China Breaks Africa's Shackles

Competes with western countries for lucrative contracts...

Chinese Premier Wen Jiabao, recently toured Africa (Egypt, Ghana, the Democratic Republic of Congo, Angola, South Africa, Tanzania and Uganda) in quest of Africa's resources and markets. He also visited Ghana where he pledged to help the west African nation "achieve its developmental objectives." During his brief visit to Ghana, the Chinese premier also inaugurated a highway project funded with a US$28 million soft loan from China. The highway links land-locked Burkina Faso, Mali and Niger to the Ghana's port city and main business centre of Accra.

The seven-nation African tour by the Chinese leader was aimed at improving China's economic and political influence on the resource-rich continent of Africa. Wen's trip, the third by a high-profile Chinese leader to Africa in six months, was seen as an atttempt to source energy and mineral supplies for China's booming economy as well as securing markets for its consumer and industrial goods in the African markets.

China and Ghana have also sealed deals worth over US$72 million in loans earmarked for upgrading telecommunications network, and bringing Chinese doctors to Ghana. Bilateral trade between China and Ghana has grown ten-fold over the past decade from US$76 million in 1995 to over US$800 million in 2006. China has already jumped ahead of Ghana's traditional trading partners India and Britain to become the West African nation's biggest foreign investor.

Jiabao’s visit to Africa highlighted the growing importance of resource-rich Africa to the world’s most voracious consumer of industrial raw materials. China’s trade volume with Africa totaled $45 billion in 2006, and its direct investment in Africa reached $2.2 billion. China has approximately 1,000 assistance projects in Africa.

The Chinese government has built its influence in Africa by using its state-owned companies to underbid competitors — including Western companies — for government projects. It is a practice the Organisation for Economic Cooperation and Development’s member states have agreed to avoid, because of the unfair competition that results when government aid mixes with private investment.

“That is not a concern for Beijing. Because China’s objective is to make allies rather than quick profits, it is willing to bid low. Chinese-owned companies keep costs low by relying on cheap labour,” says a Chinese spokesperson.

The South Africans are leading the charge against China's growing influence in African markets. The apartheid government in South Africa was often seen as supported by the Western countries and white-owned businesses. Many lucrative South African contracts were bagged by Western countries till now. China is now offering to understake the same projects at a much lower price. This has resulted in accusations of "unfair competition" by some South African business lobbies, particularly the white-owned enterprises.

Recently, a Chinese company was awarded a R425-million portion of the Vaal River Eastern Sub-system Augmentation Project (Vresap). Together with its partner, Mathe Construction (notably a black-economic-empowerment entity), the Chinese company pitched itself more than 25% lower than local competitors. This annoyed a lot of white-owned businesses in South Africa - expecting the contract should have gone to Western companies or their representatives in South Africa.

Before the controversial Vresap contract, some members of the South African construction business industry (mostly from the white minority community not under the black-economic-empowerment bracket) made a representation to South Africa's Department of Trade and Industry when the Indian business tycooon Mittal awarded a large contract at its Newcastle steel mill to Chinese industrial consortium Citic Acre.

In many African countries, governments are finding themselves caught between complaints and pressures from various industrial lobbies and Beijing’s efforts to woo them through competitive prices and quality goods and services.

 

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