Friday, 24 September 2010

Resource Rents: China & Africa

This week the International Growth Centre held a three day conference at the London School of Economics and africapractice was there to hear the latest debates and discussions surrounding economic growth in Africa.

China’s presence in Africa has been a ‘hot topic’ for some time now, with questions surrounding the legitimacy of resource rents generating considerable controversy. However, with African countries weathering the tides of global recession better than their western counterparts the potential and future in Africa for business and development has once again been highlighted. As the continent begins to experience accelerating growth, with Nigeria predicting GDP figures of around 10% by the end of 2011/early 2012, it is increasingly important that international actors understand what impact China is having on the business environment in Africa, and get to grips with the implications of Chinese involvement for their own investment prospects. As Chinese investments appear to be overshadowing those of the West and the African Union looks to the East for economic partnership, such considerations cannot wait.

It was not surprising, then, to see that the nature and impact of China and Africa’s relationship was debated by experts such as Paul Collier, director of the Centre for the Study of African Economies, Oxford University, and academic co-director of the International Growth Centre, and Christopher Alden, a reader in the Department of International Relations at LSE at the IGC conference.

The talk itself covered various points of interest, considering to what degree Chinese investments, and in particular resource rents (which involve exchanging infrastructure commitments for resource rights), are producing positive results for Africa. There is certainly no denying the scale of Chinese investment, with Chinese FDI into Africa at more than US$5.4billion in 2008 and new projects and agreements being announced on an almost daily basis, or indeed their importance.

One especially interesting area of deliberation was sparked by the question of whether infrastructure is the key to Africa’s future economic development. As Chinese investment has focused on infrastructure in particular this question is central in establishing the potential for China’s investments to help Africans reap economic rewards in the future.

Although China has signed some contracts to build schools and health care centres the deals have more often been more narrowly focused round transportation networks and resource extraction technologies, which of course enable the Chinese to obtain and export their share of the minerals extracted as well as providing security of investments. Concerns regarding the importation of Chinese labour to complete these projects and the lack of integration of these workers in to African communities have limited the positive impact of these opportunities for the continent, although more recently some countries, such as Angola, have been able to negotiate awarding a percentage of subcontracts for each project to national companies. Nevertheless, some of China’s actions have raised more serious questions concerning human rights issues, for example concerning weapon sales to Sudan.

International reaction to China and Africa’s ‘relationship’ has been somewhat confused and mixed. Paranoia, however, has been central, with fears that Chinese investments in Africa might mean there will be no room left for other international investors to pursue economic opportunities and contracts in the region. Western actors also seem concerned China will act as a barrier, with African governments and companies preferring to work outside their colonial networks free from the conditions often imposed by financiers in the West. However, the continent has potential beyond acting as a base for resource extraction, which is something China has yet to fully appreciate. Thousands of entrepreneurs and innovators await the education, access to communication networks and financial backing necessary to get their business ideas started and enable the diversification of their economies.

Within many industries, including resource based ones, there will increasingly be more room for investors who pursue infrastructure development in its widest sense, who recognise the role of Africans in the continent’s development and who focus on building the trust that comes from being culturally aware and involved. These things will be essential to nurturing positive economic interactions across borders, and the key to Africa’s economic development in the next decade.

Kathryn Brooks

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