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China's Congo Plan

January 10, 2014|

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Chinese state-owned enterprises are making deep, long-term investments in Congo's extractive industries. Image by Jacob Kushner. Congo, 2013.

When Xi Jinping pondered which foreign region to visit first as China’s newly appointed President, he wasn’t swayed to a mineral-rich Australia, a thriving Singapore or steadfast North Korea. Instead, his careful calculations took him to Africa. After a brief, almost obligatory stop in Moscow, he flew to Tanzania, South Africa and Congo-Brazzaville, where he promised $20 billion in new credit to finance infrastructure and agriculture in Africa over the next three years.

Some two months after that visit, President Barack Obama followed in the Chinese leader’s footsteps. It was only the American President’s first extended trip to Africa since taking office some four and a half years earlier. The sign of America’s lagging commitment to Africa was not lost upon Africans. That China has moved 600 million people out of extreme poverty over the past 35 years is a source of wonder for many Africans who remain trapped in cycles of poverty. As the American President spoke of a “Pivot to Asia,” China was intently channeling its attention here: In 2009 China supplanted the United States as Africa’s largest trading partner and never looked back. China’s government estimates that it conducted $200 billion worth of trade with the continent in 2012.

Perhaps no African people is more optimistic about the potential of Chinese investment than that of the Democratic Republic of Congo, a nation rich in natural resources but poor in nearly every other respect. Congo is the world’s most underdeveloped nation and the most unlikely place for an individual to improve his or her livelihood, according to the United Nations.

During the past decade, the Chinese have rapidly become an integral part of everyday life in Congo. To buy a cell phone, one visits a Chinese electronics shop that is sure to offer black market Blackberry models at one-third the official market price. To enjoy a soccer game, Congolese take a seat in the bleachers at Kinshasa’s Stad des Martyrs stadium, a gift from China in 1993. A drive into downtown Kinshasa takes you along a grand boulevard, newly widened and repaved by a Chinese construction company.

In the mining town of Lubumbashi in Congo’s Southeast, a Chinese doctor treats Congolese and Chinese patients with modern pharmaceuticals as well as Chinese acupuncture. Restaurants serve up Chinese dishes, and there is even a Chinese casino. “It’s not just about doing what you have to to get minerals,” explain journalists Serge Michel and Michel Beret in their 2010 book, China Safari. “Chinese businessmen are investing independently in construction, home-building, etc. for the long term because they know it’s good business.”

Increasingly, China’s model of investment is defined by deals in which Chinese companies extract minerals or oil in exchange for building roads, bridges and hospitals for African nations desperate for modern infrastructure. This strategy is not unique to Africa; throughout Asia, Chinese state-owned enterprises are making deep, long-term investments using loans from China’s state banks. Now Chinese investors are flocking to emerging markets such as Zimbabwe, Guinea, Angola, and most recently Kenya, where in August China earmarked $5 billion for energy projects and rail that will make it easier to export oil and minerals from Uganda and elsewhere through Kenya’s Mombasa port.

Few African countries are as ripe for such deals as Congo, which is home to nearly half the world’s cobalt, and vast reserves of high-grade copper, tantalum and tin. Just ten years ago, a ton of copper was priced at $1,700 on the world market. Today it is worth about $8,000. This lucrative copper has lured two Chinese state-owned companies into the largest mining venture Congo has ever seen: Sicomines. In exchange for rights to mine some 6.8 million tons of copper and 427,000 tons of cobalt over the next quarter-century, these companies are spending $3 billion up front to build roads, hospitals and other infrastructure projects in Congo. It’s not a gift, but a loan; the cost of the infrastructure will be paid back using the minerals sales. The remaining profits will be divided between the Chinese companies and Congo’s state-owned mining company, Gecamines.

