china's economic statecraft and african mineral resources · a continent with a vast pool of...

South African Instit

ute of Inte

rnat

iona

l Affa

irs

African perspectives. Global insights.

Global Powers and Africa Programme

O C C A S I O N A L P A P E R N O 1 3 1

China’s Economic Statecraft and African Mineral Resources: Changing Modes of Engagement

J a n u a r y 2 0 1 3

A n a C r i s t i n a A l v e s

A b o u t S A I I A

The South African Institute of International Affairs (SAIIA) has a long and proud record

as South Africa’s premier research institute on international issues. It is an independent,

non-government think-tank whose key strategic objectives are to make effective input into

public policy, and to encourage wider and more informed debate on international affairs

with particular emphasis on African issues and concerns. It is both a centre for research

excellence and a home for stimulating public engagement. SAIIA’s occasional papers

present topical, incisive analyses, offering a variety of perspectives on key policy issues in

Africa and beyond. Core public policy research themes covered by SAIIA include good

governance and democracy; economic policymaking; international security and peace;

and new global challenges such as food security, global governance reform and the

environment. Please consult our website www.saiia.org.za for further information about

SAIIA’s work.

A b o u t t h e g l o b A l p o w e r S A n d A f r I c A p r o g r A m m e

The Global Powers and Africa (GPA) Programme, formerly Emerging Powers and Africa,

focuses on the emerging global players China, India, Brazil, Russia and South Africa as well

as the advanced industrial powers such as Japan, the EU and the US, and assesses their

engagement with African countries. The programme aims to contribute towards outcomes

and results that will leverage the growing engagement of the BRICS countries in Africa in

support of policymaking that will deliver good, transparent governance and sustainable

development on the continent, while also supporting a North–South dialogue on global

governance reform challenges as they relate to Africa and its place in the world.

SAIIA gratefully acknowledges the Foundation Open Society Institute, the United

Kingdom Department for International Development, the Swedish International Develop-

ment Cooperation Agency and the Danish International Development Agency which

generously support the GPA Programme.

Project leader and series editor: Dr Chris Alden, [email protected]

© SAIIA January 2013

All rights are reserved. No part of this publication may be reproduced or utilised in any form by any

means, electronic or mechanical, including photocopying and recording, or by any information or

storage and retrieval system, without permission in writing from the publisher. Opinions expressed are

the responsibility of the individual authors and not of SAIIA.

Please note that all currencies are in US$ unless otherwise indicated.

A b S t r A c t

China’s impressive inroads into Africa’s resources sectors over the past decade are explained

largely by the timely match between a cash-loaded China in search of raw materials and

a continent with a vast pool of underdeveloped mineral deposits, exploration of which has

been hindered for decades by underinvestment and infrastructure bottlenecks.

Chinese ‘infrastructure-for-resources’ loans are ultimately a product of the convergence

of Chinese and African interests at the dawn of the 21st century. This loan formula, swapping

infrastructure for resources, came into being largely as a default strategy, inspired by

China’s own domestic experience, its competitive advantages and African receptiveness

to this kind of barter deal.

The paper explores how China has consistently used this approach over the past

decade as a positive economic statecraft tool to pursue mineral resources security goals in

Africa; and how the need to adjust its approach to challenges and new opportunities on

the ground has led to noticeable shifts in recent years. It argues that, although infrastructure

for resources remains an important tool to meet Beijing’s supply concerns, China’s strategies

to access resource assets have become more diversified and market oriented, with its state-

owned enterprises taking the lead and engaging increasingly in mergers and acquisitions.

A b o u t t h e A u t h o r

Ana Cristina Alves (PhD) is senior researcher at SAIIA (Global Powers and Africa programme),

where she focuses on China and Brazil–Africa relations.

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S A I I A O C C A S I O N A L P A P E R N U M B E R 131

G L O B A L P O W E R S A N D A F R I C A P R O G R A M M E

A b b r e v I A t I o n S A n d A c r o n y m S

bpd barrelsperday

CDB ChinaDevelopmentBank

ChinaEximBank Export–ImportBankofChina

CIS CommonwealthofIndependentStates

CMEC ChinaNationalMachineryandEquipmentCorporation

CNMC ChinaNon-FerrousMetalMining(Group)Co.Ltd.

CNOOC ChinaNationalOffshoreOilCorporation

CNPC ChinaNationalPetroleumCorporation

CREC ChinaRailwayEngineeringCorporation

CSCEC ChinaStateConstructionEngineeringCorporation

DRC DemocraticRepublicofCongo

FDI foreigndirectinvestment

IOC internationaloilcompany

JV jointventure

LSE LondonStockExchange

M&A mergersandacquisitions

MoU memorandumofunderstanding

NOC nationaloilcompany

ODI outwarddirectinvestment

PRC People’sRepublicofChina

Sinopec ChinaPetroleum&ChemicalCorporation

SOE state-ownedenterprise

UNSC UNSecurityCouncil

C H I N A ’ S E C O N O M I C S T A T E C R A F T A N D A F R I C A N M I N E R A L R E S O U R C E S

5


I n t r o d u c t I o n

Owingtothesheersizeofitsdomesticdemandandproductionofminerals,China

hasbeenacriticalfactoraffectingtheworldmineralsmarketsincethedawnof

thenewcentury.Thisstateofaffairsistoagreatextentexplainedbytheneedtofeedits

expandingindustrialoutput,inparticular,steel,electricalwire,cable,infrastructures,

telecommunicationsandelectronicsindustries.

Chinaisaleadingproducerofawiderangeofminerals,suchasaluminium,cement,

coal,copper,gold,ironandsteel,lead,manganese,rareearths,silver,tin,tungsten,and

zinc;andranksamongtheworld’stopproducersofmanyothermineralcommodities.

Nonetheless, its demand for anumberof strategicminerals – including chromium,

cobalt, copper, iron ore, manganese, nickel, petroleum, platinum group metals and

potash–largelyoutstripsdomesticsupply.Asaresult,Beijingiscurrentlyanetimporter

oftheseminerals.1China’sexternalrelianceonmineralmetalsisexpandingfastevenin

commoditiesinwhichitisaleadingproducer,suchastin(ofwhichChinabecameanet

importerin2008)andlead(ofwhichChinahasbeenanetimportersince2009).Oilis,

however,China’slargestexternalreliance,asitistheworld’ssecond-largestoilconsumer

and importer after theUS.Even thoughnewoil finds inChina’soffshore fields are

expectedtooffsetsomeofthedeclineregisteredinitsmatureonshorefields,itsimports

areexpectedtocontinuegrowingincomingyearsowingtoexpandingdomesticdemand.

AtpresentoverhalfofChina’soilconsumptionismetbyimports.2

China’sforeigntradestructureillustratesthisliabilitywell.Oneofthemostnotable

changingtraitsinitsforeigntradeoverthepastdecadehasbeentheincreasingshareof

mineralsinitsglobalimports.In2010mineralcommoditiesaccountedfor64%ofChina’s

imports,totalling$375billionupfrom$40billionadecadeago.3Inordertominimiseits

increasingvulnerability,Beijinghaspursuedastrategyofdiversifyingitssupplysources,

asshowninTable1.AlthoughAsiaandtheMiddleEaststillaccountforasignificant

shareofChina’smineralcommoditiessupply,itsimportsfromotherresource-richregions

haveexpandedalotfasterinrecentyears.Africa’sshareinChina’smineralsimportshas

increased14timesoverthepastdecade,presentingoneofthefastestgrowthrates.

Table 1: China’s fuel and mineral imports by region ($ billion)

2000 2004 2008 2010

South and Central America 1.89 8.80 39.88 54.38

Africa 4.21 12.31 49.49 57.31

Commonwealth of Independent States (CIS)

2.60 7.00 22.57 29.04

Middle East 8.85 17.74 72.22 71.70

Asia 13.18 33.84 102.90 130.04

Rest of world 3.21 9.81 19.82 32.17

Total 33.94 89.5 306.88 374.64

Source:WTO,‘InternationalTradeStatistics’,variousyears,merchandisetradebyproduct,region

andmajortradingpartner–China,http://www.wto.org/english/res_e/statis_e/statis_e.htm.

