Enter the President

In a scathing interview with newspaper Les Echos in Paris, sister paper of the Financial Times, the president of the World Bank, Paul Wolfowitz, has denounced Chinese lending to Africa as irresponsible and accused the country of ignoring universal human rights and environmental standards when setting up loan portfolios with Africa. Wolfowitz has said that the larger Chinese banks continuingly ignore the Equator Principles established in 2003 under the International Finance Corporation (IFC). The Equator Principles are voluntary social and environmental guidelines aimed at encouraging socially responsible investing in major investment projects. They are modelled on the IFC and World Bank's environmental and social guidelines and policies and aim to establish environmental management plans for sensitive projects to protect against environmental and human rights violations. Currently, more than 70% of international banks have adhered to the guidelines.

Wolfowitz explained that the World Bank's current lending strategy has been developed not only through trial and error but also because of public pressure and a heightened sense of social responsibility. He directly expressed his concern that China is relatively new on the scene and in danger of making "the same mistakes as France and the U.S. did with Mobutu's Zaire." The United States backed Joseph Mobutu-Sese Seko in a successful coup attempt in what is now the Democratic Republic of Congo. Following his takeover, Mobutu borrowed heavily from the international community as well as the World Bank and engaged in deplorable and often bloody practices of suppression and adverse economic policies, effectively driving up the country's debt stock to phenomenal highs that have ceaselessly plagued the country. Wolfowitz announced that the World Bank was engaged in currently unfruitful "direct talks" with Chinese banks, but extended his wish that "in time our viewpoints will converge".

Another of the World Bank president's concerns is that certain countries, such as Venezuela and India, and China's lending strategies are undermining the World Bank's initiative to cancel Third World debt. He expressed that "there is a real risk of seeing countries which have benefited from debt relief become heavily indebted once more". He noted: "If it's a matter of buying luxury cars for ministers, it is bad borrowing. On the other hand, good borrowing delivers big benefits, lifts national income, and makes it easier to repay the national debt in the future. It's important to have all the details on the table, to know what borrowers and lenders are really doing."

China in Africa

It is undeniable that China is fast becoming a major player in Africa. Although in the background during the Africa-wide push for independence, through its backing of communist-minded countries and political figures, China is stepping into the limelight as it moves to secure the required resources to keep its booming economy running at full tilt. Wolfowitz's views on China's lending policies are generally shared by the international community. Beijing's official "Africa Policy", released at the beginning of 2006, provided further ammunition for sceptics. Its hands-off approach to diplomacy subjects it to ongoing heavy criticism in the West, which sees the policy as misguided at best and nefarious at worst. China's international policy basically boils down to the acquisition of oil reserves through providing a basket of aid, loans, technology, technical expertise, and in some cases weapons. China's strategic position as the defender of the developing world on the UN Security Council, combined with Chinese firms coupling their concession bids with official aid packages and infrastructure development deals, as well as accusations of Chinese companies being held to less-stringent standards of behaviour by both their own government and the governments of those countries in which they operate, leads not only to a competitive edge but also a moral dilemma.

China has and will increasingly have a lucrative part to play in Africa. China's huge demand for copper has elevated it to the leading importer in the world, with Zambia rising as the country's favourite source on the continent. China's US$125 million in imports of Zambian copper in 2004 represented just 1% of its world import total, but still marked a fivefold increase on the 2003 figure. This rapid expansion in Zambian copper imports coincides with more than US$300 million of Chinese direct investment in the Zambian mining sector. In addition to providing capital upgrades and reopening copper mines, Chinese investors have funded a US$100-million copper smelter. China also looks to the continent for timber products, establishing strong ties with Congo-Brazzaville, Equatorial Guinea, Cameroon, and Gabon. China has been discovered with questionable practices in the past, however, particularly when its relationship with Liberia was scrutinised after the UN Security Council imposed an embargo on May 2003. Illicit trafficking of timber though the global timber industry is aided by weak tracking and management systems. Prior to the UN embargo, China's wood importers were indirectly linked to a major timber-for-arms operation in the 2004 Global Witness post-mortem on former president Charles Taylor's Liberia. Even if this sort of behaviour was the exception and not the rule, the fact remains that China was the Liberian timber industry's single largest buyer throughout Taylor's despotic rule. International watch groups have also accused China of having a heavy hand in Gabon and Equatorial Guinea, with U.S.-based Council on Foreign Relations estimates putting illegal timber exports to China as high as 70% and 90% of total timber exports, respectively.

China's interest in Africa also shows a growing push for the continent to be a market for Chinese exports: Chinese exports to Africa totalled more than US$15 billion in 2005, up from US$12 billion in 2004. Because of the depth of poverty in most African countries and the lack of a consumer class, China's export industry has been mainly targeting Nigeria and South Africa. Chinese exports to South Africa have more then doubled since 2002; they amounted to nearly US$3 billion in 2004. China currently voluntarily places quotas on certain exports to South Africa, which has led many South African manufacturers and unions to cry for deeper and more far-reaching restrictions on Chinese imports. Estimates of Nigerian imports from China put the total at US$2 billion in 2005, with vehicles making the largest item for four years running.

Outlook and Implications

China's part in Africa is growing on multiple levels. The Chinese market for African raw materials far surpasses other countries' markets for such goods. As far as Chinese exports to Africa, Africa's increasing demand for low-cost imports has a growing part to play as a destination of China's manufactured exports. Finally, as a growing foreign creditor to Africa, China is becoming an alternative to the increasingly rule-based lending from Western donors and institutions. China's arrival in Africa also comes at a time when the world is increasingly looking at Africa as a humanitarian case and not just a "financing gap" problem. Western donors are starting to learn from their past blunders, and their populations are increasingly demanding greater fair play and restrictions on investment and aid policies for the continent. There is no doubt about the economic gains Africa will experience by closely allying itself with China. However, the problem arises when—as history has shown time and time again—these ties come at the cost of the wider community and at the benefit of the already wealthy few. Africa has a huge part to play in its own future development. Africa's leaders must not continue to bend to the pressures of power. Institutions must be strengthened, or where they are nearly non-existent must be built. Strong leadership is required to wipe out corruption and rally disjointed, bickering political parties as well as widely differing ethnic groups under a uniform goal. Experience has shown that, at the moment, many African governments require a little push in the right direction; the investment and aid policies operated by the West generally try to enforce this. China now faces pressure to follow suit.

Contact: Raul Dary

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