China Building Africa's Economic Infrastructure: SEZs and Railroads

Publication: China Brief Volume: 10 Issue: 15
July 22, 2010 10:10 PM Age: 4 yrs
Category: China Brief, Home Page, Foreign Policy, Economics, Energy, China and the Asia-Pacific, Africa

Starting in the late 1990s, China's presence on the African continent experienced a phenomenal expansion. Far more profound changes, however, have been underway and may only become apparent in the next decade.  These changes are likely to transform the regional economic landscape of the African continent in ways never seen before. Chinese experts apparently believe that Africa is entering an era of relative stability and that the time to explore its untapped resources has arrived [1]. Chinese policymakers see in Africa possible solutions to some of China's most pressing problems, for instance, Beijing's need to secure access to energy resources and other vital minerals to sustain the country's rapid economic growth. Yet Chinese interests in Africa extend beyond energy resources and minerals and clearly include markets, infrastructure development and agriculture. China's operations in Africa are becoming more diversified and multi-dimensional, and the Chinese government as well as private entrepreneurs has seemingly realized the need to look at large regions of Africa in an integrated fashion to maximize the benefits of its growing investments. This new approach has resulted in an ambitious plan, which was announced at the 2006 Forum on China and Africa Cooperation (FOCAC) meeting, to establish five special economic zones (SEZs) in Africa to attract Chinese investment and integrate China's comprehensive economic activities throughout the continent. In spite of the recent global economic downturn, this program appears to be gaining momentum.

From Words to Action

In September 2009, the Chinese Ministry of Commerce approved $450 million worth of investments to establish two special economic and industrial zones in Zambia. The zones, which are to be located at Chambuchi and Lusaka, will concentrate primarily on copper mining with China Northern Metal Mining Group as the main operator. On September 16, 2009 the Mauritian Prime Minister Navinchandra Ramgoolam and vice-governor of the Chinese province of Shanxi, Li Xiaoping, officially launched the Mauritius Jinfei Economic Trade and Cooperation Zone, the first Chinese special economic zone in Mauritius. China is expected to invest up to $750 million in the next ten years. The SEZ in Mauritius is intended to serve as a manufacturing hub where garments, electronic products such as computers, and TV sets will be assembled. Other manufactured goods include medical equipment, pharmaceuticals and high tech machinery. The SEZ in Mauritius will also act as a major service center for trade, finance and tourism [2]. Mauritius is also being developed into a manufacturing hub in the Indian Ocean Rim, and given its reportedly plentiful supply of human assets, some 50 Chinese companies are expected to move into the mega industrial parks to be created in the outskirts of the capital Port Louis (AFP, February 17, 2009).

At around the same time, the Chinese government confirmed its intent to proceed with the establishment of SEZs in three other countries: Nigeria (two zones), Ethiopia and Egypt. In Nigeria, China plans to invest up to $500 million in two SEZs that will focus on manufacturing machineries and mineral extraction. In Ethiopia, China has pledged to invest $100 million in an industrial park where electric machinery and iron works will be the main activities. In Egypt, the planned SEZ will be located in the south of the Suez Canal where China is committed to invest $700 million.

When the SEZs described above are complete, these projects will be in a position to help facilitate the economic integration of East Africa, the Middle East and Asia in ways not seen since the arrival of the Portuguese in the 15th century and the subsequent destruction of regional trade routes by the Europeans. These zones together have the potential to create hundreds of thousands of jobs and go a long way in addressing one of the continent's perennial curses: poverty. The Beijing initiative may bring additional benefits to these African countries by inspiring Western and other Asian powers, such as India, to spearhead their own initiatives. Indeed, Indian and Arab business interests have shown some interest in similar projects in Kenya and the stable and increasingly prosperous country of Mozambique.

In order to maximize the potential of the SEZs, the Chinese government and private entrepreneurs have started investing in African infrastructure in and around the SEZ areas, particularly in rail, roads and mega dams. Indeed, Beijing has been funding the rehabilitation and construction of new rail tracks that link the southern Atlantic coast of Africa in the Angolan port city of Bengela and to two ports in coastal countries along the Indian Ocean: one in Tanzania at Dar es Salaam and another in Mozambique, probably at Nacala or Beira. A Chinese company has reportedly already begun to modernize the Dar es Salaam port [3].

For over a century, various Western colonial powers have tried to link the two African coasts. De Angola a contra costa (from Angola to the other coast) dreamed the Portuguese. Upon independence, civil war and chronic instability prevented any progress and that dream was all but forgotten. Now a new power from the East believes that this is the right moment to invest in that old dream. This is not without precedent. In the 1970s China built, at the request of Tanzania and Zambia, the Tanzan Railway, a massive 1,800 kilometer line linking landlocked copper-rich Zambia to the coast of China's long time ally Tanzania. Beijing built the railway at great cost to the PRC and after every Western country rejected the two African states. The Tanzan Railway would allow the PRC to move important commodities to the coast in a much faster and cheaper way substantially cutting down costs. The rail link would also benefit African nations and contribute to foster regional trade.

Three decades later, China may reap some rewards for it continued relations Tanzania. Along with this gesture, China would only have to upgrade the existing line and connect it to the Bengela railway, which it already rehabilitated for the Angolan government. For the first time the continent may be linked from coast to coast, which may pave the way for potential economic benefits.

Egypt may also become a major manufacturing hub thanks to a highly educated work force,  good basic infrastructure and its strategic location at the cross roads of three regions: Europe, Asia and Africa. Zambia, where Chinese interests already run 21 farms, could also become a mining and agriculture hub where Chinese capital is expected to modernize the mining and agricultural sector and direct it towards meeting China’s rising energy and food demand.