The stakes of the Sicomines investment are high. One study estimated that the minerals may be worth between $40 and $84 billion. Depending upon whom you believe, China’s Congo Plan will either revolutionize the world’s poorest nation, helping it leap forward into modernity and showcasing a new development model for all of Africa, or it will strip Congo of its natural wealth, enriching foreign businesses and Congo’s elite while the Congolese people remain in endemic poverty. For Congo’s people, what’s enticing about China’s deal here is the promise afforded by the first scenario—and the potential that the Congolese people will be propelled forward along with it. “The Chinese will raise you up, and they’ll let you get big,” said Mack Dumba, Congo director of the Extractive Industries Transparency Initiative, which works to improve accountability in the global mining sector. “Americans should learn that lesson.”

The Chinese are by no means the world’s first to seek their fortunes in Congo. But unlike the Western powers whose legacy is burdened to this day by colonialism, China’s footprints in Africa have been relatively “conflict-free.” During the first decade of the 21st century, at least 230,000 Chinese immigrated to Africa—as many as one million by some estimates. They opened import businesses, electronics shops, pharmacies and restaurants. Chinese trade with Africa blossomed, and China began looking for ways to help some of its state-owned companies to do more business across the continent than ever before. Two Chinese state banks began loaning money to companies willing to make bold investments. China’s Export-Import Bank, the smaller of the two, now provides more loans to sub-Saharan Africa than the World Bank, loans increasingly used to develop African infrastructure. By 2006, Chinese companies were investing more than $6 billion per year in roads, railways and other public infrastructure projects across Africa. By 2015, the figure is expected reach $50 billion.

How did China so swiftly gain the upper hand in Africa? The answer has everything to do with a calculated departure by Chinese officials from the ways of the West. A 2012 report by the U.S. Government Accountability Office succinctly describes the Chinese difference:

The United States and China have emphasized different policies and approaches for their engagement with sub-Saharan Africa. U.S. goals have included strengthening democratic institutions, supporting human rights, using development assistance to improve health and education, and helping sub-Saharan African countries build global trade. The Chinese government, in contrast, has stated the goal of establishing closer ties with African countries by seeking mutual benefit for China and African nations and by following a policy of noninterference in countries’ domestic affairs.

For their part, Africans seem to have little doubt about which approach is more attractive. In a 2009 survey of 250 people in nine African countries, three-quarters said the Chinese way was a “very positive” or “somewhat positive” model of development. When asked which model offers more promise for Africa’s future, the Western or the Chinese one, they overwhelmingly chose the latter. In Congo I came across a group of men who work for a Chinese copper-smelting factory outside Lubumbashi. Earning a wage for the first time in their lives, they lauded the Chinese for investing here and creating jobs. They asked me why Americans don’t do the same.

The answer begins with the failure by American decision-makers to grasp that while many in Africa care deeply about strengthening governance and improving democracy, what matters even more is building an economy that provides the means by which to improve day-to-day life for themselves and their families. In theory, the Congolese people should be rich from their nation’s vast mineral wealth. One wouldn’t know it by looking at how the majority of Congo’s 76 million people live. Today in Congo, rural families sleep in huts that flood when it rains. Only 4 percent have electricity. Life in Congo’s cities can be similarly void of economic activity. Even in Kinshasa, Congo’s bustling capital of eight million people, hand-carved wooden canoes navigate the narrow canals along the banks of the Congo River. Unfinished, concrete block houses line muddy streets along which women sit at stands, selling the day’s catch. Western nations like the United States tend to claim that they have helped to solve Congo’s problems, but the record shows that decades of promises and billions of dollars in development aid have done little to improve the lives of most Africans.

For at least the first thirty years following Congo’s independence, U.S. policy had the effect of entrenching one of Africa’s most corrupt and violent dictators by supplying him with billons of dollars in aid, weapons and bribes. Mobutu Sese Seko killed his adversaries with impunity and commandeered as much as 40 percent of Congo’s wealth ($4–8 billion) during his 31-year rule, much of it from U.S. aid. While the West supported Mobutu, the Congolese people suffered. The real value of wages plummeted 90 percent due to extraordinary inflation. Congolese still blame the United States for enabling a system of corruption whose legacy persists to this day.