6



Along with supply diversification, in recent years the world has seen a steady

expansionofChina’sequitysharesinoverseasmineralresourcesmarketswherethese

commoditiesabound,itsassetsnowspanningfromneighbouringCentralAsia,Southeast

AsiaandAustralasiatofarawayregionssuchasAfricaandSouthAmerica.AccordingtoA

CapitalDragonIndex,51%ofthe$68 billionofChineseoutwarddirectinvestment(ODI)

in2011targetednaturalresources.4Acquiringproductionassetsandreservesabroadplays

akeyrole,notonlyasameanstoensureasteadysupplyinthelongrun,butalsotohave

agreatersayinfuturemarketdevelopmentsuponwhichChinaisbecomingincreasingly

dependent.ThisstrategyhasbeenparticularlyevidentinAfricaandSouthAmerica,where

thefootprintofChineseminingandoilSOEshasexpandedsignificantlyoverthepast

decade.5

Ensuringasteadysupplyofnon-renewableresourcesinthecurrentglobalcontext

is, however, a daunting task. The fast-expanding gap between ever-growing global

consumptionandfinitemineralresourceshasfuelledfiercecompetitionforsupplies,

leadingtoskyrocketingprices.Addedtothisistheincreasingsupplyuncertaintyowing

to a greater reliance on supply markets historically plagued by political instability,

manipulation,terrorism,andnationalisationpolicies.Inthisframework,itcomesasno

surprisethatmineralcommoditiesrapidlyclimbedtothetopofChina’sforeignpolicy

agenda,asitconstitutesoneofitsmajorexternalliabilities.

A f r I c A ’ S b o u n t y

For decades Africa’s mineral resources remained underexplored owing to a variety

ofreasons, including lowcommodityprices, lackof investment,poor infrastructure,

geographicalobstaclesandpoliticalinstability.Gradualstabilisationofthecontinentover

thepastdecadeandtheconcomitantsurgeindemandformineralcommoditiesdriven

byemergingeconomiespromptedarenewedinterestontheAfricancontinent.Africa’s

resourcebountyplaysakeyroleinthissurgeofforeigndirectinvestment(FDI)tothe

region,atrendthatisexpectedtocontinueincomingyears,asdemandfromemerging

economiesisforecastedtoremainhigh.AccordingtoErnstandYoung,Africa’sFDIis

expectedtoreach$150 billionby2015,upfrom$85 billionin2010.6

Withinvestmentpouringin,thetruedimensionofAfrica’smineralreserveshasalso

becomebetterknown.Asof2011Africaaccountedfor8%ofglobalknownoildeposits.

Africaboastsoneofthefastestregionalgrowthratesinoilreserves,whichhavedoubled

inthepasttwodecades.ThelargestreservesarelocatedinLibya(47.1billionbarrels),

Nigeria(37.2billionbarrels),Angola(13.5billionbarrels)andAlgeria(12.2billion

barrels).Intermsofproduction,Africaisthethird-largestregionalproducer,withaworld

totalshareof10.4%.ThecountryrankingchangesabitwithNigeriaasthemainAfrican

oilproducer(2.5millionbarrelsperdayorbpd),followedbyAngola(1.8millionbpd),

Algeria(1.7millionbpd)andEgypt(750thousandbpd).7Inaddition,anumberofnew

oilproducershavesurfacedinrecentyears–namelyGhana,Niger,ChadandUganda–

withafewmoreinthemaking(includingEthiopia,SomaliaandNiger).Tocompletethe

picture,massivenaturalgasreservoirshavebeendiscoveredofftheEasterncoastofthe

continent,aswellaslargecoaldepositsinMozambique,andhugeuraniumreservesin

NamibiaandNiger.


7


ThispictureisfurthercomplementedbyAfrica’sendowmentinnon-fuelminerals,

inwhichSouthernAfricaappearsasaprize.SouthAfricaandZimbabweareleading

producers of platinum. SouthAfrica is also a leadingproducerofmanganese (with

75%oftheworld’sreservebase)andholdsmassivedepositsofgold,copperandnickel,

amongothers.TheCopperbeltRegion,spanningZambia,theDemocraticRepublicof

Congo(DRC)andAngola,holdsvastdepositsofcopperandcobalt.Africaalsohaslarge

untappedironoredeposits,predominantlylocatedinWestAfricaandscatteredacrossa

numberofcountries,namelyGabon,Guinea,LiberiaandSierraLeone.

Inthiscontext,itcomesasnosurprisethatChineseoilandminingSOEshaveacquired

numerousoilandminingassetsonthecontinentoverthepastdecade.CurrentlyChina

hasoilequityinSudan(wheretheChinaNationalPetroleumCorporationorCNPChas

adominantpositioninthesector)andinanumberofotherkeyoil-producingcountries,

includingAngola,EquatorialGuinea,Ethiopia,Gabon,Chad,UgandaandLibya.Chinese

nationaloil companies (NOCs) are alsoprospecting foroil in several otherAfrican

countries(namelyNiger,Tanzania,Ethiopia,andSãoTomé&Príncipe).Further,Chinese

miningcompanieshavemadesignificantinroadsintoanumberofAfricancountries,

includingGuinea,Liberia,theDRC,Zambia,ZimbabweandSouthAfrica.

Asignificantpartoftheseassetshavebeendirectlyorindirectlysecuredthroughthe

extensionofconcessionalloansforinfrastructure.ThroughoutthepastdecadeChina

hasmadeextensiveuseofthistypeofeconomic statecraft tosecurelong-termsupplyand

accesstoresourcesassets.

c h I n A ’ S f o r e I g n A I d , e c o n o m I c S t A t e c r A f t A n d A f r I c A n m I n e r A l r e S o u r c e S

Economicstatecraftcanbedefinedas‘theuseofeconomicinstrumentsbyagovernment

toinfluencethebehaviorofanotherstate’,andofteninvolvestheuseofsanctionsor

inducements.8Negativeeconomicstatecraft involves theuseofeconomicsanctions,

coercionorpunishment(knownas‘sticks’,ietradeorinvestmentrestrictions,financial

sanctions,andassetsseizure)tointerferewiththeeconomyofthetarget,soastoforce

achangeinitsbehaviour.Positiveeconomicstatecraft,ontheotherhand,involvesthe

extensionofeconomicincentivesorrewards(knownas‘carrots’,ietradeandinvestment

promotion,financialincentives,andtechnologytransfer)inreturnforcompliancewith

thelendingcountry’sforeignpolicygoals.

ThePeople’sRepublicofChina(PRC)doesnothavearecordofmakinguseofnegative

economicstatecrafttools,eitherinbilateralormultilateralrelations.Sinceitsaccession

totheUNSecurityCouncil(UNSC)in1971,ithastypicallyabstainedfromvotingon

economicsanctionsresolutions.Ontheotherhand,Beijinghasmadefrequentuseof

economicinducementsinpursuingitsforeignpolicygoalssincethefoundingofthePRC.

AsignificantpartofChinesepositiveeconomicstatecraftfallsunderthecategory

thatBeijingofficiallydesignatesasforeignaid.9Chineseforeignaiddatesbacktothe

earlydaysofthePRCinthe1950s,whenBeijingstartedchannellingeconomicaidand

technicalassistancetocommunistcountries(firsttoVietnamandNorthKoreaandthen

tonewlyindependentAfricancountries)insearchofpoliticalallegiance.UnlikeNorth–

Southco-operation,fromtheoutsetChineseaidhasbeenofaverydistinctivepragmatic

8



naturerootedinthecoreprinciplesofequality,non-conditionality,commondevelopment

andmutualbenefit.Chineseaidassumesmanydifferent forms, including technical

co-operation, human resource development, medical aid, emergency humanitarian

aid,overseasvolunteerprogrammes,debtreliefandfinancialaid.Chineseauthorities

presentlydistinguishbetweenthreetypesoffinancialaid:grants,interest-freeloansand

concessionalloans.10ThefirsttwoaresourcedfromChina’sstatefinances,whereasthe

lastisprovidedbytheExport–ImportBankofChina(ChinaEximBank).11

Inthepast,concessionalloansforinfrastructurehavebeenusedbyChinaasaforeign

policyinstrument(egtheTazararailway),withgenerallypositiveresultsforChina’s

politicalaimsinAfricainthe1960sand1970s.Afteralongbreak,theuseofconcessional

loansasaforeignpolicyinstrumentresurfacedinthelate1990s.12Unlikethe1970s

though,thegoalsbehindthistypeofeconomicinducementarenowprimarilyeconomic.

EventhoughChinaEximBank’sconcessionalloansalsotargetindustry,resources

development and agriculture, they are primarily earmarked for infrastructure

construction.Evidencesuggeststhatasubstantialpartofconcessionalloanshavebeen

usedbyChinaasapositiveeconomicstatecraftvehicletoaccessresources(suchasoil,

mineralsandothercommodities),hencethename‘infrastructure-for-resources’deals.

