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Promises, expectations, and SEZs

Earlier this year China announced an enormous $10bn investment in Ghana after meetings with the government. These investment announcements have become a common theme in China’s visits to Africa, but increasingly they are not been taken at face value. China has been trading off the good will its sudden entrance has afforded it, announcing investment budgets which it seems unlikely it ever intends to fill. This has been an effective tool in winning the hearts of local leaders, who are often under domestic pressure to find investment. Even a fictional investment can do a struggling leader good.

This is less true in Ghana where investment is fairly buoyant currently, and China’s policy has deviated from type. Rather than accessing frontier markets where political risk or moral squeamishness have put off European and North America investment partners, Ghana represents a different type of investment. While this brings great institutional strength and stronger education, it also means a more active media. This week’s article in Ghana web welcomes China’s investment but asks when? Ghana will likely be a more demanding market for China.

This is uncertain ground for Chinese actors who are accustomed to unilateral relationships with states. Increasingly China is struggling to deal with local activism in Africa. While it has the full support of its government partners, workers groups in Zambia, displaced farmers in Ethiopia, and critical media in various countries are proving troublesome. These same issues have affected Western firms during their longer time in Africa. Indeed in many types of business there is little difference between a Western and a Chinese firm in their ability to deliver.

The win-win nature of the China Africa relationship does not extend to all areas. The growth of community engagement and responsible environmental policies came as much out of the difficulties associated with doing business in poverty stricken environments, as it did out of conscience. To some degree China has enjoyed a honeymoon period in Africa as its large scale investments, and big projects have wowed people. Increasingly though Chinese companies are being held to higher standards, especially in more developed markets.

Western rivals employ development economists, and community engagement teams to placate their neighbours. While this serves to redistribute the wealth dug from the ground, it also helps prevent violent protests, and dangerous disruption which have dogged African extractive industries. In strong centralised states China has been successful in garnering government support in defeating protests. As events in Africa tend to protest and grassroots action, this may prove difficult for China’s model.

Within this discussion it is also important to distinguish between Chinese state owned firms, and private firms which often have much lower standards. The confusion between which is which goes deeper than simple ignorance. The CIF is archetypal of this confusion. Its strategy is to target transition states where isolated leaders in need of money have a weak bargaining position.

Huge investments are promised and contracts confirmed at hugely unfavourable rates. The company has murky connections to the Chinese state, but the extent is unclear. Its model is somewhat a kin to a pawn shop paying for stolen goods from a thief, only to sell them back at a profit to the original owner. The newly elected government in Guinea now unravelling the ramifications of its ex-mines minister’s decision to sell to CIF, while Thiam is now in Madagascar brokering the next deal. Failure to distance Beijing from the CIF does China’s reputation on the continent no favours.

The real advantage of China over its Western competitors is in its economic compatibility with Africa. One area of overlap is in the Special Economic Zones China has began to develop on the continent. I highly recommend reading Dr.Bautigam’s excellent analysis of these zones. While the zones have some political motivation they also “ help China’s own restructuring, allowing the labour intensive, less competitive, ‘mature’ industries, such as textiles, leather goods and building materials to move offshore.”

The CIF’s potential involvement in Madagascar and Chinese SEZs in Eqypt, Nigeria, Mauritius and Zambia really show the two extremes of Chinese involvement in Africa. China’s interest has at once promoted a race to the bottom funding the most irresponsible regimes, and provided a rare chance at industrialisation which no other country seems able to offer. South-South cooperation and Win-Win relationships have been talked of frequently, but a truly constructive relationship will require responsible practices from China’s larger firms, recognition of the damaging role of the CIF, along with the careful management beneficial crossovers such as SEZs.

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