Tuesday, June 29, 2010

The Gifts of the Dragons

The Gifts of the Dragons
Leadership (Zambia)
Friday, 04 June 2010 08:41

Friend or foe, my China?

Dragons are everywhere, but they are not the same. To some, they bring
destruction; to others, good fortune. The absolutely evil Western dragon
familiar to fans of Tolkien and Wagner spends its waking hours amassing
and guarding treasure and terrorising the population of whatever country
is unfortunate enough to accommodate it.

In Asia, on the other hand, dragons are regarded as divine beings
associated with abundance, prosperity and good fortune, so much so that
Asian rulers would claim dragon ancestry (Hirohito traced his 125
generations back to Princess Fruitful Jewel, daughter of a Dragon King
of the Sea) and the Chinese referred to themselves as Lung Tik Chuan Ren
(�Descendents of the Dragon�); to be called �dragon face� was a supreme

According to a West African legend, the Creator God Nana-Buluku made a
dragon called Aido-Hwedo which acted as co-creator of the world, flying
around with the Creator in its mouth and fertilising the planet with its
dung (the larger piles formed mountains).

Should significance be attached to African dragons bearing a closer
family resemblance to the dragons of Asia than those of the West?

Will China�s involvement bring destruction or good fortune?

In Western-oriented media, China�s image leaves much to be desired. To
be blunt, it is seen as pursuing its own interests and turning a blind
eye to the doings of the kleptocrats that seem to run half the
continent, supplying cellular networks, railways and football stadiums
with equal aplomb while the population quietly gets on with the business
of being oppressed in a myriad forms.

Reports and rumours from Zimbabwe � ranging from a Chinese minister
singing �Happy Birthday� in flawless Shona in honour of a beaming Robert
Mugabe, to the construction of a secret runway in the controversial
Chiadza diamond fields to facilitate arms deals � do little to endear
the Asian superpower to outraged Mail & Guardian readers; China�s
insatiable thirst for oil (it is Angola�s number-one trading partner)
has entrenched the grip on power of Angolan President Jos� Dos Santos
and his cronies in that far from democratic land; and so on.

What else do you expect? China pessimists will shrug. Although the Asian
giant ranks third among the world�s economies, it has lagged behind in
certain respects that the West considers de rigueur for any civilised

In his book China 2020, Michael Santoro points out that the legacy of
Chairman Mao has left an indelible stamp on Chinese society: a
government that does not function under the rule of law, a questionable
approach to human rights, endemic corruption, and widespread pollution.

Then there is the repressive stance on regional autonomy, censorship and
a hypersensitivity to criticism that borders on paranoia and is
increasingly finding expression in a burgeoning nationalism.

How could such a country possibly aid Africa?

Of course, the Chinese see things somewhat differently. China optimists
like to contrast the bloodthirsty history of European involvement in
Africa with its epic litany of slavery, genocide and railways, with
China�s open-handed Africa policy, a �strategic partnership� based on
�mutual benefit, reciprocity and common prosperity�.

In theory, it is a win-win situation. The formula for Chinese operations
in Africa can be summarised as a form of barter agreement, with
infrastructure development offered in exchange for raw materials.

In the case of the Congo, copper serves as a paradigm. In 2008, the
Democratic Republic of the Congo (DRC) and China agreed to swap some 10
million tonnes of copper ore for mine and civic infrastructure to the
value of US$9 billion. This �deal of the century� was structured to
achieve three goals:

First, as part of its strategy to ensure it has the resources to fuel
its titanic growth, China saw a golden opportunity to secure a mother
lode of copper and cobalt.

Second, DRC President Joseph Kabila was galvanised by the opportunity to
show the beleaguered citizens of his war-ravaged country that their
government indeed was making progress with reconstruction. The timing
was fortuitous; general elections are due to be held in the DRC this year.

Third, the deal offered the chronically indebted DRC to wriggle out of
the corner in which it was placed by its obligation, imposed by the
International Monetary Fund (IMF), to focus on repaying its debts and
reform its fiscal and financial regime instead of spending funds on
social and infrastructure development, which is what the country
desperately requires.

The DRC is a �Highly Indebted Poor Country� that owes some $11bn in
foreign debt incurred under the kleptocratic President of then Zaire,
Mobutu Sese Seko; of that, the IMF is owed $6bn.

IMF policy is based firmly on ensuring that the creditors it represents
(the so-called �Paris Club�) get their money back; it uses the hope of
debt relief as a carrot to ensure the interest payments continue to come

In this context, the Chinese offer was a lifeline that would enable the
DRC to carry out vital infrastructure investment while continuing to
service its debt to the IMF (the DRC paid $170 million in interest in
2009, in the teeth of the global recession). As a popular Congolese
expression goes, �You can�t put a highway in your Swiss bank account.�

However, the IMF was far from pleased.

Claiming that the loan would overexpose the DRC to potential foreign
debt, it threatened that unless the loan were halved, it would take
steps to ensure that the DRC�s debt would not be written off.

The DRC capitulated; the Western dragon maintained its stranglehold.

As Gregory Mthembu-Salter from the South African Institute of
International Affairs told the Ghana Business News, �The IMF�s
opposition to the deal represents an attempt by the West to counter
China�s investments in Africa.�

The credibility of this claim is strengthened by the IMF�s silence at
the time of the Tenke Fungurume contract in 2005 during the transitional
period before the DRC�s first presidential election in 2006.

At the time, with the assistance of the United States government � which
ignored a World Bank moratorium on new mineral contract negotiations in
the DRC � Western business interests finagled a deal in terms of which
the DRC reduced the fee for an area approximately double that of the
Chinese concession from $250m to $50m and shrank its own share in the
concession from 45% to 17.5%.