Unpacking China’s infrastructure-for-resources loans

Ingeneralthistypeofloanisrootedintwolegalinstruments:aframeworkco-operation

agreementsignedbythetwogovernmentsstatingthegeneralterms(volume,purpose,

interestrateandmaturity)andaloanagreementsignedbyChinaEximBankandthe

borrower.Whatmakestheseloansconcessionalisthattheirinterestrate(at1.5%to

3%)isbelowthebenchmarkofthePeople’sBankofChina,withthedifferencebeing

subsidisedbythecentralgovernment.Thereimbursementperiodisrelativelylong(upto

15–20years,includinga5–7years’graceperiod).13Workingasanexportcreditfacility,

thesecreditlinescometiedtotheprocurementofservices,goodsandlabourinChina

(minimumof50%),leavingingeneralonlyasmallmarginforlocalcontentinthetarget

country.ThecapitalneveractuallyleavesChina.Itisadministeredonaprojectbasis

throughtheborrower’saccountwithChinaEximBank,andpaymentsaremadedirectly

toChinesecontractorsaftercompletionoftheconstructionproject.

Meaningfully,althoughonly9%oftheseloanshavetargetedresourcesdevelopment,

there isacleargeographicoverlapbetweenChina’s infrastructurecommitmentsand

itsresourceinvestmentsinAfrica.14Upuntil2008,Chinahadinfrastructurefinance

commitmentsin35countriesacrosssub-SaharanAfrica.Threeofthesecountries(Nigeria

34%,Angola20%andSudan8%)15aloneaccountfornearlytwo-thirdsofthetotalvalue

ofChina’sinfrastructurefinancecommitmentsonthecontinent.

Often,theseloansaresecuredbyresources.ThemainreasonforthisisthatChina’s

concessional loans require a sovereign guarantee, which is largely problematic in

developingcountriesowingtotheirlowcreditworthiness.Inresource-richcountries,

Chinahas solved this by lockingproceeds from the sale of oil ormining from the

borrowingcountry tosecure the loan. Inmostcases, this lockedrevenueoriginates

fromthesaleofthespecifiedcommoditytoaChineseSOE.Inmostcases(egAngola),

theborrowingcountryresourceparastatalhasbeenplacedastheguarantoroftheloan.

Althoughmostcontractsrefertoagivenvolumeofoilorminingtoservicetheloan,itis


9


agreedthatthisfigurewillinfactfluctuateaccordingtotheoscillationofmarketprices,

whichmayimplyadjustmentstothetermoftheloan.16

I n f r A S t r u c t u r e - f o r - r e S o u r c e S l o A n S I n A f r I c A

Itshouldbenotedthatcommodity-securedfinancinginAfricaisbynomeansaChinese

invention.Thismechanismdatesback to theearlyandmid-1990s, toa largeextent

motivatedbytheAfricancontextofcapitalshortageandlowcreditworthinessofmost

countries but strong background as commodities exporters. This formula was first

developed inLondonbyaplethoraofWesternprivatebanking institutions(British,

French,DutchandlaterSouthAfrican)tomitigatetheriskoflendingtoresource-rich

Africangovernments (egAngola)or in funding thedevelopmentof specificmining

projectsonthecontinent(egtheLumwanacoppermineinZambiaandtheGoldenPride

goldmineinTanzania).17Anumberofpublicbankinginstitutionshavealsoadoptedthis

financingmodelinAfrica.ThisisthecasewiththeBrazilianDevelopmentBank(BNDES),

whichhasasasimilarcreditfacilitywithAngola,andisseekingtoextendthisfinancing

modeltoMozambique(coal)andGhana(oil).18

ThekeydifferenceinChina’smodelisthatthefinancingmechanismisentirelyastate

set-up,knittingtogetherthegovernmentinBeijing,itspolicybanksandresourcesSOEs.

Additionally,althoughinnormalcommodity-backedfinanceloansaresecuredagainst

miningoroilexportsregardlessoftheoff-takerorfinaldestination,inChina’smodelthey

areeithersecuredbyoilexportstoChinaor,ifaminingdeal,theoff-takerisnormallya

Chinesecompany.Furthermore,Chineseresourcecompanies’penetrationinAfricaappears

tobeassociatedcloselywiththeextensionofthistypeofloaninanumberofcases.

IfonelooksattheevolvingpatternsofChina’sinfrastructure-for-resourcesloansin

Africathroughoutthepastdecade,twodifferentperiodsseemtoemerge,clearlyseparated

bytheadventoftheglobaleconomiccrisisinlate2008.

Infrastructure-for-resources deals before the onset of global economic crisis

Thefirstcountriestoreceiveinfrastructure-for-resourcesloanswereoil-richcountries,

namelyAngola,SudanandNigeria.Theblueprintoftheseinfrastructure-for-resources

loanswascarvedoutwithAngola in2004.Thedeal includeda loanof$2 billion(a

secondbatchof$2.5 billionwasextendedin2007)byChinaEximBankforinfrastructure

developmentlistedinLuanda’spublicworksbudget.Thisloanwastoberepaidwiththe

proceedsofoilsalesfromSonangol(theAngolannationaloilcompany)toaChinese

company,UNIPEC(ChinaPetroleum&ChemicalCorporation,orSinopec,trading).Even

thoughtheinfrastructurestobebuiltwiththeloan(suchaswaterandelectricitysupply,

transportationandhousing)werenotdirectlyrelatedtotheoilindustry,whichislocated

largelyoffshore,thedealundoubtedlypavedthewayforSinopectoenterAngola’soil

sector.Tellingly,SinopecacquireditsfirstequitystakeintheAngolanoilindustrythat

sameyear.Theassetinquestion(50%ofBlock18)wasbeingsoldbyShelltotheIndian

ONGC,whenSonangoldecidedtoexerciseitsrightoffirstrefusalandsellitinstead

toajointventure(JV),Sonangol–SinopecInternational,whichithadestablishedinthe

meanwhilewithSinopec.19

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Under the leadershipofOlusegunObasanjo(1999–2007),Nigeriaalsoembraced

Chinese infrastructure-for-oildeals,reportedlytotalling$12 billion.20ChineseNOCs

(theCNPC,ChinaNationalOffshoreOilCorporationorCNOOC,andSinopec)obtained

access to their first stakes in theNigerianoil industry in exchange for engaging in

majorinfrastructureprojects.TheseincludedtherehabilitationofKadunaoilrefinery

($2 billion)bytheCNPC,theLagos–Kano1 350 kmrailwayandMambillahydroelectric

station,withfundingfromChinaEximBank($2.5 billion)partlybackedbyNigerianoil

blocks.21

Only at a later stage did China begin its outreach to minerals producers based

on similar package deals aimed at funding mining projects (greenfield) and related

infrastructureinexchangeforminingconcessionsandmineralssupply.Thelargestones

weresignedwithGabonandtheDRC.

In2006theGabonesegovernmentgrantedaChineseconsortiumledbyaconstruction

company,ChinaNationalMachineryandEquipmentCorporation(CMEC),therightto

developBelingamine,allegedlycontainingoneofthelargest-knownuntappeddeposits

ofironoreintheworld.22The$3 billiondeal,tobefinancedbyChinaEximBankandto

berepaidwithrevenuefromtheexplorationofBelingamine,includestheconstruction

ofanew560 kmrailwaylinelinkingBelingatotheTransgabonais;adeepwatermining

harbouratSantaClara;ahydroelectricdamandasteelmillinexchangeforexploration

rightsthroughtheestablishmentofaJV(CompagnieMinièreduBelinga,COMIBEL)in

whichtheChineseown75%plustheoff-takerrights.

InSeptember2007ChinasignedasimilardealwiththeDRC.Theinitial$5 billion

loanwasincreasedto$9 billioninJanuary2008.Undertheagreement,$6billionwould

beallocatedinthefirstphasetotherehabilitationandconstructionofinfrastructureand

$3billiontominingexploration.Theprojectsincludea3 400kmhighway;a3 200km

railwaylinkingKatanga’sminingprovincetoMatadiportintheCongoRiverestuary;

31hospitals;145healthcentres;twouniversitiesand5 000housingunits.23AJVnamed

SicomineswassetupbetweentheCongolesestateminer,Gecamines,Sinohydroandthe

ChinaRailwayEngineeringCorporation(CREC).TheJV,68%ownedbytheChinese

partner,willundertaketheinfrastructureanddevelopmentoftwominingconcessions

(copperandcobalt)inKatangaprovince.24Theloanistoberepaidwithrevenueobtained

fromtheexplorationoftheseconcessions.

Itisinterestingtonotethatwhereasinfrastructure-for-miningdealsgaveChineseSOEs

directaccesstominingassets(egtheDRCandGabon),ininfrastructure-for-oilloansoil

equitywasnotpartofthedealbutwasacquiredinparallel(egAngolaandNigeria).This

hasproducedsomeconfusionamonganalysts.Inthefirstcase,theloanisstructured

aroundthedevelopmentofaspecificminingproject thatentails theconstructionof

supporting infrastructure.Aspartof thedeal, adesignatedChineseSOEassumes a

dominantshareholdingposition,usuallyinaJVwithaparastatalfromtheborrowing

government.Inmostcases,theChinesepartneralsoretainstheoff-takerrights,beingthat

theproceedsfromthatsalearetobeusedtoservicetheloan,mitigatingbythesemeans

therepaymentrisks.

