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Chinese mercantile absorption of Sub-Saharan and East African infrastructure, energy, mining, development, political and military

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Robert Mugabe and Zimbabwe are actually a stellar recommendation for China among African elites, i.e., no matter how despotically my clan and I behave, China will be my protector and lender of last resort against the international community. No one in the West is able, or willing, to make that bargain. I have the luxury of remembering a prosperous Rhodesia under Ian Smith, his UDI (Unilateral Declaration of Independence) from England, the rise of two black parties - Zanu (Zimbabwean African National Union) under Robert Mugabe and Zapu (Zimbabwe African People's Union) under Joshua Nkomo, the creation of Zimbabwe, the marginalization of Nkomo, Mugabe's period as a post-colonial liberation hero, and the trajectory of decline to what is now a prison camp of a nation. For those readers unaware of the sinkhole that nation has become see Frontline's Zimbabwe: Shadows and Lies. Were I an up and coming clan leader bent on control, I'd pick China.

I have long said that much of US and some EU law is nothing but Scottish Enlightenment extraterritoriality to which developing states grudgingly acquiesced as they had few alternatives, especially after the implosion of the USSR. While it could be said that Western financial and development offers to developing regions such as Africa generally seek to alter, or improve, behavior of African states and their elites, China will allow those entities to pursue their kleptocrat proclivities at a rising pace with lessened transparency and with an oversight known only to the Chinese who will use it to their advantage when circumstances require. China will far exceed the Soviets (who tended to focus on geopolitical support and weapons sales) in terms of the scope of their engagement of the developing world. It will be a world where Transparency International will have no lens.

Recently asked to comment on energy related risks in Sub-Saharan Africa, I suspect that the journalist was looking for more tactical responses. My focus was long, on the very access to a wide variety of African energy and mining stocks:

Q: Broadly, what do you assess are the biggest risks faced International Oil Companies (IOCs) operating in sub-Saharan Africa? Are these risks (e.g., kidnapping, legislative) worsening?

ICG: IOCs are about to face a state presence and interference in their operations that will dwarf France. It is too simple to say that Chinese diplomatic and economic assets are ideally equipped to service the kleptocracies and ruling elites of Africa. China's proclaiming of 2006 as the "Year of Africa" is but a milestone in a decade plus effort to turn African allegiance (or dependence) from EU/US states to China, building relationships that will insure entrenchment of African elites, support their states' international interests while freeing them from tiresome covenants and compliance requirements that would limit their spending and off-books saving behavior. In return, African states will increasingly award exploration and lifting rights, mining and ore processing, and integrated infrastructure business to Chinese firms, and will support Chinese regional and global diplomatic initiatives.

Whereas the US has ignored much of Africa and South America, China is executing a strategic plan to create a mercantile structure that secures energy stocks, raw materials, and crops; delivers export markets for commercial and military production; redirects regional elites to study in China, learn Chinese, and specialize in China studies; and extracts diplomatic obedience in supporting Chinese interests and diplomatic initiatives.

Chinese diplomatic efforts differ greatly from those of the US/EU. Whereas the latter might send a small, high level delegation that meets only at senior level, operating against a background of moral and legal strictures, China is able to now field a broad spectrum of diplomatic and consular agents that meet counterparts at each level of the target country's bureaucracy, building a tiered relationship in depth that offers just the correct amount of assistance necessary to achieve the desired behavior. This startlingly efficient and effective process is buttressed by aid with few strings, debt write-offs, shifts toward infrastructure products - which incidentally use Chinese firms and create a camouflaged local posting for People's Liberation Army (PLA) assets, frequent informal meetings and more formal summits that engage African interests and businessmen, and assumption of the role performed by East Germany and Czechoslovakia in training security services and controlling information and media streams.

China is increasingly being accorded the status of a Great Power able to check US/EU interference in the actions of African states and elites, all without the stain of colonialism, moralizing or hegemonism. China's success in, and penetration of, Sudan, Angola and Zimbabwe should be taken as a pointer to future Chinese actions.

Expect China to focus on energy resources in Nigeria, Sudan, Angola, and Gabon. China will seek and gain long-term agreements that lock out US/EU producers while making China less vulnerable to market spot prices in the event of a supply crisis.

