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Monday, January 1

Frankenstein in Africa: China sets out to destroy Africa's manufacturing sector

Most media reports on China's increased presence in Africa have focused on the country's hunger for Africa's oil, gas and minerals. However, the scramble to sew up energy concessions diverts attention from China's strategy in Africa. China's government is methodically dismantling Africa's manufacturing sector through various tactics, including flooding Africa with very cheap Chinese goods that don't make a profit for China's industries.

The latter is not simply brass-knuckles capitalism or even neocolonialism; it is part of a coordinated strategy between China's state-controlled business sector and their military.

The primary objective is military -- to block US and European military activities on the African continent. The related objective is to block G7 and in particular American influence on the continent -- first, by dismantling Africa's manufacturing sector and overbidding on energy concessions so that African governments become dependent on revenue from energy exports to China.

Second, by isolating African governments from the help given by the IMF and international development banks, such as the World Bank, with strong G7 ties.

Those who know the history of the IMF-World Bank (WB) in Africa might be weighted to give China their head on the hope that China can't do any worse. Ah, but China's economic miracle would been impossible without their adhering to IMF guidelines and accepting loans from the World Bank and other development banks.

More importantly, after decades of ignoring the obvious, the IMF and the World Bank have realized that African governments can't make great headway until they combine economic reforms with anti-corruption measures and transparency in key government financial practices.

Another way to put all this is to say that just when the IMF hit on a development formula that can work in Africa, along comes China and tells African governments, "We'll give you everything you need without your having to rein in corruption and mess around with keeping your books straight. What's more, you can still spend more than half your revenue from energy exports on weapons purchases, for all we care."

If you tell me that China won't get away with it -- they're already getting away with it:
BEIJING, Sep 18 (IPS) - As world financial leaders are casting ballots this week to increase the voting rights of China on the board of the International Monetary Fund (IMF), Chinese leaders have been reminded that with more power comes greater responsibility and that Beijing will be scrutinised on the ways it chooses to use its new credentials in the global economy.

"The international community recognises that China has increased its role in the world economy," IMF chief Rodrigo de Rato told the media. [...] A bigger voice at IMF "would allow you to express your views but, of course, you will listen to the views of the others," he was quoted as saying. [...]

In the most high-profile infrastructure aid-programme of recent years billions of dollars were offered to Angola in an effort to consolidate ties and secure China's access to the country's oil reserves. The financing has allowed the Angolan government to avoid dealing with the IMF, which has long criticised its finances for lacking transparency.(1)
So, why would China need to listen to the views of other IMF members, if they can buy out a government's need to deal with IMF guidelines?

Already China is writing one ill-conceived loan after another to African governments -- who just got their debts written off by the G7 countries! Remember Gleneagles? All the hand wringing and weeping buckets by the British about the need to forgive African debt?
China's increasing economic prowess has enabled it also to extend fresh loans to African countries the majority of which, the G7 says, are ill equipped to repay. Loans from China come with few conditions and at a time when many highly indebted countries in Africa have had their existing debts written off by Western governments and donor agencies.(1)
No sooner was the ink dry on debt forgiveness when China raced in with the checkbook and carte blanche: whether or not the loan is necessary and helpful to an African economy, China writes it up. And no matter how high-priced the loan, the African government accepts it, even with no means to repay.
China utilizes a variety of instruments to advance its interest in ways that western nations can only envy. Most of China’s investments are through state-owned companies, whose individual investments do not have to be profitable if they serve overall Chinese objectives.

Thus the representative of China’s state owned construction company in Ethiopia could reveal that he was instructed by Beijing to bid low on various tenders, without regard for profit. China’s long term objective in Ethiopia is in access to future natural resource investments, not in construction business profits. In other cases, China can use aid, investment and technical inputs to win long term gains and access, with a willingness to “lose” much in the short run to gain in the long run.(2)
Here you might ask where China -- still a developing country -- is getting all this money from. China is rolling in cash. In November China announced a trade surplus of $102 billion. China's monetary reserves have topped $1 trillion.

How is all this maneuvering by China sitting with the Africans? The ones who have seen the Chinese juggernaut up close; e.g., African manufacturers who've had their plants closed by China's competition, are aware of the dangers. Yet many feel they have no choice but to take the path of least resistance -- particularly if their government controls the energy sector targeted by China's military and the African government is a despotic one. That kind of government is the prime target for Chinese strategy. The implications for democracy in Africa and for the US-led war on terror are very serious. A 2005 report for The Heritage Foundation observed:
The most pernicious effect of the renewed Chinese interest in Africa is that China is legitimizing and encouraging Africa’s most repressive regimes, thereby increasing the likelihood of weak and failed states. [...]