Inthesecondcase,followingcommodity-securedfinancingmarketpractices,Chinese

loansforinfrastructurethatarenotlinkedtomineralassetsexplorationhavetargeted

primarilyoil-richcountrieswithanestablishedproducingcapacity.Oftentheseloansare


11


securedagainstoilexportstoChinafromblocksthatarealreadyon-stream.Although

noaccesstooilequitywasincludedintheloancontracts,inmostcasesChineseNOCs

acquiredassetsinparalleltothesedeals,oftenbenefitingfromthereceivinggovernment’s

favour,sparingthemfromhavingtocompetedirectlywiththemoreexperiencedand

muchbetterequipped(in termsof technologyandexpertise) international resource

companies.

However,althoughChina’seagernesstoprovidecheaperandunconditionalloansand

willingnesstoembracelargeinfrastructureprojectsneglectedbyWesterndonorshas

representedavaluablecompetitiveadvantageforChinesecompaniesinAfrica(helping

tooffsettheirlatecomerstatusonthecontinent),ithasnotalwaysproducedthedesired

outcome.

This is the case with the DRC, where project development has been delayed by

traditionaldonors’pressure to renegotiate thecontract,having the loan revisedand

downsizedto$6 billionin2009underKinshasa’srequest.25Currentlythenewcontract

signedin2009isonlypartiallyunderimplementation,asthebulkoftheloanisyetto

bereleased,pendingapprovalbytherelevantauthoritiesonbothsides.26InGabon,the

Belingaprojecthasbeenpostponedrepeatedlyduetopersistentdisagreements(regarding

labourandenvironmentalissues)andcallsforrenegotiationofthecontract,perceived

bycivilsocietyastoofavourabletoChina.Theglobalcommoditypricevolatilityandthe

changingdomesticpoliticalcontext(withOmarBongo’sdeath)havealsoaddednewrisks

andcostsfortheChinese.27Asoflate2012,rumourshavebeencirculatinginthemedia

thatAliBongohasbeencourtingBHPBillitonandValetotakeovertheproject.28

Lastly, in Nigeria, most Chinese oil exploration contracts awarded by Obasanjo

andloanssignedunderhisrulewerefrozenbyhissuccessor,UmaruMusaYar’Adua,

immediatelyaftertheelectionsin2007,followedbyanongoingreviewoftheNigerian

oilindustryregulatoryframework.TheexperienceinNigeria’soilsectorhasexposedthe

vulnerabilityofChineseintra-governmentalapproachtoregimechange.Evenincountries

wherethesameregimeremainsinpower,asinAngolaandSudan,China’soilinterests

inthesecountrieshavebeenaffectedbyotherproblems(includingasouringofrelations

withSonangolinAngolaandSouthSudanindependence).

Infrastructure-for-resources loans within the global economic crisis framework

Thedifficultiesdiscussedandthevolatilityincommoditiesmarketsderivingfromthe

onsetoftheglobaleconomiccrisisattheendof2008coincidedwithatemporaryhaltin

large-scaleinfrastructure-for-resourceslending.Thatnolargecreditlineswereextended

byChinatoAfricancountriesin2009and2010(contrastingwiththemassiveloansthat

ChinaextendedtoNOCsinBrazil,RussiaandKazakhstaninthissameperiod)suggests

thatBeijingtookastepbacktoevaluatethesituationhere.However,mountingfinancing

difficultiesofsomeresource-richAfricancountriesinthecontextoftheglobaleconomic

crisiscompelledleaderstoknockatChina’sdoorforfunding.Itisinthiscontextthat

anewbatchofinfrastructure-for-resourcesloanswereannouncedin2011and2012.A

numberofshiftsare,however,noticeableinregardstothegeneralpatternofprevious

loans.

12



Table 2: China’s major resources-for-infrastructure loans (pledged), 2006–12

Country Guaranty Main funded projects

Pledged concessional loan

Year and bank

Nigeria Oil General infrastructure

$3 bn 2012 China Development Bank (CDB) / China Exim Bank (under negotiation)

Angola Oil General infrastructure

$3 bn 2011 China Exim Bank

Ghana Oil General infrastructure

$3 bn 2011 CDB

Angola Oil General infrastructure

$2.5 bn $2 bn

2007 China Exim Bank 2004 China Exim Bank

DRC Cobalt Mine development and related infrastructure

$5 bn (extended to $9 bn in January 2008, reduced to $6 bn in August 2009)

2007 China Exim Bank

Gabon Iron ore Mine development and related infrastructure

$3 bn 2006 China Exim Bank

Source:CRS(CongressionalResearchService),China’s assistance and Government Sponsored activities

in Africa, Latin America and SE Asia,http://www.fas.org/sgp/crs/row/R40361.pdf,2009;variousmedia

reportsandinterviews.

ThesameyearthatGhanabecameanoil-producingcountryin2010,Accrasignedaloan

agreementof$3 billionwiththeCDB,therepaymentofwhichwillbesecuredbyoilsales.

Itshouldbenotedthatin2007,beforetheoilbonanza,ChinaEximBankhadalready

extendedasimilarcreditfacilitytothiscountryintheformof$292milliontofunda

hydroelectricproject,whichwastoberepaidwithproceedsfromcocoaexports.Aftera

fiercedomesticdiscussion,theinfrastructure-for-oilagreementwasfinallyapprovedin

parliamentinAugust2011andthefirsttrancheof$1 billionwasclearedfordisbursal

inApril2012.Thisinitialbatchwastofundthegasinfrastructureprojectlinkedtothe

Jubileefield(theonshore–offshorepipelineandthegasprocessingplant)andtheICT

infrastructureforitssurveillance.29Theremaining$2 billion,tobedisbursedin2013,was

allocatedforthedevelopmentofharbourfacilities,railwaylinesandagricultureprojects.

AlthoughChineseoilcompaniesdidnotobtainanyhardassetsascollateral,theydidenter

thesectordownstream.Sinopecisbuildingthegaspipelinesandin2012UNIPECtook

chargeofthemarketingofGhana’sshareofcrudeoilfromtheJubileefield–reportedly

partoftheconditionsfortheCDBloan.30

Further,ChinaEximBankisallegedlynegotiatinganadditional$6 billioncreditfacility

withGhanaforsocialinfrastructure(includingroads,railroads,education,electricityand

watersupply),31whichisalsoexpectedtoberepaidwithfutureoilrevenue.Although

these agreementswerehighly contestedby theoppositionduring the2012election

campaign,32theelectionvictoryfortheincumbentpresident,JohnDramaniMahama,

suggeststhatChineseinterestsinGhanawillremainontrackfortheforeseeablefuture.


13


In2011ChinaEximBankextendedanother$3 billioninfrastructurecreditfacility

toAngolabackedbyoil.Thistime,however,itdidnotproduceanycollateralassetsfor

Sinopec.TheAngolangovernment,nowenjoyingamuchstrongerbargainingposition

vis–à–vis China(owingtoitswidevarietyoffinancingsources),madeitcrystalclearthat

ChineseaccesstooilequitystakesinAngolaandChineseloanstoLuandaweretobedealt

withseparately.33

DespitethebitterpreviousexperienceinNigeria,itwasannouncedinFebruary2012

thatLagoswasnegotiatinga$3 billionloanwithChinaEximBankandtheCDBforthe

completionofvariousprojectsinthefieldsoftransportation,aviation,educationand

agriculture.34Moreover,in2011,theNigeriaNationalPetroleumCompanyreportedly

signed a memorandum of understanding (MoU) with China State Construction

EngineeringCorporation(CSCEC)fortheconstructionofthreegreenfieldrefineriesand

apetroleumcomplex.Theprojectinvestmentreportedlyamountsto$28.5 billionand

istobefinancedbyaconsortiumofChinesebanks.TheCSCEC-ledconsortiumisto

retainan80%controllingstakeintheprojectsuntilcostsarerecovered.35GivenNigeria’s

background,oneshouldexpectthatbothcreditfacilities,ifenacted,willbeguaranteedby

Nigeria’smainrevenuesource:oil.

