Thursday, August 18, 2011

China probes its Africa model

An excellent two part analysis, with a special focus on dams in part 2.

China probes its Africa model (1)

Yi Yimin
August 18, 2011

As the public turns its attention to Chinese investments in Africa's
fossil fuels, mining and dams, some have noticed parallels with
environmental and social problems at home, writes Yi Yimin.

Chinese investments in Africa are starting to attract more media coverage
and public attention in China. Last year, three incidents in particular
sparked interest.

First, in June 2010 the Industrial and Commercial Bank of China (ICBC)
agreed to invest US$500 million in Ethiopia�s US$1.75 billion Gibe III
dam. The project will affect the Omo River, an international waterway, and
the vulnerable ecosystems of Lake Turkana, upon which 300,000 residents of
northern Kenya rely.

Then on October 15, supervisors at the Chinese-owned Collum mine in
Zambia, southern Africa, shot and wounded at least 11 workers during a
dispute � showing that Chinese investment in mining in Africa can create
serious labour-relations issues, as well as environmental problems.

Finally, in November China National Offshore Oil Corp (CNOOC) and Ghana
National Petroleum Corp joined forces to attempt to buy the US firm Kosmos
Energy�s stake in the deepwater Jubilee offshore oil field in Ghana, west
Africa. This deal did not go through, but commentators linked it to
earlier reports that China would provide the country with US$13 billon in
loans for oil and gas infrastructure, agricultural development and other

These three types of projects: fossil fuels, mining and dams, are the main
areas of Chinese investment in Africa, and the three cases reflect a
number of characteristics and problems around Chinese aid and investment
on the continent.

Usually, the difference between aid and investment is that aid is intended
to provide humanitarian assistance or promote social and economic
progress; unlike investment, there is little concern in aid about recovery
of funds. Aid is also preferential � it is provided gratis to the
recipient, or at a low rate of interest.

China invests and provides aid in a wide range of fields in Africa. These
include: agriculture; healthcare; emergency relief; scholarships,
exchanges and training; it also includes voluntary services and the
waiving of loans. But although there are differences in emphasis across
different African nations, the most funding of all is for the construction
of government buildings, dams and other infrastructure.

These are the �full-service aid projects� advocated by the Chinese
government, where the project implementer is a Chinese firm and project
loans are transferred directly from the Export and Import Bank of China
(China EXIM Bank) to that firm rather than to the recipient nation, and
equipment required is imported from China. These aid projects play an
important role in helping Chinese firms expand overseas.

As for Chinese investment in Africa, fields include: agriculture;
forestry; information and communications technology; industry; finance and
healthcare. But most investment is concentrated in construction, energy
and mining.

Imbalances in aid and investment

China has experimented with linking aid to economic development, both at
home and abroad. In the controversial �Angola Model� � as resource-backed
financing agreements are referred to by Chinese diplomats � the recipient
nation uses its commodities, such as oil resources, to secure low-interest
loans for projects.

This means the recipient nation can turn resources into cash when funds
are short and develop its extractive industries. It also often secures
China�s state-owned oil companies resource-development rights in the
recipient nation.

However, it is not enough to focus only on economic development. For the
citizens of the recipient nation, justice, participation and
sustainability should be part of the planning process right from the

On balance it seems that China regards Africa primarily in terms of its
resources and potential market � and prioritises those fields over aid,
leading to some negative consequences for recipient nations. Prior
research on the �resource curse� in countries such as Nigeria suggests
that over-reliance on resource development for economic growth can produce
some benefits for society, but can also gravely damage the local

China hopes to use this commercial cooperation model to make aid projects
more sustainable � but it risks putting Chinese firms in absolute control
of projects, with potentially negative effects. Chinese companies may
ultimately make the decisions about whether a project goes ahead,
influencing policy and allowing the company risk-free entry to the
recipient nation.

There is a risk that Chinese companies may apply �high-efficiency� methods
overseas that, for example, leave farmers in a weak position � as has been
the case in some agricultural investment models in China. The pursuit of
profit has also led small private enterprises from China to become
involved in illegal trades, in timber or ivory for example, to the
detriment of the local environment.

Extending domestic development models

In order to understand the environmental and social impacts of China�s
investments in Africa, one should probably understand the impacts of
Chinese investment at home in China, since many similar problems arise.

Thirty years of reform and opening up in China has led many � particularly
those that have enjoyed the fruits of this process � to believe that
economic growth will lead to development in other areas. That belief has
been extended to overseas investment. But many others worry about the
negative impacts of China�s breakneck growth: the destruction of China�s
environment, the pillaging of resources and rising social injustice.

Importantly, within China there are also examples of loans and engineering
projects being exchanged for resources contracts. For example, last
November it was reported that the local government of Ordos, in Inner
Mongolia, had decided manufacturing and high-tech projects of a certain
size would be allocated corresponding amounts of coal. This led a number
of firms to rush to invest and claim their coal. This type of �resources
for investment� deal has been accused of selling off national resources on
the cheap, as well as severely damaging the Ordos grasslands.

The Chinese government�s Western Development strategy, first implemented
in 2000, led to domestic investors favouring the west of the country,
which is rich in resources and contains huge market potential, but is
economically backward compared to the east. However, the single-minded
focus on developing resources � much like in Africa � has created negative
environmental and social consequences.

An essay by Yang Yong, titled �Facing up to the environmental misery of
resource development in western China� points out that a series of large
and sensitive projects are under construction in China�s west, worsening
environmental damage and creating social inequality and conflicts. As
development proceeds and capital is invested, the potential to prioritise
greener industries or tourism is forgotten in favour of resource

Developing a country�s resources, of course, does not necessarily create
problems � but if China has been unsuccessful in using policy and
regulation to prevent the �resource curse� in its own western region, how
can we trust investments in Africa will only have positive results?

