been able to establish a real foothold. The real prize for foreign investors has been the discovery of off shore oil where British and American partners have outbid rivals. The major contracts have been awarded to London based Tullow Oil and US based Kosmos energy and Andarko Petroleum Corporation. However it remains to be seen whether recently elected President John Atta-Mills will be able to harness the oil potential for the country’s benefit, or whether Ghana will become yet another casualty of the resource curse.
In August 2008 a team of Chinese officials lead by China People’s Political Consultative Committee heavyweight Zhu Welin, arrived in Ghana. Their task was to secure extraction rights to oil blocks on behalf on the China National Offshore Oil Corporation (CNOOC). The company had previously failed to find oil in one of the exploration blocks in which Tullow were later successful, and Chinese officials were understood to be greatly aggrieved by the missed opportunity. The decision to send senior figures to Ghana in order to stake their claim shows the importance Beijing places on Ghana’s oil contracts.
Nevertheless as the bidding process ended they left Ghana without having won any contracts. In the West Cape Three Points Block the breakdown was, Kosmos (30.875%), US company Andarko Oil (30.875%), Tullow Oil (22.896%), Ghanaian E.O. Group (3.5%), Sabre Oil (1.854%) and the Ghana National Petroleum Corporation (10%). In the Deepwater Tano Licence the breakdown was Tullow Oil (49.95%), Kosmos (18%), Andarko (18%), Sabre Oil (4.05%) and the Ghana National Petroleum Corporation (10%).
This visit followed from former President Kuffour’s trip to China where among others he met with Sinohydro head Fan Jixiang in discussions over the $600m, 400MW Bui dam project to be completed by Sinohydro group, with funding from the Eximbank. Afare Donkor, Ghana’s ambassador to China declared that China has become one of Ghana’s leading investment sources, with huge contracts in the roads, energy, hospitality sectors.
As well as the flag ship Bui dam project, four further dams are to be built in the Central and Western regions requiring a further investment of $920m while providing a 230MW to the energy starved county. These contracts have also been awarded to Sinohydro corporation and are expected to be completed within 3 years time. Ding Zhengguo, Executive Deputy Managing Director who announced the deal, promised high quality work from the Chinese company in Ghana.
China’s first dam building projects in Ghana were completed in the 1960s and 1970s building earth dams in the north of the country for agricultural purposes. The contrast with the new hydro power projects shows the progress China has made in that time. China is now able to compete with any country in the world, with a stable of top class engineering firms capable of building technologically advanced structures half way around the world.
Chinese firms are also heavily involved in the refurbishment of Ghana’s roads. The improvement in the road infrastructure has been hailled the major success of the outgoing NPP government. In October the Chinese International Water and Electric Corporation began the 31 month refurbishment of the Accra-Kumasi road between Nsawam and Apedwa. This project adhered to the current modus operandi of Chinese businesses in Africa employing locals for their unskilled labour while importing Chinese experts to oversee the projects. This template is also being followed in Tamale for the construction of the $350m Jubilee market by China State Hulong Construction.
These projects have not been without their difficulties, not least regarding the Bui dam project where worker discontent has been reported to have resulted in strike action. Talks on salary increases have been ongoing since August and Chinese Ambassador to Ghana, Hu Wenzhe, recently had to visit the site in order to check on progress. Mr Baffour-Awuah, Regional Minister for Brong-Ahafo assured onlookers that discussions were underway to find a lasting solution to the issue. Having previously been criticized for the importing of Chinese workers to do jobs that could be done by Africans, Chinese actors will likely be frustrated by the delays.
Complaints over China’s conduct take a more familiar tone in the textile industry where Ghanaian Bente cloth producers complain that their industry has been destroyed by cheap Chinese imports. This emotive issue is responsible for much of the ill feeling in Africa toward the Chinese, and was mirrored in Nigeria where the relationship with China has been through similar travails of late.
The Chinese response to these issues will be most observable during the FOCAC meeting in Egypt later in the year. In the meantime Hu Jintao was one of the first international leaders to congratulate Dr. Atta-Mills on his recent election victory, and reports suggest the increasing Chinese efforts to portray the country as a friend of Ghana. A record 34 Ghanaian students received scholarships to study in China for the 2008/9 academic year, and in December Beijing donated $300m worth of malaria medication to Ghanaian authorities.
The main question for 2009 will be whether China maintains its interest in Africa as competition for investment opportunities in more developed markets wanes. The Chinese government are entering 2009 with reserves of cash, unmatched by any of their rivals, and where previously they scraped the bargain bin for deals no one else would make in Africa, they may now switch their attention to safer options. Much of China’s agricultural interest has already been switched from Africa to Latin America, and there are fears that mining might mirror the trend, switching to Canada and Australia.
Although Ghana is less dependent on its mining industry than other African states, it faces twin deficits that the World Bank describes as ‘extremely worrisome’. Fiscal and balance of payments deficits are likely to prove a hindrance to any large public spending projects as up to 14% of GDP will be required for the servicing of the fiscal debt. The balance of payments deficit is also set to grow, and the country will face a nervous wait for oil revenues to come through in 2010. Andarko chairman and CEO Jim Hackett reported on the 12th of January that early drilling had been ‘an outstanding success’, pointing to ‘the world-class potential of [the] basin’. Once they come online much will be dependent on oil prices which have proved exceptionally volatile recently.
As domestic realities begin to bite Ghana’s traditional allies will now be turning out their pockets and calculating what they can afford to spend in far flung reaches of the world. The end of the era of freely available credit is likely to affect Africa keenly, especially where high risk investments were taken by Asian powers lacking the competitive edge to secure the plum deals. Recent evidence shows that Asian support remains strong in Ghana, especially from China, but the Ghana’s ability to ride out its current difficulties will depend heavily on the performance of the NDC and John Atta-Mills.
Ghana remains an attractive investment opportunity, and its successful democratic elections have been lauded throughout the world. If recession causes European and North American partners to withdraw from their dealings with Ghana it is likely that it will be an attractive target for Chinese and Indian investment. But with these economies looking more fragile by the day Ghana’s dependence on its international partners has become evident. The only answer to Ghana’s deficits looks to be the realisation of oil wealth. Much of the optimistic forecasting for Sub Saharan African growth was based on stratospheric oil prices that look long gone.
This adds up to mean that Africa needs China more than it has done in the past. Foreign investment is likely to decline in 2009, Ghana will face serious deficits and expectant voters and John Atta-Mills will need the support of the one country with money to spend. China’s reputation has taken a consistent battering in Africa especially in Darfur. Trade pratices have also been questioned especially in textiles where native African industries have been badly affected. There are also worries over the performance of the domestic Chinese economy, concerning whether it can continue to grow in a global recession.
Chinese intentions for the continent should become clearer during the 2009 FOCAC summit in Egypt. In Beijing 2006 China’s promises of wider and deeper engagement and ever increasing investment and aid flows, marked a pronounced escalation of their Africa policy. After a troubled year policy makers from all over Sub Saharan Africa will be desperate to hear what China will do for Africa during the next three years.