Anumberofotherloansarereportedlyinthepipeline.InlateApril2012,during

PresidentSalvaKiir’s visit toBeijing, SouthSudanannounced itwasnegotiatingan

$8 billionloanwithChinaforinfrastructure,includingroadconstruction,agriculture,

hydroelectricplantsandtelecommunications.36Neithertheconditionsoftheloannor

theChinesebankprovidingthecreditlineweredisclosed.(Thisannouncementwasyet

tobeconfirmedbyChineseauthoritiesatthetimeofpublication.)Amongthecountries

thathavebeencourtingBeijingforinfrastructureloansisSouthAfrica.SouthAfrica’s

IndustrialDevelopmentCorporation,astateinvestmentagency,issaidtobeintalkswith

Chinaforaloantofundpartofits$12.75 billioninfrastructureprogrammecoveringthe

nextfiveyears.37SouthAfricanoilcompany,PetroSouthAfrica,isalsosaidtobeintalks

withSinopecfortheconstructionofaworld-class$10 billioncrude-oilrefineryinPort

Elizabeth.38

Nothwithstanding,thisrenewedAfricanappetiteforChinesecheapinfrastructure

loans represents a double edge sword for Beijing. Chinese loans allegedly under

negotiationwithEastAfricancountriesandearmarkedforcontentiousdamandirrigation

projectsinhighlyvolatileborderregions(ieLakeTurkana)threatentodragChinainto

(African)regionalconflicts,whichwouldseriouslyharmitsinterestsinAfrica.39

ItshouldbenotedthatoverthepastdecadeChinahasalsoextendedanumberof

smallerpreferentialcreditlinesforinfrastructuretomanyotherAfricanstates.Among

thosebenefitingareTanzania(in2009,$400 million tobuildacoalpowerplant);40

Zimbabwe (in 2011, $700 million for agriculture machinery, medicines and water

sanitation);41 and Mozambique (in 2012, $300 million to build a ring road around

Maputo).Eventhoughthesecredit linesarenotguaranteedbyresourcessupply,one

cannothelpnotingthatthesecountriesarealsowellendowedwithnaturalresources.

If,ontheonehand,infrastructure-for-resourcesloansseemtohavebeenrelatively

successfulinlockingfuturesuppliesthroughtheresources-exportsguaranteemechanism

throughoutthetwoperiods,ontheotherhand,itappearsthattheacquisitionofresources

assetsthroughthisinstrumenthasmetwithlimitedsuccess.Mostoftheequityacquired

(directlyorascollateral)intheframeworkofinfrastructure-for-resourcesloansextended

14



beforetheglobaleconomiccrisis–namelytheoilblocksinNigeria;theBelingaironore

projectinGabon;andthecobaltminesinKatanga,theDRC–areyettostartproducing,

orhavebeenorareabouttobelost.Theonlyexceptionis50%ofOilBlock18inAngola

acquiredbySinopecascollateraltothe2004ChinaEximBankloan,whichisactually

amongthelargest-producingblocksinthecountry.Asforthesecondbatchofthesebarter

deals,thereareafewnotablenewtrends,namely,thattheyhavetargetedexclusively

Africanoil-richcountriesandthusfarhavenotproducedasinglehardasset(directlyor

collaterally)forChinesecompanies.

t h e n e w w A v e : d I r e c t A c Q u I S I t I o n

AlthoughBeijingseemstostillregardtheextensionofsoftloanstowell-endowedAfrican

statesasavaluablepositiveeconomicstatecraft instrumentinitsquest forresources

securityinAfrica,itscompaniesappeartobeincreasinglyconfidentinventuringouton

theirownonthecontinent.

Infact,theassetsacquiredbyChineseresourcescompaniesoutsidethesedealsappear

tohavebeenfarmoreconsequential.ThefirstresourceequityacquiredbyChineseSOEs

inAfrica(theCNPCoilblocksinSudanin1996andChinaNon-FerrousMetalsMining

GrouporCNMCcopperminesinZambiain1998)weregreenfieldprojectsthatpre-

datedChineseinfrastructure-for-resourcesloans.Havingstartedtheirinternationalisation

priortotheofficiallaunchingofthe‘gooutpolicy’,thesecompaniesactedontheirown

withoutmuchbackingfromtheChinesestateatthetime.However,Beijing’sulterior

activeinvolvementininfrastructurefundinginbothcountrieshassurelycontributed

to cementing the position of its resources SOEs by enhancing the good will of the

governmentsinKhartoumandLusaka.

Itwasnotuntil theonsetof theglobaleconomiccrisis in late2008thatChinese

resourcesSOEsmanagedtoaccessothermeaningfulassetsinAfrica–thistimemostly

throughmergersandacquisitions(M&A).Indeed,thecrisisopenedanunprecedented

windowofopportunity forChinese resourcecompanies. Inacontextofcontracting

liquidityininternationalfinancialmarkets,ChineseSOEswerewellpositionedtomake

themostoftheirbestcompetitiveadvantage,namelytheirunmatchedfinancialcapacity,

largelyrootedinBeijing’smassiveforeignexchangereserves.

Sinopec’stakeoverofAddaxPetroleumin2009wasthelargesteversuccessfuloverseas

acquisitionbyaChinesecompany.TheacquisitionoftheSwiss-basedcompany(listedin

LondonandCanada)hasgivenSinopecaccesstosizeableoilandgasequity.Provenand

probablereservesareestimatedat537millionbarrelsandannualproductionatseven

milliontonnesperyearin2009(143 000bpd);with72%originatingfromNigeria,20%

fromGabonand8%fromtheKurdistanregioninIraq.42

OfthethreemajorChineseNOCs,CNOOChasbeenparticularlyactiveinattempting

toexpanditsequityinAfricainrecentyears.Indeed,CNOOChastargetednotonlythe

twolargestproducersinsub-SaharanAfrica(NigeriaandAngola)butalsothenewestoil-

producingcountries(UgandaandGhana),havingpursueddifferentstrategies.Whereasin

Ghana,CNOOCattemptedapartnershipwiththenationaloilcompany(GhanaNational

PetroleumCorporation)tobuytheKosmos23.5%stakeintheJubileefield43(which

wasdeclinedbyKosmosinMarch2011),inAngolaitattemptedajointbidwithanother


15


ChineseNOC(whichwasblockedbytheAngolangovernmentinSeptember2010).In

NigeriaCNOOChasbeencourtingLagoshopingtobenefitfromtherevisionoftheoil

billaimedatassertingthestate’scontroloverthehydrocarbonsindustry.CNOOCiseying

theblocksintheNigerDeltaownedbyWesterninternationaloilcompanies(IOCs),

fromwhere20%ofNigeria’soiloutputoriginates.44CNOOC’smassivebidfortheblocks

servicesthebargainingstrategyoftheLagosgovernmentvis–à–vis theIOCs,andinface

oftherecoiloftheIOCs,itislikelythatnotonlyCNOOCbutotherChineseNOCsmay

seetheiracreageexpandinthenewregulatorycontext.InUgandainFebruary2012,

CNOOCconfirmeditsentryvisaoutofKampala’sattempttoavoidTullow’smonopoly

overthecountry’soilresources.45CNOOCnowhasaone-thirdstakeintheoilproject,

whichdevelopmentisvaluedat$20 billion,includingarefineryandapipelinetothe

IndianOcean(Mombasa).Oilproductionisexpectedtostartin2013andoutputtoreach

200 000bpd.46

Theacquisitionroad,however,hasnotalwaysbeensmooth.Overthisperiodanumber

ofChineseoilacquisitionshavemetwithfailure.ThiswasthecasewiththeCNOOC–

CNPCbidforMarathon’s20%shareinOilBlock32inAngola,andtheCNPCattemptto

takeoverVenerexoilassetsinLibya,bothofwhichwereblockedbythehostgovernments

allegedlytoavoidassetsbeingboughtbelowtheirrealvalueinthecontextoflowoil

prices.

Nevertheless, as shown inTable 3,Chinese SOEshavemade significant inroads

into Africa’s resources in the context of the global economic crisis, particularly so

intheminingsector.Someofthelargestdealsoverthelastcoupleofyearshavebeen

signedoverironoredepositsinWesternAfrica.InMarch2010Chinalcoacquired47%

oftheSimandouproject(inGuinea)fromRioTinto(inwhichChinalcoalreadyhada

9%stake)for$1.4 billion.Simandouislocatedinaremoteareaofthecountryandhas

estimateddepositsof2.5 billiontonnesofironore.47InSierraLeone,AfricanMinerals

joinedwithChinesecompaniestofinancethedevelopmentofTonkoliliironoremine,

whichhasestimatedreservesof9.7 billiontonnesofironore.48ChinaRailwayMaterials

acquired12.5%ofAfricanMineralsfor$250 millioninMarch2010,andafewmonths

lateranagreementwassignedwithShandongIron&SteelGrouptoinject$1.5 billion

fora25%stakeintheproject.49AfricanMineralssignedoff-takeagreementswithboth

companies,enablingthemtobuyironoreatdiscountedprices.InOctober2011the

SichuanHanlongGroup,withthebackingoftheCDB,signeda$1.6 billionagreement

totakeoverAustralianSundanceResourcesLtd,owneroftheMbalamironoreproject,

cuttingacrossCameroonandCongo.Thetakeover,recentlydownsizedto$1.45billion

owingtoweakironoreprices,50isexpectedtobefinalisedinthefirstquarterof2013after

approvalbycompetentauthoritiesonallsides.IfrealisedthiswillgiveHanlongcontrol

ofthe$4.7 billionMbalamrail,portandminedevelopmentproject.Thecompanyisin

discussionswithseveralSOEstoformaJVfortheconstructionoftheinfrastructure.