Note that a PLA presence in plainclothes has antecedents. From "Cubazuela" with Russian arms, Chinese economic ties, powered by oil - or perhaps not, conclusion:

Unlike Cuba, Venezuela has a very different set of international economic suitors beyond the former Soviet Union, notably China. I find it interesting that China has made inroads in the Caribbean basin (also here) and Venezuela (also here [seen note below] and here), not to mention other areas of Central and South America, that would have brought strident US diplomatic responses had the Soviet Union been the investor. A significant Chinese presence would likely mimic Chinese PLA efforts in Asia and Brazil: a tidewater port presence that offers partial or complete opaqueness connected by a strassendorf (street city) style of satellite towns connected by new roads to a processing plant at the primary extraction asset, e.g., coal, oil, minerals, timber, etc. Such patterns are of interest wherever they occur.

Ask most any African to compare the 2005 US/EU "Year of Africa" (where the US spent its uptick on Ethiopian food relief and Sudan/Darfur peacekeeping relief) with the Chinese 2006 "Year of Africa" that has Beijing signing investments, construction projects, and trade deals across Africa. Chukwu-Emeka Chikezie's Make Poverty History? Make Migration Easy! is ruthless.

Also useful to aspects of this post:

Q: How are these risks affecting the way firms can conduct business in the countries?

ICG: The emergence of China as a deeply entrenched operator will magnify the following comments regarding France, and ultimately marginalize and supplant French influence. For now, the French remain a force in the region, achieving their commercial ends by wielding extensive bribery and, when that fails, destabilization by its military and security forces. US firms bound by the FCPA can be at a disadvantage in competition against the French without assistance from US political and intelligence assets or extremely sound connections to the current and potential regimes.

The French have no qualms in directing their diplomatic, security, intelligence, and military arms to directly support both state-owned and private companies in contests against both host governments and foreign competitors. In areas where the French hold sway, if diplomatic efforts fail then the military will "assist" amenable local constituencies to create an environment agreeable to France. Unless smaller US operators are superbly placed, they can only benefit by allying themselves with one of the US majors, preferably a super major.

To the maximum degree permissible, any US operator should advantage themselves of contacts with US diplomatic and intelligence arms for any information that would affect their commercial position or gain notice of a private US diplomatic effort to convince the French or other state operator to cease and desist in a particular activity.

The majors have had to balance the advantages of being able to reliably extract high-quality oil at an operating cost of $2 to $5 dollars a barrel against the onshore hassle of coping with sabotage from organized crime, obstruction from local communities who feel bitter and marginalized as oil revenues pass them by, the effects of civil war, poor onshore infrastructure, and fees from the host government for daily use of local services that do exist.

There is currently less risk in being offshore - deeply offshore; the big money strikes in terms of large, deep fields with good recovery and reserves are increasingly in deep water where the host government is intensely dependent on the expertise, technology and capital of the field operator and its partners. Assets in shallow littoral waters will increasingly be prone to excursions from shore. Governments are less prone to interfere with the super majors. For US IOCs, be offshore in partnership with at least one other major US player, or failing that, offshore in partnership with at least one major non-US player that has similar interests and risk assessments. Areas where the French have an overwhelming presence carry added risk. That caution will increasingly apply to areas where the Chinese have a commanding presence.

Al Qaeda has a strong presence in West Africa and a presence in Nigeria, but has been heretofore content with revenue generation by smuggling, money laundering and purchase and resale of blood diamonds.

Q: In particular what special challenges does Nigeria, Chad/Sudan and Angola pose to IOCs?

ICG: The most immediate point of collision between the US and China are the energy states of the Gulf of Guinea, notably Nigeria, Equatorial Guinea and Cameroon, where both the US and China draw a fifth of their current supplies.

Sudan is well on its way to becoming a Chinese supplier, which will put increasing pressure on Chad.

Angola's proclivities towards opaque dealings will grow as Chinese cooperation increases.

China will seek and gain long-term agreements that lock out US/EU producers while making China less vulnerable to market spot prices in the event of a supply crisis.

Q: Is Angola showing any signs of being more transparent in its dealings?

ICG: We do not expect Angola to increase transparency. Increasing Chinese support is expected to reduce transparency, reinforce the ruling elite, and keep royalties flowing to the capital.

Q: Are IOC/contractor employees in Nigeria under any special risks?

ICG: IOC/contractor employees will increasingly be prone to kidnapping on onshore and near-shore assets as kidnappers use the captives, and subsequent production interruption, as a bargaining chip to force greater royalty sharing from the capital.

Q: Do IOCs have to be concerned that the nationalization policy of energy assets in south America may take root in parts of southern Africa?