African dictatorships are regular buyers of Chinese weapons and military equipment, which they often use to oppress minority populations, quash political opposition, harass neighboring countries, and extinguish any glimmers of democratization. [...]

China’s ideological support of African despots lends them international legitimacy and influence in the United Nations and other international arenas that help to blunt pressure from the Western democracies on human rights, economic openness, and political freedoms. At the same time, when it serves Chinese interests, Beijing succors would-be junta leaders and illiberal rebels who want power and would roll back political reforms in immature democracies. These rebels seem to believe that if they want to overthrow a legitimate government, China will work to bolster their international legitimacy in the United Nations and other international fora.(3)
My only quibble with the observations is that while China's support of despots is very dangerous, the most pernicious consequence of their actions is to push Africa backward. America and other advanced democracies have been able to supplant their manufacturing sectors in large measure with information technology. African nations that lose their manufacturing sector have nowhere to fall back except to the most primitive type of business: that of being a middleman in trading:
KANO, Nigeria -- The pasta factory that Umar Sani Marshall's family owns on the outskirts of this ancient city had not churned out so much as a single piece of macaroni in more than a year. The other former titans among Kano's once-mighty manufacturers were doing no better, producing mostly cobwebs as the city's markets overflowed with cheap imports from China.

So last month Marshall [...] decided to forsake his legacy as scion of one of Nigeria's leading industrial families. He strapped $5,000 to his waist and flew off to Asia in search of a new kind of fortune, built not on making goods but trading them.

By the time he returned 12 days later, Marshall had started a new business dealing cars and auto parts, as a middleman between Chinese suppliers and Nigerian consumers. Along the way, he said, he found the kinds of profits that long have eluded Kano's manufacturers, and he learned a few lessons about how to work with Chinese businesses instead of competing against them.

"When you go there with the intention of buying socks, you will come back with a jacket and hat" as well, Marshall said, smiling as he pretended to place a top hat on his head.

His shift, from manufacturing to trading, mirrors a broader one across Nigeria and much of Africa.(4)
I wonder how long Mr Marshall thinks he can get a great deal from the Chinese, once his nest egg from his family's manufacturing empire dries up.
Fifteen years ago, 500 factories hummed with work in Kano, but fewer than 100 remain operational today, most at far less than full capacity, according to the city's Chamber of Commerce. Tens of thousands of jobs have been lost. Meanwhile, Kano's Kwari textile market, the biggest in West Africa, has swelled with stall after stall of Chinese fabrics and clothing.
The textile situation is illustrative, so I'll quote from a longish passage in a Council on Foreign Relations report:
Chinese goods are flooding African markets, and – not so different from the United States – there has been growing concern in Africa about the effect on local industry. The primary focus is on textiles where the growth of Chinese exports constitutes a double whammy for Africa. Exports of Chinese textiles to Africa are undermining local African industry while the growth of Chinese exports to the United States is shutting down the promising growth of African exports in this field.

Southern Africa provides a good example of both effects. Chinese exports of textiles to South Africa grew from 40 percent of clothing imports to 80 per cent by the end of 2004. Out of 100 T-shirts imported into South Africa, 80 are from China. In the same period, from 1996 onward, employment in the sector in South Africa has decreased. By the end of 2002, 75,000 had lost their jobs in the industry.

The impact on African exports comes from the ending of the Multi-fibre Agreement (MFA), which had allowed countries like the United States to place quotas on clothing and textile imports from particular countries.

Under that system, the United States had long put quotas on China. More recently, the United States enacted the Africa Growth and Opportunity Act (AGOA), which gave African countries almost unlimited access to the American market. Textiles was one of the fastest growing exports under AGOA, with rapidly growing industries in Lesotho, Swaziland, Ghana, Uganda, Kenya and elsewhere on the continent.