Themineralshighpricecycleoverthepastdecadehasmaderemotedepositsprofitable,

andChinesestateminershaveacompetitiveedgetofundtheminedevelopmentandthe

attachedrailroadsandports,astheycanaccesscheapcapitalfromChinesestatebanksand

tapintoalargepoolofexperiencedconstructionSOEsthatcanhelptobuildthenecessary

infrastructurecheaplyandquickly.

Over the lastyearChineseminershavealsobeen increasinglyactive inSouthern

Africa,showingparticularinterestintheCopperBeltRegion(Zambia–DRC).InJuly2011

16



thenickelminingcompany,JinchuanGroup,outbiditsBraziliancompetitor,Vale,and

acquiredMeteorexfor$1.3 billion.Meteorex,aSouthAfricanminer,holdssignificant

copperandcobaltassetsintheDRC’sKatangaprovinceandZambia’sCopperbelt.The

companyalsoownsotherprospectiveprojectsforbasemetalsintheDRC.51Afterhalting

theacquisitionofEquinoxMineralsinearly2011,Minmetalsfinallyacquireditsfirst

miningacreageinAfrica,paying$1.3 billionfor90%ofCanada-listedAnvilMining,

whichownsKinsevereandMutoshicopperandcobaltprojectsintheDRC.Thedealwas

finalisedinJanuary2012afterclearancefromregulatorsinalltheinvolvedcountries.

Inearly2012Minmetalsannouncedthat itwasonthe lookout forcopper,zincand

nickelacquisitionsintheregionofupto$7 billion.52InFebruary2012theChina Non-

FerrousCorporationAfrica,asubsidiaryoftheCNMC,announcedafurther$832million

investmenttodevelopthesouth-eastsideofitsChambishicoppermine.

Table 3: Major Chinese investments in oil and mining in Africa, 2009–12

Target country

Asset Date Chinese Company

Acquisition Value

DRC Kinsevere copper mine

February 2012

Minmetals 90% stake in Anvil Mining

$1.3 bn

Uganda Oil assets in Lake Albert

February 2012

CNOOC One-third of Tullow’s oil assets in Lake Albert

$1.5 bn

Zambia Copper February 2012

CNMC Development of Chambishi south-east

$830 m

Cameroon and Congo

Mbalam iron ore project

October 2011

Sichuan Hanlong Group

100% in Sundance $1.6 bn

DRC and Zambia

Copper and cobalt mines

July 2011 Jinchuan Group

100% in Meteorex $1.39 bn

South Africa

Gold June 2011 Two Mining Companies

65% stake in Aurora Holdings Ltd

$ 60 m

South Africa

Gold April 2011 Wing Hing International

87% in Taung Gold $ 986 m

Sierra Leone

Iron ore May 2011 Shandong Iron & Steel

25% in Tonkolili iron ore project (the remaining 75% is owned by African Minerals)

$1.5 bn

Guinea Iron ore March 2010

Chalco (Chinalco)

47% in the Simandou project (the remaining 53% is owned by Rio Tinto)

$1.4 bn

Sierra Leone

Iron ore January 2010

China Railway Materials (CRM)

12.5% stake in African Minerals (Tonkolili iron ore)

$244 m

Zambia Copper December 2009

CNMC Additional investment to rehabilitate Luanshya copper mine

$150 m


17


Target country

Asset Date Chinese Company

Acquisition Value

Kenya Oil October 2009

CNOOC Secured exploration well in North Kenya

$26 m

Zambia Nickel August 2009

Jinchuan Group

70% stake in Munali mine (the remaining 30% is owned by Albidon)

N/A

Nigeria and Gabon

Oil August 2009

SINOPEC Takeover of Addax Petroleum (Swiss) with significant oil equity in the Gulf of Guinea

$7.2 bn

South Africa

Chromites July 2009 Minmetals 70% stake in Vizirama $81 m

Liberia Iron ore June 2009

China Union Bing Iron ore mines $2.6 bn

Zambia Copper June 2009

CNMC Luanshya mine rehabilitation

$400 m

Source:BeijingAxis,The China Analyst,May2009,September2009andJanuary2010;variousnews

reports.

Chinesecompanieshaveshownaninterestinanumberofotherminingdealsinthe

region.InNamibia,theChinaGuangdongNuclearPowerGroup(China’ssecond-biggest

nuclearreactorbuilder)hasshownaparticularinterestinHusabmine(settobecomethe

worldsecond-largesturaniumminewhenoperational).Sinceearly2011thegrouphas

beentryingtoacquire(ina$1 billionbid)astakeofLondonuraniumminerKalahari

Minerals,whichownsa42.7%shareinAustralianExtractResources,thecompanythat

holdstheconcessionforHusabmine.Kalaharialsoholdsinterestsingold,copperand

otherbasemetalsinNamibia.53InZimbabwe,thegovernmentannouncedinNovember

2011thatithadsigneddealsworthover$700millionwithvariousChineseinvestors,

mostlyinvolvingtheextractionofchromeandalluvialdiamonds.54Moreover,WuhanIron

&SteelCompanysignedagreementswiththeChina–AfricaDevelopmentFundtoinvest

jointlyinAfricanminingcompanies.InrecentyearsChinesestateminershaveacquireda

numberofAfricanminingcompaniesviatheLondonStockExchange(LSE):companies

listedontheLSEareseenaslessriskyoptions.

InAfrica,Chinesecompaniesareinterestedprimarilyinironoreandcopperfroma

strategicsupplyperspective(Chinaconsumesoverhalfoftheworld’sironoreoutputand

40%ofitscopper).TherushinironoredealsinWestAfricarevealsChina’sproactive

stanceinensuringacontinuousironsupplyinamarketthatisdominatedbyVale,BHP

BillitonandRioTinto.China,thelargeststeelmakerintheworld,expectsthatoff-take

agreementsandthe increasingengagement in ironoreproductionwillgiveBeijinga

greatersayinironoreprices,whichuntilnowhavebeentightlycontrolledbythethree

miningmoguls.InWestAfricaoneshouldexpectgreaterinterestinironoredepositsin

Liberia,GabonandCongo-Brazzaville,sincethesegovernmentsareseekingtotiethe

explorationoftheirmineralresourcestothedevelopmentofrelatedinfrastructure.

InSouthernAfrica,ChineseminingcompanieshavetargetedmostlyZambiaandthe

DRCfortheircopperdeposits.Butinterestisalsorisinginzinc,nickel,uraniumand

18



goldprojects.Curiously,despitethehugegasandcoaldepositfindsinMozambiqueand

Tanzania,nosignificantinvestmentshavebeenmadebyChinesecompaniesinthese

resourcessofar.Itisalsointerestingtonotethatnosizeableinvestmentshavebeenmade

byChineseSOEsintheSouthAfricanminingsector.Chinesestateminershavebeen

strugglingtopenetratethismarketowingtoitsfarmoreliberalisedandcomplexsocio-

economic institutional structure.SouthAfrica’s farmore regulatedenvironmentand

strongerlabourunionsaresignificantlylesspermeableforChina’sbusinesspracticesand

fundingmodel,rootedinahighpercentageofprocurementofChineseservices,materials

andlabour.

UnliketheexperienceinSouthAmerica,whereasignificantpartofM&AsbyChinese

companiesoverthepastcoupleofyearshavetakenplaceintheoilindustry,inAfrica

theChineseM&Aspreehasbeenparticularlyfruitfulintheminingsector.Toagreat

extentthishasbeenpossiblethankstoastructuralchangeintheinternationalmarket

promptedbythe2008–09globalfinancialcrisis,asaconsequenceofwhichoilandmining

developerswereforcedtoplaceequitystakesonthemarketorlookoutformergersto

financetheiroperations.Inthisnewframework,ChineseminingSOEssuddenlyfound

themselvesinanadvantageousposition,astheywereamongthefewplayerswithcash

flowtoenrolinM&Aoperations.