ICG: Expropriation at the state level has ebbed for the foreseeable future as Marxist/Socialist governments yielded to more commercially minded administrations that are rapidly becoming sensitive to international lending institutions and the capital markets. Our near to midterm concern is what we call the Balouchi effect in which there is de facto expropriation in which the host government then in power faces unrest that brings bands of thugs who halt operations, makes life untenable for the operating firm, forces evacuation, and then absorbs the abandoned assets, becoming in effect, a new local government in power that is unresponsive in the short term to external influence. While there will be interruptions, possibly some asset damage, we believe the primary effect will be reduced monies to the legal owners rather than reassignment to new operators. Oil, gas, and gaseous liquids sectors in Nigeria are susceptible.

Other comments:

The economic and political-legal factors affecting investment are consistent across West Africa, i.e., an extended family oligopoly or elite that can edge towards kleptocracy and is bent on enrichment. Extensive distribution of financial largess within the family is assumed as a cultural norm. To not do so is seen as a mark of disrespect, even selfishness and mismanagement, within the clan.

Behind-the-scenes payments are often paid to increase chances of obtaining a permit, and in the US environment these take the form of signing bonuses. These payments vary widely by country and are simply part of an ongoing relationship.

Foreign companies are often expected to pay a substantial non-recoverable signature bonus in order to secure rights to a particular field. As these payments are not tax deductible, their existence guarantees that only major multinationals are able to fund operations in the major states of West Africa -- Angola and Nigeria -- unless their bloc is extraordinarily remunerative.

On the bright side, the International Finance Corporation (IFC) is committed to bringing coherence to best practices in economic development efforts across the globe that rise from mining, oil and gas, topping off good programs where they find them.

Soon: Coltan extraction as a metaphor of African exploitation by internal and external parties

Zimbabwe: Shadows and Lies
Alexis Bloom, REPORTER/PRODUCER; William A. Anderson, David Ritsher & Jeffrey Friedman, EDITORS
FRONTLINE/World
AIRS ON PBS June 27, 2006

China and Saudi Arabia: interesting SPR team up?
China may tap Saudis to fill its oil reserve, a move likely to influence prices
Myra Saefong's Commodities Corner
By
Myra P. Saefong, MarketWatch
Last Update: 12:04 PM ET Jun 23, 2006

Mercantilism with Chinese Characteristics
China Confidential
June 23, 2006

China's Portuguese Connection
China grooms a strategic relationship with the Community of Portuguese Language Countries
Loro Horta & Ian Storey
YaleGlobal, 22 June 2006

China Easing Its Stance On Taiwan
Tolerance Grows For Status Quo
By Edward Cody
Washington Post
June 15, 2006

In Africa, China Trade Brings Growth, Unease
Asian Giant's Appetite for Raw Materials, Markets Has Some Questioning Its Impact on Continent
By Craig Timberg
Washington Post
June 13, 2006

China's Impact On Africa
Posted by Dan Harris
China Law Blog
June 10, 2006 at 04:05 PM

China Impacts Developing World
Chinese entrepreneurs look to Africa for new markets
Bright B. Simons (baronsimon)
Published 2006-06-10 21:00 (KST)

China's Africa Strategy
By Joshua Eisenman and Joshua Kurlantzick
Current History 5/06
May 11, 2006, 09:33
PDF
Fee archive

The Roots of African Corruption
Stephen Ellis
CURRENT HISTORY, May 2006, pp 203
Cache of PDF
Fee PDF

With China Calling, Is It Time to Say Goodbye to US And Europe?
Mark Sorbara
TMCnet
April 13, 2006

Western concern at China's growing involvement in Africa
By Brian Smith
World Socialist Web Site
10 April 2006
NOTE: WSWS texts can be loopy. This is sound.

Monitoring China's meddling
By Tom Donnelly
Armed Forces Journal
March 2006

China's growing trade with Africa indicative of Sino-Western energy conflicts
By Brian Smith
World Socialist Web Site
24 January 2006
NOTE: Also sound

Full text: China's African Policy
China View
www.chinaview.cn 2006-01-12 11:45:28

China's Costly Quest for Energy Control
By JOSEPH KAHN
New York Times
June 27, 2005

Oil Fuels Beijing's New Power Game
China's search for secure energy sources and supply routes is leading to significant strategic adjustments
Ziad Haider
YaleGlobal
11 March 2005

China's success could misguide region's leaders
Andres Oppenheimer
THE OPPENHEIMER REPORT
Miami Herald
Posted on Sun, Feb. 27, 2005

A Continent for the Taking : The Tragedy and Hope of Africa
by Howard W. French
Knopf, ISBN: 0375414614
April 20, 2004
Nice set of commentary and reviews that can stand on their own

Gordon Housworth



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