It is hardly lost upon the Congolese that massive Western aid and investment, a long legacy of political meddling and even a robust international peacekeeping force attempting to rout armed militias in the country’s east have done little to alleviate Congo’s poverty. The West, they say, has had its chance. “It’s been 50 years that we’ve cooperated with the IMF, the World Bank. And for 50 years we’ve had the same problem,” laments Jean-Marie Kassamba in the Kinshasa office of the state-owned TV news station he directs. “There aren’t roads. There aren’t schools. There aren’t universities.”

Enter China. The two Chinese companies leading the Sicomines deal in Congo have already spent more than $400 million building roads and hospitals as they fulfill their end of the bargain upon which Congo’s economic future increasingly depends. To Congo’s leaders, the benefits are clear: Chinese-constructed roads, schools and hospitals earn them swift political capital among their constituents. To help get Congo’s President Joseph Kabila elected in 2006, Kassamba orchestrated a campaign centered around “five pillars” of reconstruction, with infrastructure at the forefront. In a country where just 11 percent of the population has access to electricity and productivity remains among the worst in the world, it was a compelling pitch. The campaign worked, and Kabila won re-election. But to fulfill the promise, he needed to build more boulevards, hospitals and bridges than western nations and IFIs would commit to financing. China’s Sicomines deal offered the solution: build roads and other infrastructure now, and quickly. In exchange, let the Chinese mine copper and cobalt, of which Congo has plenty. And so “everybody wins”, says Kassamba of Congo’s relations with the Chinese.

Western critics argue that China’s arrival in Congo has had its share of obstacles. Some Congolese complain that Chinese companies employ Chinese workers to do jobs that could be filled by Congolese citizens. Even those who do find work with Chinese companies tend to earn minimum wage and complain that they feel disrespected and sometimes even cheated by their Chinese employers. But most Congolese I spoke with seemed willing to overlook these qualms because infrastructure is making tangible improvements to their lives.

It’s clear that the Congolese admire the Chinese model founded upon private enterprise and non-interference in their domestic politics. What remains to be seen is whether the United States and its Western allies and the institutions that for decades have attempted to lead Africa’s development will take heed and follow suit. A good first step would be to eliminate restrictions on Western companies operating in Africa, starting with the so-called “conflict minerals” provision imposed by the Dodd-Frank Act.

Passed by Congress in 2011 in an attempt to curb the violence that plagues Congo’s trade in conflict minerals, the amendment requires public companies to document precisely where in Congo their minerals come from and declare whether or not they can be proven conflict-free. The law goes so far as to require companies to describe what “due diligence” is being done to identify the source and chain of custody of those minerals and declare all of the products the company produces that it cannot prove are conflict-free—a label that would spell disaster for popular electronics brands.

Needless to say, some American companies found it easier to stop sourcing minerals from suppliers in Congo altogether rather than comply. The result is a perfectly disappointing example of how the United States is undermining its potential in Africa through well-intentioned but deeply flawed and simplistic policies. And yet, the root problem is even larger than Dodd-Frank. The law is just one sign that policymakers ignore the growing body of evidence that direct investment can help raise the standards of living for the world’s poor faster than aid has. It is no coincidence that Africa’s fastest growing economies are those that receive unparalleled levels of FDI from China: $15 billion in Nigeria, $6 billion in Congo, and $5 billion in Niger in 2012 alone. Alexander Benard, who heads a private equity firm focused on emerging and frontier markets, pointed out that the Chinese “are motivated purely by profit, which aligns their incentives with those of the host governments and gives them reason to develop the resources quickly.” This, say Congo’s leaders, is precisely what makes Chinese investment so welcome here. It is a strong departure from the patronizing attitudes expressed by Western nations that impose tedious preconditions and dictate to African leaders what development projects their aid will fund.

Western aid remains limited by outdated and oven disproven notions as to what works when it comes to developing Africa’s poorest countries. During the past half-century, the US spent nearly $1 billion on Title II food aid to Congo through USAID’s Food for Peace program. Much of that funding went to waste because the program requires that 85 percent of the funds be spent at a premium to purchase American food products and ship them across the Atlantic on American flag vessels. The result of this inefficient system is that Congo remains the world’s most food-insecure nation. The average Congolese family must spend more of its household income on food than any other family in the world.