Once the MFA expired in January 2005, however, Chinese exports to the United States soared and African exporters found they could not compete. More than 10 clothing factories in Lesotho closed in 2005, throwing at least 10,000 employees out of work. South Africa’s clothing exports to the United States dropped from $26 million in the first quarter of 2004 to $12 million for the first quarter of 2005. [viii] South African industrialists and workers have clamored for protective action, joined by church leaders and opposition leader Tony Leon. Textile workers joined other workers in a nationwide strike June 27 [2005] to protest job losses. The trade union federation, COSATU, is calling for a restriction on Chinese imports, and is urging retailers to stock 75 per cent of locally made goods. Industry is calling for customs officials to impound undervalued Chinese imports. [ix]

The impact has been no less in West Africa. In Nigeria, low cost imports have largely devastated the textile and other consumer product industries of Kano and Kaduna. In these largely Muslim cities, one Nigerian parliamentarian described a frightening situation of vast numbers of unemployed youth, a powder keg in Nigeria’s already fractured society. Given Nigeria’s underdeveloped and unreliable supply of power, which forces most industries to rely on back-up diesel generators, the prospect of Nigeria regaining a competitive edge seems remote. [x]

In Ghana, threats of closures have come from some of the leading industrialists. Reflecting the rise and fall of the effects of AGOA, the head of Gregory Knitting said, “We in clothing and manufacturing are seeing shocking times. Sales in 2003 were reasonable, they were better in 2004, and very bad in 2005.” [xi]

If China has been forthcoming in aiding and investing in Africa with few strings and considerable cash, it has been equally firm in defending its export policies. China’s Economic and Commercial Counselor in South Africa warned South Africans that “unfair and discriminative restrictions will never be accepted by China.”

He pointed out that China was within its rights under the WTO and had invested carefully during the ten years of the MFA to become efficient and competitive.

“Thanks to the arduous efforts over the years, the Chinese textiles and clothing industry managed to sharpen its international competitive edge and gained the comparative advantages it now enjoys.”

If Africa needed to be told of the competition it now faced, he added that even if African countries placed restrictions on Chinese goods, they would not be able to control the substitute flow of goods from India and Pakistan. The solution, he said, was for South Africa to adopt a “positive attitude.”(2)
Adopt a positive attitude with a gun at your head. How very Chinese.

Now what's wrong with the argument from China’s Economic and Commercial Counselor in South Africa? I went over this in the 2005 post titled Pharaoh:
[...] there is a way to tilt the playing field against America and against all democracies that engage in global trade. The unfair advantage comes when democratic peoples compete with despotic governments. This is because the despot can order his subjects to learn whatever profession and work in whatever industry gives an edge in exports.
African manufacturers and their employees are not in competition with Chinese manufacturers and their employees. They are in a struggle against a despotic government. It's not a playing field; it's a slaughterhouse.

The die is cast; in a November summit, Chinese and African leaders wrote deals worth $1.9 billion.
The agreements, signed between 12 Chinese firms and various African governments and companies, followed Chinese President Hu Jintao's pledge on Saturday to offer $5 billion in loans and credit, and to double aid to Africa by 2009.

In a joint declaration ending the summit, delegates announced a strategic partnership and "action plan" that charts cooperation in the economy, international affairs and social development. "We propose to enhance South-South cooperation and North-South dialogue to promote balanced, coordinated and sustainable development of the global economy," said Hu, reading out the declaration.(5)
What can the United States do to offset the worst of China's machinations on the African continent? Some good suggestions are found The Heritage Foundation's February 2006 report:
To protect and advance American interests and influence in Africa, the United States should:

Develop a coordinated, comprehensive strategy.
Appropriate U.S. agencies should develop a comprehensive and coordinated strategy based on a review of the challenges and obsta­cles in each country and the available American resources. Consistent, constant, and coherent American engagement in Africa will help to counter the illiberal forces that stunt African development.

Increase the U.S. diplomatic profile in Africa.
The United States has demonstrated considerable commitment to promoting economic growth and development, representative government, health, and human rights in Africa. Since 1960, Wash­ington has provided $51.2 billion (in 2003 dol­lars) in official bilateral development assistance to sub-Saharan Africa.[36]

The United States is the largest humanitarian aid donor ($3.3 billion in 2003) and also the largest source of bilateral and multilateral support to combat HIV/AIDS, malaria, and other infectious diseases.[37]

Secretary of State Condoleezza Rice’s reorganization and expansion of diplomatic posts, combined with extensive public diplomacy to publicize U.S. assistance efforts in Africa and shared interests between the two regions, will help to change the pervasive African perception that the United States cares little for the region. To further these efforts, President George W. Bush should go on an extended trip to Africa to strengthen relations with Africa.

Encourage human rights, democratic principles, and good governance.
Atrocious human rights violations in Sudan, Zimbabwe, and some West African nations remain a primary concern. The United States should make a more consistent effort to moderate the conduct of repressive African regimes and to help young African democracies lay the institutional foun­dations for a free, open, stable, and prosperous society in their individual countries and throughout the region. To this end, the United States has made “good governance” a requirement to qualify for Millennium Challenge Account aid.

Washington should go a step further by denying bilateral economic assistance to countries that consistently violate human rights or resist the transi­tion to representative government and by promoting this policy in both international financial institutions and the United Nations.

