China outplays Europe, US in Africa

As India and China grow their economies, it is obvious they will not achieve their goals without access to the vast and untapped natural resources of Africa and Central Asia.

The aim is to attain a standard of living for their 2.5-billion citizens that is both as high and utterly unsustainable as that long enjoyed by one billion Europeans, North Americans and Japanese.

Until the rise of Brazil, India and China in the past decade, the natural resources of Africa were exploited almost exclusively by the Europeans. Both bilaterally and through multilateral treaties, the European Union provided substantial aid to newly independent African countries to continue to supply their natural resources to the European market.

Under the Lomé Convention, the union established the now defunct Stabex facility that linked payments to developing countries to the price and quantities of agricultural raw materials sold to Europe. This helped stabilise client states in the face of price declines and, when passed on to producers, even occasionally helped farmers. It also assured that African countries had less incentive to process their exports, for example cocoa, into higher value-added products.

A similar facility called Sysmin helped African countries weather declines in their mining sectors. The union provided a combination of financial assistance, development finance and stabilisation funds to maintain its relationship with commodity exporting African countries. The EU, through the European Development Bank, also provided highly concessional loans for infrastructure and development.

In the mid-1990s, in an act of self-destructive pique, the union began to believe its own economic propaganda about globalisation and started moving away from the formula of the Lomé Convention and its successor, the Cotonou Agreement. The eurocrats argued that they no longer needed the resources from particular countries or regions and indeed the “global market” would provide Europe with all the natural resources it needed. The 40-year-old Lomé formula of linking aid, concessional funding and the supply of raw materials was in effect abandoned.

Economic Partnership Agreements
Instead, the EU moved to the controversial and divisive Economic Partnership Agreements, which, after almost a decade, are still being negotiated with some African regions. In these negotiations African countries have been pressed to abandon export taxes and quantitative restrictions on raw materials and to assure that Europe would have the same access provisions to markets as developing countries through what is called most-favoured nation status.

This would assure that these resources would be provided to Europe on the same terms as locals and the most-favoured nation would, at least in theory, assure that market access would be no better for China than for the EU.

This was both weak (as there are many ways to improve access) and aggravating. The elimination of export taxes, not required under World Trade Organisation rules, has irked African policymakers because, from cashew nuts in Mozambique to leather hides in Kenya, the elimination of export taxes has meant de­industrialisation and the loss of jobs in the export sector.

Just when Europe was beginning to remove the old Lomé instruments, the Chinese and Indian mining sectors, energy and agriculture firms were entering Africa and providing exactly the same formula as Europe was abandoning—low-interest loans, concessional assistance and infrastructure development in return for direct access to minerals and energy resources.

For African governments, the Asian approach is seen as vastly superior to what was becoming the new European and United States free-market approaches, which were strong on rhetoric but weak on infrastructure and aid.

The great Asian powers know that, although these raw materials might be traded in contracts at market-related prices, they can tie up supply with long-term contracts.

By the early 2000s, it had finally dawned on the eurocrats, under pressure from their own private sector, that the market would not provide and a new approach to assuring access to African resources was needed.

Legislated limitations
A second important source of European and increasingly US disadvantage in gaining access was that their firms faced stronger legislated limitations on the payment of inducements to African officials and policymakers to assure access to raw materials. There are no similar limitations on international bribery for Asian firms.

To combat this, the EU and the US forced transparency provisions on African countries through non-governmental organisations, such as Global Witness and the Revenue Watch Institute, which launched the Extractive Industries Transparency Initiative. In 2010, the US Congress passed the Dodd-Frank Bill requiring all extractive firms registered on the New York Stock Exchange to disclose all payments consistent with the transparency initiative.

As ever, Europe’s stated motivation is “to help Africa” because improvements in mining transparency can—but do not necessarily—lead to improvements in the lives of Africans in resource-rich countries. Transparency is neither necessary nor sufficient to deliver improvements in living standards for African resource-rich countries.

The Democratic Republic of Congo now publishes its mining agreements and is increasingly in nominal compliance with many norms regarding transparency. But Botswana has never published its mining agreements nor does it publish the accounts of its biggest mining firm, Debswana. But conditions for its citizens are vastly superior because, by and large, the country has had accountable government structures.

If American and European firms want the same access to African energy, mineral and agricultural products, they might have to behave a bit more like Chinese firms that work closely with their government in making promises of development and infrastructure. This could benefit Africa as the great powers compete with each other to gain access.

The flip side of this is that China, as it becomes stronger and more assertive, could learn the lessons of European and American access to oil in Libya, which will certainly improve following the ousting of Muammar Gaddafi.

That is the sort catastrophic competition that Africa suffered from for a century and certainly does not need.

These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis where he is employed

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