When the chair of Congo’s government relations with China first visited China in 2003, he was impressed to find that the Chinese explicitly refer to “respect” as a concept that should guide all of their nation’s foreign relations. It isn’t merely an idea, but a policy that dates back half a century to a treatise signed between China and India in 1954 that outlined the “Five Principles of Peaceful Coexistence”: “mutual respect for each other’s territorial integrity; nonaggression; noninterference in each other’s internal affairs; equality and mutual benefit; peaceful coexistence.” That Chinese investment is driven foremost by a notion of “respect” may sound counter-intuitive to the West, being accustomed to faulting China for various forms of exploitation. But to millions of Africans who feel as though they have sacrificed their autonomy, even their dignity to the whims of Western nations and institutions, the promise of mutual exchange is a compelling one.

The West, then, should re-think its approach to diplomacy—a sphere in which China is uncharacteristically out-maneuvering the United States in Africa in several important ways. In Congo, many see China as much more forthright in extending opportunities for individual advancement than is the United States. Twice a week, a line forms outside the Chinese embassy in Kinshasa as Congolese students and businessmen queue to apply for visas to work or study in China. They say it is far easier to get a visa there than to the United States.

China recognizes that in Africa, visits from dignitaries (or snubs, such as when Obama refused to visit Kenya due to alleged human rights violations by the country’s newly elected president) can hold more sway than policies alone. Joshua Eisenman, Senior Fellow in China Studies at the Washington-based American Foreign Policy Council, pointed out last year that for African leaders, “When you go to China you get to meet the Foreign Minister. I don’t know if you’ll meet Hillary Clinton when you come here.” In a 2006 article for the Heritage Foundation, Peter Brookes and Ji Hye Shin describe the birth of China’s Forum on China-Africa Cooperation in 2000. In the years since, the initiative has convened five summits between China and African nations, bringing an unprecedented 48 African leaders to the dialogue held in 2006.

To be sure, not all of China’s maneuvers in Africa are ones that the United States can replicate, nor should it try. It would be folly to believe that American infrastructure and mining companies will once again become competitive with their Chinese counterparts. Yet opportunity remains. As Benard explains, African officials remain “eager to roll out the red carpet for U.S. companies and investors. The presence of U.S. businesses in these countries is still perceived as the ultimate validation of their commercial legitimacy, as well as a step toward stronger ties with the U.S. government itself.” U.S. government financiers interested in building Africa’s infrastructure should begin by coordinating directly with private companies where their interests are mutually beneficial, much like China does. USAID, for instance, could work with American companies to bundle aid and business tenders into a package deal, or partner on mutually beneficial projects. For example, Coca-Cola and USAID are currently collaborating in Haiti an effort to improve mango production there.

During his visit to the continent this past July, President Obama signaled that he is eager to increase American investment there. He announced a Trade Africa plan that intends to improve infrastructure and simplify the physical transportation of goods between East African countries and the United States, as well as increase U.S.-bound exports from the region by 40 percent. Obama also said the United States would partner with private enterprise to invest $7 billion to double access to electricity in sub-Saharan Africa by 2013—an encouraging departure from the status quo of relying primarily on aid dollars to increase energy infrastructure. These two initiatives represent a serious, positive step toward establishing America’s proper role there. But it’s easy to make promises and very hard to keep them, and the Administration has yet to detail how, precisely, the United States will accomplish the goals he set out.

Perhaps the President’s most worthwhile contribution to US-Africa trade was his appeal to Congress and African leaders to renew the African Growth and Opportunity Act by 2015. The AGOA was passed in 2000, a landmark agreement to allow African nations to export goods to the US duty-free. Last year, 37 African nations exported $46 billion worth products to the US through AGOA. Coupled with America’s inroads into Africa’s oil sector (15 percent of US oil is now sourced in Africa), AGOA gives reason for Americans to remain optimistic that the US can continue to gain from working hand-in-hand with Africa’s poorest countries, alongside China if not in front of it. All that remains is for policymakers to take the plunge.