M&AsappeartobeabetterfitforChinesecompanies’interests,astheygreatlyreduce

timetodevelopassetsandallowthecompaniestobenefitfromestablishedmanagement

experienceandtoobtaintherequiredtechnologyandexpertise. InAfrica, theM&A

operationsofChinesestateminersseemtobetargetingcontrollingorlargestakes,which

isinlinewithBeijing’sdesiretobreakfreeofforeignsuppliersandtohavemorecontrol

overcommodityprices.This,however,mightbeariskystrategyinthemediumtolong

run,asChinamaybeindangerofoverstretchingitscapacitytodevelopallthesenew

projectssmoothly.Thisisparticularlysowhenconsideringtheseoperationsaretaking

placeinsuchadissimilarandunstableenvironmentastheAfricancontinent.Chinese

SOEscomefromamuchprotectedmarketathome,wheretheyenjoysubstantialsupport

fromthegovernmentandthereforearenotusedtooperatinginenvironmentsofopen

competition.Theculturalshock(intermsoflanguage,businessandworkethics)isalso

anobstaclethathasbeenunderestimated;alongwiththeincertitudeofminingregulatory

environments,whichareunderrevisioninmostcommodity-richAfricancountriesin

lightofthecurrentmainstream‘resourcesnationalism’doctrine.AsChinesecompanies

havealreadyexperiencedinGabonandtheDRC,beingoverlyoptimisticmayleadto

costoverrunsanddelays.Thisisparticularlysoinacontextinwhichdemandgrowthfor

mineralcommoditiesislikelytoslowdownowingtotheexpectedoverheatingofChina’s

economy.

c o n c l u S I o n

Asalatecomerandstilllaggingfarbehindintermsoftechnologyandtheexpertiseofits

Westerncompetitors,ChineseresourcesecuritystrategyinAfricahasreliedheavilyon

Beijing’spositiveeconomicstatecraftinitsinitialstage,notonlytosecureasteadysupply

butalsotolockinassets.Althoughinfrastructure-for-resourcesdealsseemtohavebeen

relativelysuccessfulinensuringasteadysupplyofresourcesovertheloanrepayment


19


periodthroughtheguaranteemechanism,accesstohardassetsthroughthisinstrument

hasbeenfarlessconsequentialthanexpected,withmostoftheassetsacquiredyettobegin

producing.Insharpcontrast,directacquisitionsbyChineseresourcesSOEsthroughout

theglobaleconomiccrisisseemtohavebeenmuchmoresuccessfulinexpandingthe

footprintofChineseoilandparticularlyminingSOEsonthecontinent.

Theannouncementofanewbatchofinfrastructure-for-oilloansoverthepastcouple

ofyears(inAngola,GhanaandNigeria)suggeststhatthiseconomicstatecraftinstrument

remains,nonetheless,animportanttoolforChinatosecure,ifnotequitystakes,surely

a steadysupplyofoil in themediumto long term(that is to say,over the standard

repaymentperiodof10–15years).Afewshifts,however,shouldbehighlighted.

• Unlikethepreviousbatchof loans,thenewoneshavebeenextendedexclusively

tooil-richcountries.Thisseemstosuggestthat,followingthedifficultiesfacedin

GabonandtheDRC,Chinahasbecomesomewhatfearfulofdeployingthiseconomic

statecraftinstrumenttodevelopcomplexmega-mining‘greenfield’projects.Infact,

eveniflesseffectiveingivingChinaaccesstoequity(thenewloanshavenotproduced

anycollateraloilassetsforChina), infrastructure-for-oil loansappeartobemuch

easiertomanage,moreeffectiveintermsoflockinginsupplyandalsomorereliableas

aresource-backedfinancinginstrument.Ontheotherhand,framedbythelingering

contractionofglobalfinancialmarkets,Beijinghasbeenconfrontedincreasinglywith

Africanresource-richcountriesknockingonitsdoorinsearchoffundingformega

infrastructureprojects,someofwhich,however,riskpullingBeijingintothecentre

stageofAfricanconflicts.

• Thisnewbatchof loansalsosuggests thatChina isadoptingamore flexibleand

diversifiedapproachtofinancingAfricanoil-richcountries.InrecentyearstheCDB

(mostactiveinSouthAmericaandCentralAsia,providingloansdirectlytoNOCs)

hasbecomemoreproactiveinAfricainprovidingloansforinfrastructuretooil-rich

countries(asinthecaseofGhanaandNigeria),whicharenotalwaysbackedbyoil

sales(asinthecaseofAngola,whichreceiveda$1.5billionloanin2011fromthe

CDB).TheCDBhasalsointroducedsomenuancestoChinaEximBank’scommodity-

backedfinancinginAfrica,as,althoughofferinglowinterestrates(at6.5%),itscredit

linesarenotconcessional.InadditiontoservingasatooltoopenmarketsforChinese

constructioncompaniesandforresourcesSOEstoengageindownstream(refineries)

andmidstream(oilandgaspipelines)projects(inGhanaandNigeria),partofthese

loansarenowalsotargetingothersectors,namelyhealthandagriculture,signalling

increasingdiversification.

• Withtheonsetoftheglobaleconomiccrisis,accessofChineseSOEstominingand

oilassetsinAfricahasclearlybecomemoredetachedfrominfrastructure-for-resources

loans.Chinesestateminershavebeenparticularlyeffectiveinthisregard.Moreover,

Chineseminershaveclearlymovedfromgreenfieldinvestmentsinmarginaldeposits

(egtheChambishicoppermineinZambiaandoilassetsinNiger)andproducingareas

marginalisedbyWesterncompanies(egZimbabweandSudan)toM&Astargeting

moreconventionalareas(suchasAddaxandmostoftheminingassetsacquiredover

thecrisis).

20



On the one hand, infrastructure-for-resources loans have become less relevant in

facilitatingtheaccessofChineseSOEstoequityassets.Ontheotherhand,theChinese

statestillplaysacriticalroleintheexpansionstrategiesoftheSOEs,asitremainsacritical

sourceoffinancing.Nonetheless,andeventhoughtheunmatchedfinancingcapacityof

ChineseSOEshasgiventhemacompetitiveedgeovertheircompetitorsinthecontextof

globalfinancialcontraction–particularlyincapital-intensiveindustriessuchasmining

andoil–inthelongrunthesuccessofChineseSOEswillstilldependontheircapacityto

efficientlydevelopthesenewassetsinsuchavolatileenvironment.

e n d n o t e S

1 TsePK,‘ThemineralindustryofChina’,2010 Minerals Yearbook (advancedrelease),USGS

(UnitedStatesGeologicalSurvey),February2012,pp.9.0–9.27;http://minerals.usgs.gov/

minerals/pubs/country/2010/myb3-2010-ch.pdf.

2 USEnergyInformationAdministration,China,EIA,4September2012,http://www.eia.gov/

countries/analysisbriefs/China/china.pdf,accessed20November2012.

3 WTO(WorldTradeOrganization),Statisticsdatabase,http://stat.wto.org/Home/WSDBHome.

aspx?Language=E,accessed15May2012.

4 ACapital,‘ACapitalDragonIndex:2011FullYear’,http://www.acapital.hk/dragonindex/A%20

CAPITAL%20DRAGON%20INDEX%20Full%20Year%202011%20ENG.pdf.

5 AlthoughChinesecompanieshavealsoacquireda significantmineralportfolio inSouth

America(inChile,Peru,Bolivia,Venezuelaand,morerecently,importantoilequityinBrazil),

thepenetrationofthismarketproceededataslowerpacethroughoutmostofthedecadeand

followedadifferentpattern,whichiswhyitfallsoutofthescopeofthisanalysis.

6 Ernst&Young,It’s time for Africa,2011AfricaAttractivenessSurvey,2011,http://www.ey.com/

Publication/vwLUAssets/2011_-_Africa_Attractiveness_Survey/$FILE/Attractiveness_africa_

low_resolution_final_WEB.pdf.

7 AllfiguresinthisparagraphareaccordingtotheworkbookofBPStatistical Review of Energy

2012,availableathttp://www.bp.com/statisticalreview,accessed15July2012.

8 BlanchardJMF,MansfieldED&NMRipsman,‘Thepoliticaleconomyofnationalsecurity:

Economicstatecraft:Interdependenceandinternationalconflict’,inBlanchardJMF,Mansfield

ED&NMRipsman (eds),Power and the Purse: Economic Statecraft, Interdependence and

National Security.London:FrankCass,2000,p.3.

9 PRC(People’sRepublicofChina),InformationOfficeoftheStateCouncil,WhitePaperfor

China’sForeignAid,April2011.Beijing:PRC,InformationOfficeoftheStateCouncil.

10 Ibid.

11 ChinaEximBankwascreatedin1994.ItisfullyownedbytheChinesegovernment,andis

underthedirectleadershipoftheStateCouncil.Itplaysanimportantroleinpromotingforeign

tradeandeconomicco-operation,actingasakeychannelofpolicythatfinancestheChinese

importandexportofmechanicalandelectronicproducts,equipmentandtechnologies,and

inundertakingoffshoreconstructioncontractsandoverseasinvestmentprojectsbyChinese

companies.