Yi Yimin is project officer at Moving Mountains, where she researches the
social and environmental impact of economic development in China and
overseas. Yi is a member of Friends of Nature.

Homepage image from documentary "When China Met Africa" shows Zambian
trade and commerce minister Felix Mutati visiting a Chinese-backed copper

China probes its Africa model (2)

by Yi Yimin
August 18, 2011

China can improve its policies on aid and investment in Africa, writes Yi
Yimin in the second section of a two-part article. But doing so will

As outlined in the previous section of this article, Chinese investments
in fields such as energy, mining, dam construction, forestry and
agriculture have had complex social and environmental consequences for
countries in Africa.

Chinese energy investments in Africa mostly focus on oil. According to the
2009 Analysis of Chinese Oil Imports and Exports by Tian Churong, African
oil producers, such as Angola, Sudan and Libya, exported 61.42 million
tonnes of crude oil to China that year, accounting for 30.1% of China�s
total crude imports.

Chinese investment in mining has also heated up in the last few years �
private investment, in particular. Labour disputes in Zambia, mentioned in
the previous part of this article, exposed private mining companies as
only employing �temporary workers�, not paying welfare � and in the most
prominent case, using relationships with the authorities to put down
disputes, and firearms to deal with workers� protests. Since Chinese firms
often ignore civil society and requests for dialogue with NGOs, they miss
out on opportunities to ease such conflicts and exacerbate the negative
impacts of their investments.

Dam projects, another key area of investment, are hugely expensive � and
can cause significant social and environmental impacts. NGOs like US-based
International Rivers, authors of China�s Environmental Footprint in
Africa, have expressed concerns about several dams on the continent either
proposed or under construction by Chinese companies, including: the Bui
Dam in Ghana, which will flood one quarter of the Bui National Park;
Gabon�s Kongou Dam, which will have impacts on forests in the Ivindo
National Park; Sudan�s Merowe Dam, where fluctuating water levels and
sedimentation could have serious negative effects on aquatic ecosystems,
water quality and public health; Ethiopia�s Gibe III Dam and Mozambique�s
Mphanda Nkuwa Dam.

The environmental and social impacts of the Mphanda Nkuwa hydropower
project in Mozambique are fairly typical. The project was first proposed
in April 2006 and China Export-Import Bank pledged to finance it. Energy
minister Salvador Namburete approved it in August 2010 and banks will
finance 70% of the construction costs.

The proposal was met with concern from local environmental groups; some
tried to lobby China Exim Bank to withhold their support for the project.
Why? Because the Cahora Bassa dam, built in the 1970s, provides enough
electricity for all of Mozambique, but its power is sold off to nearby
South Africa � even the capital city, Maputo, has to purchase its
electricity back from its neighbour. Mozambique does not lack power, it
lacks infrastructure, such as a power grid � over 80% of the country is
not yet on the grid and less than 10% of the population use electricity.
Most of the power from the US$2.3 billion dam would still be sold to South
Africa. Moreover, the Zambezi Delta has for decades suffered erosion due
to the Cahora Bassa Dam. An ecological restoration project is planned, but
the Mphanda Nkuwa Dam will mean that the environment is doomed.

Many dams in Africa will have similar social and environmental impacts.
Local residents often do not benefit from the electricity or economic
development, but are displaced and lose their fishing or farming
livelihoods. Since these projects often lack transparency and financing
comes from overseas, it is hard for local NGOs to help protect the rights
of residents.

Investment in dam-building on international rivers should be approached
even more cautiously. This year and last, Kenyans took to the streets in
protest against Chinese dam investment � opposing the US$500 million loan
from the Industrial and Commercial Bank of China (ICBC) for Ethiopia�s
Gibe III dam.

The main cause of deforestation in countries like Gabon, Cameroon,
Equatorial Guinea, Republic of Congo and Mozambique has been the illegal
trade in timber. These countries often have good forest protection
policies and laws, but NGOs who monitor forest protection and the timber
trade say that these are not enforced, often due to corruption. Timber
traders, some of whom are Chinese, often encourage locals to fell trees
and the authorities do not have the resources to supervise. For example,
it is estimated that in 2005, 94% of all timber produced in Tanzania was
logged illegally. Besides the environmental destruction, the rapid
reduction in timber resources affects local people who relied on the
forests for their livelihood. According to China Safari by Michel Beuret
and Serge Michel, Chinese traders have been accused of trapping endangered
animals while logging trees.

One problem highlighted by Chinese investment in Africa is that Chinese
government policy only provides basic outlines, often without detailed
regulations and standards for implementation � or openness and public
participation in that process. Therefore, observers are unclear about the
extent to which regulations are being carried out.

For example, China�s regulations on the management of overseas aid
projects specifically state that there must be both a feasibility study
and a technical study, which should have different emphases and be carried
out by different parties. But there are no details on what those studies
should contain; how important evaluation of social and environmental
effects should be; or the standards for evaluation.

China itself was once a major recipient of aid and the country�s
experiences are an important part of its overseas aid policy, especially
when tackling difficult questions. How can international aid help with
education, infrastructure, poverty alleviation and water safety? How to
protect local economies as they open up? How to protect the interests of
farmers? How can the environment be protected as the economy develops?
Understanding China�s experience and discussing these questions can help
to offset the negative impacts of investment.

It is only the on the basis of this open discussion that China can improve
its policies on aid and investment in Africa.

Yi Yimin is project officer at Moving Mountains, where she researches the
social and environmental impact of economic development in China and
overseas. Yi is a member of Friends of Nature.

Image by David Haberlah shows the Merowe Dam construction site.

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