Increase trade and economic relations with Africa.
Although U.S.–Africa trade accounts for only about 1 percent of total U.S. trade, it has grown rapidly since passage of the African Growth and Opportunity Act (AGOA) in 2000. AGOA significantly lowers, through 2015, trade barriers to goods exported from African countries, provided that they have established or are making progress toward market-based economies, enhancing the rule of law, represen­tative governance, lowering barriers to U.S. trade and investment, improving human rights, and other goals.[38]

While AGOA is a positive step, the United States should continue to press the region and individual countries for permanent free trade agreements that liberalize trade in goods and services, lower investment barriers, and strengthen property rights. Such agreements would encourage stronger economic growth and increase economic ties between the United States and trade partners in Africa. Charity and international aid will not solve Africa’s prob­lems, but economic reform and growth can.

Encourage development of energy resources. Africa is an increasingly important oil supplier for the United States, providing 15 percent of total U.S. oil imports, which is forecast to increase to 25 percent within the next decade. Given America’s desire to diversify its energy supplies, the United States should press countries in Africa to open their oil and gas sectors to foreign investment and remove regulatory and other barriers that constrain economic development of those resources.

Increase security engagement. The American military is the world’s premier fighting force, making many nations eager to gain access to U.S. military training and facilities. Security engagement, including the International Military Education and Training program (IMET), will increase the likelihood of advancing U.S. goals, such as civilian control of the military and counterterrorism and peacekeeping capabilities.

Seek new international partners. International cooperation is a “force multiplier,” and Washington should look beyond traditional partners in Europe to the democratic nations of Asia and Latin America to help advance these important issues.(3)
The Council on Foreign Relations chimes in their advice:
In terms of promoting political and economic reform, now so much the parlance of both political and development thinking, the major impetus must come from Africans themselves. The United States can do much to encourage that, with aid targeted to judicial reform, democratic institutions, the Parliament and Human Rights Court of the Africa Union, and African civil society. Providing truly large amounts of aid over several years, to reward good performing countries – the philosophy of the Millennium Challenge Account but not yet realized – is another promising initiative.

Both the United States and Europe also still have one more major economic card to play: opening their markets to African agricultural products. The benefit to Africa could dwarf all that China and India together could do for Africa’s development. But the EU and the United States are held back from playing this card by domestic pressures, despite regularly stated pledges to take the necessary action. If we are serious about Africa, and going beyond humanitarian aid and charitable impulses, this is the most valuable step we can take.

Finally, the United States should begin to engage China on Africa. China has more than economic objectives. China is seeking to be recognized as a major power.

It has become more active in supporting UN activities, including the provision of peacekeepers to the UN. It rarely vetoes UN resolutions (unless recognition of Taiwan is at stake) even when it has reservations. In March of this year, China abstained rather than veto a UN Security Council resolution asking the International Criminal Court to investigate human rights violations in Darfur and setting in motion a process that could lead to sanctions against Sudanese officials.

In sum, China seeks its place in the sun, including respect.

The question then is does China want to be seen in Africa as the defender of rogue states, the more aggressive seeker of Africa’s natural resources, without regard to transparency, development and stability there? Is there room for developing some rules of the road, some common objectives, some ways in which Chinese economic gains for Africa (and itself) can come side by side with building more stability and democracy there? Are there incentives – more joint ventures, more common work on both the exploitation and preservation of natural resources in Africa (e.g., the rain forests) – that the United States can offer? In sum, are there more areas of win-win situations in Africa for both the United States and China?

It is better to explore these possibilities than to start down the path of trying to limit Chinese influence, for the odds are against that happening any time soon.(2)
China is seeking its place in the sun by making a very deliberate attempt to destroy American influence in Africa and across the globe. Provided the US government is very clear on this point, of course we can try to work out "win-win" situations with China. But meanwhile, row away from the rocks. China needs to be confronted -- at the United Nations, the IMF, World Bank, and WTO -- on the worst of their actions in Africa.

1) With China Lending, IMF-WB Conditions Take a Toss
by Antoaneta Bezlova.

2) China's Rising Role in Africa by By Princeton Lyman, Director of Africa Policy Studies, Council on Foreign Relations, July 2005.

3) China's Influence in Africa: Implications for the United Statesby Peter Brookes and Ji Hye Shin for The Heritage Foundation, February 2006.

4) From Competitors to Trading Partners: Africans Adjust As Business Ties with China Grow by Craig Timberg, The Washington Post, December 3, 2006.

5) The Washington Post.
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