12 HubbardP,‘Aidingtransparency:WhatwecanlearnaboutChina’sEximBankconcessional

loans’,CenterforGlobalDevelopmentWorkingPaper,126,September2007,p.4,http://www.

cgdev.org/files/14424_file_AidingTransparency.pdf.


21


13 PRC,InformationOfficeoftheStateCouncil,op. cit.

14 FosterVet al.,Building Bridges: China’s Growing Role as Infrastructure Financier for Sub-Saharan

Africa.Washington,DC:WorldBank,2008,pp.52–57.

15 Ibid.,pp.37–38.

16 Personalinterview,Angolanoilsectorexpert,Luanda,Angola,1February2011.

17 For a detailed study on commodity-backed finance in Africa, see JBIC London Office,

‘Commodity backed finance in sub-Saharan Africa’, Research papers on Africa and

Development,20,October2006.

18 Personalinterview,BNDESInternationalDepartment,RiodeJaneiro,Brazil,23May2012.

19 AlvesAC,The Oil Factor in Sino-Angolan Relations at the Start of the 21st Century,Occasional

Paper,55.Johannesburg:SAIIA,2010.

20 Personalinterview,ChinaEximBankrepresentative,Beijing,China,26August2009.

21 ForadetailedstudyonChina’sengagementinNigeria,seeMthembu-SalterG,Elephants, Ants

and Superpowers: Nigeria’s Relations with China,OccasionalPaper,42.Johannesburg:SAIIA,

2009.

22 ForadetailedstudyonChina’sengagementinGabon,seeDittgenR,To Belinga or Not to

Belinga: China’s Evolving Engagement in Gabon’s Mining Sector, Occasional Paper, 98.

Johannesburg:SAIIA,2011;AlvesAC,China and Gabon,ChinainAfricaProjectPolicyReport,

5.Johannesburg:SAIIA,2008.

23 BavierJ,‘ChinatolendDRC$5bninlatestAfricaforay’,Mail & Guardian,18September2007,

http://mg.co.za/article/2007-09-18-china-to-lend-drc-5bn-in-latest-africa-foray.

24 BavierJ,‘China’sDRCInvestment$9billion–$3billionformining’,Reuters,Kinshasa,16

February2008,http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=47452&

sn=Detail.

25 Personalinterview,ChinaEximBankrepresentative,op. cit.

26 Formoredetail, see Jansson J,The Sicomines Agreement: Change and Continuity in DRC’s

International Relations,OccasionalPaper,97.Johannesburg:SAIIA,2011.

27 SeeDittgenR,op. cit.

28 Agence France Press,‘GabonrenegotiatingChinaminingdeal’,News 24,12June2012,http://

www.news24.com/Africa/News/Gabon-renegotiating-China-mining-deal-20120607.

29 VermaS, ‘Sino–African ties:TheGhana case study’,FTTilt, 29August2011,http://tilt.

ft.com/#!posts/2011-08/28946/ghana-china.

30 KunatehM,‘ChinatakeschargeofGhana’scrudeoil’,CAJ News,4May2012,http://www.

cajnewsagency.com/index.php/energy-and-petrolium/654-china-takes-charge-of-ghana-s-

crude-oil.

31 DzawuMM,‘Ghanaseeks$6bnloanfromChinaEximBank’,Bloomberg,19April2012,http://

mobile.bloomberg.com/news/2012-04-19/ghana-seeks-6-billion-loan-from-china-exim-bank-

graphic-says.

32 WallisW&LBarber, ‘Ghana’sopposition targetsChinese loan’,Financial Times Online,

26 April 2012, http://www.ft.com/intl/cms/s/0/7159e1be-8d29-11e1-9798-00144feab49a.

html#axzz1xfTYeTbu.

33 AlvesAC,‘Tamingthedragon:Sinopec’sinterestsinAngola’,inAlvesAC&MPower(eds),

China and Angola: A Marriage of Convenience.CapeTown:Fahamu,2012.

34 AhmedI, ‘NgoziinBeijingfor$3bnChineseloans’,Daily Trust,22February2012,http://

dailytrust.com.ng/index.php?option=com_content&view=article&id=155265:ngozi-in-beijing-

for-3bn-chinese-loans&catid=2:lead-stories&Itemid=8.

22



35 SharifeK,‘ChinaandNigeriaoil’,Pambazuka News,26January2011,http://www.pambazuka.

org/en/category/features/70400.

36 Sudan Tribune, ‘SouthSudan’sannouncementof$8bnloanfromChinadrawsskepticism’,

15May2012,http://www.sudantribune.com/South-Sudan-s-announcement-of-8,42605.

37 Reuters,‘SouthAfrica’sIDCsaysinloantalkswithChina’,20April2012,http://www.reuters.

com/article/2012/04/20/safrica-idc-loan-idAFL6E8FK5O420120420.

38 RoelfW,‘SouthAfricaturnstoChinaforrefineryproject’,Business Day,12May2012,http://

www.businessday.co.za/articles/Content.aspx?id=172236.

39 Bossard P, ‘Chinese loans could fuel regional conflict in East Africa’, China Dialogue,

14January2013,http://www.chinadialogue.net/article/show/single/en/5601-Chinese-loans-

could-fuel-regional-conflict-in-East-Africa.

40 Steelguru,‘ChinatogiveloantoTanzaniaforcoalbasedpowerplant’,16June2009,http://

www.steelguru.com/raw_material_news/China_to_give_loan_to_Tanzania_for_coal_based_

power_plant/107075.html.

41 DzirutweM,‘ChinalendsZimbabwe$700million’,Reuters,21March2011,http://af.reuters.

com/article/worldNews/idAFTRE72K2J720110321?pageNumber=1&virtualBrandChannel=0.

42 BrunswickGroup,‘SinopecGroupcompletedtheacquisitionofAddax’,PRNewswire-Asia,

18August2009,http://www.prnewswire.com/news-releases/sinopec-group-completed-the-

acquisition-of-addax-62247112.html.

43 JubileefieldwasdiscoveredinJune2007andhasestimatedreservesof1.8billionbarrels.

Ghanaexpectstopump500 000barrelsofoiladayby2014.TheCosmosstakewasbeingsold

toExxon(atacostof$4 billion)butwasblockedbyGhana’sgovernment.Thegovernment

wasinterestedinraisingits13.8%stakebutlackedthenecessarycapitaltodoso.

44 Reuters,‘ChinaCNOOCsilentonreportofNigeriaoiltalks’,29September2009,http://www.

reuters.com/article/idUSTRE58S1MO20090929.

45 ThegovernmenthasallowedTullowtotakeoverHeritageOil(UK)assetsinUganda(50%

stakesintwoblocksinLakeAlbert)withthecommitmentthatitwillselltwo-thirdsofitsoil

assetsinthecountrytoothercompanies(ietoCNOOCandTotalasofMarch2010).

46 LeeY&APoon,‘China’sCNOOCtobuyTullow’sUgandanoilassets’,The Wall Street Journal,

6February2009,http://online.wsj.com/article/SB10001424052748704533204575046481584

946258.html.

47 SmithP&WMacnamara,‘RioandChinalcoinGuineaironorepartnership’,Financial Times,

20March2010.

48 Sierra Express Media, ‘As African Minerals discovers another 5 billion tonnes, Sierra

Leone becomes largest iron ore deposit in the world!’, 18 February 2010, http://www.

sierraexpressmedia.com/archives/5964.

49 Mining Journal,‘ChineseSteelmilltoinvestUS$1.5bnintoTonkoliliproject’,13July2010,

http://www.mining-journal.com/finance/chinese-steel-mill-to-invest-us$1.5bn-into-tonkolili-

project.

50 Hernandez V, ‘Hanlon takeover of Africa Mbalam mine: China strengthens grip on iron

ore supply’, International Business Times, 31 December 2012, http://au.ibtimes.com/

articles/419330/20121231/stronger-role-china-iron-ore-prices-hanlong.htm#.UPVypeT2-So.

51 I-netbridge,‘Meteorex–JinchuanDealclearshurdles’,MiningMX,29December2011,http://

www.miningmx.com/news/base_metals/Metorex-Jinchuan-deal-clear-all-hurdles.htm.

52 SonaliP,‘Update3-China’sMinmetalswins$1.3blnAnvilbid,eyesmore’,Reuters,17February

2012.http://www.reuters.com/article/2012/02/17/anvil-minmetals-idUSL4E8DH10E20120217.


23


53 EbrahimiH,‘ChinaeyesuraniumminerKalahari’,Telegraph.co.uk,12October2011,http://

www.telegraph.co.uk/finance/newsbysector/industry/mining/8816828/China-eyes-uranium-

miner-Kalahari.html.

54 The Herald, ‘Zimbabwe: Chinese to invest over US$700 million in mining’, AllAfrica,

14November2011,http://allafrica.com/stories/201111150117.html.

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African perspectives. Global insights.South Africa

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