Considering that the Chinese deal of 2008 included a $350-million
signing bonus and 32% DRC share, it is difficult to believe that the
IMF�s prime consideration in intervening was the financial welfare of
the DRC.

A key difference in China�s Africa strategy is that it emerges from its
own experience.

As pointed out by long-time China watcher Deborah Brautigam, author of
The Dragon�s Gift: The Real Story of China in Africa, China was in a
similar position to Africa today: hungry for technology and
infrastructure but short on foreign exchange. So it leveraged its oil,
coal and other minerals to get a $10-billion loan from Japan, paying for
Japanese technology and infrastructure with oil and coal shipments.

Six major railway, port and hydropower projects were financed in this
way beginning 1980 � the first of many projects in the building of the
transport corridors and energy complexes that have underpinned and
accompanied China�s well-documented but always startling rise to
economic prominence.

The analogy is clear: Africa can emulate China � with China�s help.

Since 2004, that help has amounted to similar technology-for-resources
barter deals � or resource-backed infrastructure loans � in seven
African countries, including roads, railways, hospitals, schools and
water systems for Angolan oil; hydropower in the Republic of the Congo
and Ghana for oil and cocoa beans respectively, and transport corridors
in Nigeria.

The market-rate loans are issued mostly by the Export-Import Bank of
China (China Eximbank) under terms usually more favourable than Western
deals. China�s massive foreign exchange reserves allow it to lend at
highly competitive rates.

For example, Angola has received three loans with interest charged at
the LIBOR (London Interbank Offered Rate) plus 1.25-1.75%; other
commercial lenders, such as Standard Chartered, charged LIBOR plus at
least 2.5% for repayment in a shorter period, with no grace period.

Looking to the future, China intends facilitating the construction of
seven special trade and economic co-operation zones in Nigeria, Egypt,
Ethiopia, Mauritius, Zambia and Algeria. China itself has more than 100
special economic zones, which played an important role in the early
stages of its development. These zones can help the least developed
countries of Africa increase the standard of their infrastructure,
services and institutions within a limited focus area.

Experience also has taught Beijing that such zones must be sustainable.
In the past, Chinese projects would be turned over to host governments
that allowed them to fall apart once the Chinese teams left. Now it is
required that Chinese companies take responsibility for the design,
construction and management of zones.

Start-up costs are subsidised partially by the state.

The $5-billion venture capital China Africa Development Fund has equity
shares in three of the zones: a $1-billion small and medium enterprise
fund is intended to assist African businesses establish themselves in
the special zones.

In contrast to the US, where Congress recently has banned the financing
of any activities that could shift American jobs overseas, China is
pushing its industries toward Africa so that it can climb the value
chain at home. Polluting industries are no longer welcome in Chinese
cities; the Chinese workforce is expecting its wages and benefits to
rise. So the pollution, low wages and long working hours hitherto
associated with Chinese industry will be replicated in the African zones.

Nonetheless, this is an excellent opportunity for Africa to follow China
into the world rather than continue as a raw materials supplier.

President of the Republic of Zambia Rupiah Banda was quoted by China
Economic Net as saying, �Chinese investors are the real helping hands
for us, and their contribution to Africa�s economic development is

According to Rwandan President Paul Kagame, �The Chinese bring what
Africa needs: investment and money for governments and companies. China
is investing in infrastructure and building roads�, whereas the West�s
involvement �has not brought Africa forward.

�Western firms have, to a large extent, polluted Africa and they are
still doing so. Think of the dumping of nuclear waste in the Ivory Coast
or the fact that Somalia is being used as a garbage can by European
firms,� he said.

South Africa is no exception to the trend. As of 1 April, China�s status
as South Africa�s leading trading partner was augmented with the signing
of deals worth R2.3bn for products such as mohair, bulk wine, wool,
frozen fish, copper, manganese, granite blocks, ferrochrome and lobster.

But what about that nagging issue of the rule of law? Should we be happy
doing business with such a partner? What about guanxi, the indispensable
but obscure Chinese form of business networking? Will it not merely
encourage South African tenderpreneurs to take things to the next level?

Deborah Brautigam told Leadership: �As China has transitioned toward a
market economy, it has been simultaneously developing the rule of law,
primarily for commercial matters. But China does not have an independent
or well-trained judiciary, and that makes it difficult to have the kind
of checks and balances that characterise a place like South Africa.

�This is all changing very rapidly, but it is not correct to say that
�the principle that nobody is above the law does not apply�.

The principle exists: everyone is expected to obey the laws, although
these laws are not the same kind of laws that we have: no press freedom,
for example.

�But in practice, as South Africans also know, it is hard for powerful
people to be successfully prosecuted by those beneath them.

�Guanxi simply means �connections� or �relationship�. It has good, bad
and neutral connotations. It should be seen primarily as the phenomenon
where a significant number of people report that they got their current
jobs through their personal network of �connections� or though knowing
someone. It emphasises that relationships and knowing people are really
key to business and professional life (this part is common sense),� she

�But with regard to getting contracts or succeeding in tenders, guanxi
can foster corruption or cronyism. (Guanxi does not really apply to
nepotism, as guanxi is not about family connections, but non-family

�To the extent that the tenderpreneur phenomenon comes from nepotism or
cronyism (playing favourites), it seems to be the same kind of thing.
But when the tenderpreneurs come from BEE policies, that would not be
guanxi but something else,� added Brautigam.

Greg Penfold

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