Along the Atlantic coast of the African continent, China is hoping to transform its two economic zones in Nigeria into dynamos of sub regional growth. China has shown great interest in Cape Verde, and while that country was not selected to host a SEZ, the Cape Verdian government continues to lobby hard for deeper Chinese involvement in the country's economy. Beijing is likely to create some industrial parks in the archipelago and develop port infrastructure there. Indeed, a more robust Chinese presence in Cape Verde would help consolidate China's economic strategy in West Africa. As one of the continent's few success stories, Cape Verde has enjoyed decades of stability and development, boasting a GDP per capita of $7,000 and having one of the most transparent and accountable governments in Africa. Cape Verde is strategically located on the West coast of Africa and in close proximity to Europe. A foothold in this traditionally very pro-Western archipelago would allow China to penetrate the European market via the African continent, benefiting from some of the preferential trading arrangements between the EU and Africa.  

Cape Verde is likely to emerge as a major shipping and trading hub for the north and south Atlantic, playing a vital role in serving the ever-expanding Chinese merchant ships that cross  those waters in the thousands. The island of Sao Vicente is likely to be used as a major ship repair facility and fish-processing center. The archipelago's relatively credible banking system and its modern telecommunication infrastructure is likely to make Cape Verde the financial hub for Chinese economic operations in the region. In March 2009, the Bank of China announced its plans to open a branch on the islands by the end of 2010.

The Chinese SEZ that is being established in the Suez seems intended to serve as a hub for Chinese companies to penetrate the European, Middle Eastern and North African markets. Indeed, China has in recent years made significant inroads into the oil rich Arab world, and the SEZ in Egypt could pave the way for further Chinese economic penetration of the region and bring some political and diplomatic dividends for Beijing. The Suez, while not as strategically important for China as it is to the West, is not insignificant for a nation whose interests are now becoming global.

China's prime motivation for the establishment of SEZs in Africa seems to be economic. China desperately needs raw materials from Africa to sustain its economic growth, and it needs to find alternative markets to export its commodities to and reduce its dependence on Western markets. As labor costs grow in China, the relocation of certain industries may be beneficial to its economy. However, Beijing certainly has some political objectives. Indeed, in many instances these political objectives may override economic interests. China is keen on consolidating its presence in the African continent with the aim of securing the flow of vital energy resources and raw materials to the continent. African nations are also an important political ally of China and contribute to shore up its position in the international stage. In the long term, as the PLAN expands its reach, the African East Coast will grow in importance to China's naval strategy and its security.

China is not blind to the Indian Navy's growing military presence in the African West coast and particularly the establishment of eavesdropping centers by New Delhi on the African coast (Indian Express, July 12, 2007). In the next two decades, several African countries will become militarily relevant to China, such as Mauritius, Seychelles, Tanzania and Madagascar. These territories could complement and extend China's so-called "string of pearls" dotted along critical sea-lanes in the Indian Ocean near India and the approaches to both the Malacca Strait and the Gulf of Aden. Other concerns such as piracy are most likely to be part of China's long-term calculations, as demonstrated by the PLAN deployment to the Somali coast. In recent years, Chinese military publications have began to openly debate the possibility of the PLA establishing bases overseas and the ideas of Mahan on sea power are now dominant in the PLAN (See "Changes in Beijing’s Approach to Overseas Basing?" China Brief, September 24, 2009).  

A Land of Risks

While China's economic zones are planned in stable countries, many of the neighboring countries are highly unstable and conflict could very possibly spillover. There are also big question marks over issues such as the quality of the labor force, local resentment and competition from other powers, not to mention less risky places to make money in Asia or Latin America. Nigeria and Ethiopia appear to be the most risky bets that China is taking. Nigeria has long faced serious problems with sectarian violence, separatism, military coups and rampant corruption. Several Chinese diplomats have expressed to the author their skepticism over some of the SEZ choices. Mauritius and Zambia seem to be far safer selections. However, in Zambia there are no guarantees that a change of government may not seriously compromise Sino-Zambian ties. During Zambia's last Presidential elections the opposition candidate threatened to recognize Taiwan and put an end to China’s exploitative actions (Reuters, February 3, 2007; Afrol News, July 18, 2009).

Some in Beijing are growing increasingly concerned over the costs of shoring up dubious African regimes and wonder if the money would not be better spent elsewhere. Others fear that it is just a matter of time before these regimes collapse and China is left with nothing to show for the billions it invested into Africa. There is also growing resentment in some African countries over Chinese firms' reluctance to employ locally, low salaries and safety standards in Chinese mines throughout the continent. Indeed, when President Hu visited Zambia a tour of a mining town was canceled for fears that miners and their families were preparing to stage a protest (Christian Science Monitor, February 9, 2009).

Conclusion

In China, both government and private capital seem to believe in a great future for Sino-African relations. China has taken far greater risks in Africa than any other major power and is gambling serious elements of its national interest in the continent. Today over 20 percent of China’s oil imports come from the continent, from places like Angola, the Sudan, Nigeria and Equatorial Guinea. The stakes are growing higher and higher every year. Therefore, China is willing to invest vast amounts of money, which is so desperately need by Africa. If managed wisely by African leaders, China’s grand plans for Africa can bring great benefits for all sides. In the end it is more up to the Africans than to the Chinese. Whether Chinese expectations of a bright future for Africa will materialize remains to be seen. Despite some caution among certain circles in Beijing there seems to be enough enthusiasm for the dragon to continue dreaming across the savanna.  

Notes

1. For a good overview on Chinese perceptions of Africa see Li Anshan “China s New Policy Towards Africa” in China into Africa: Trade, Aid, and Influence, ed. R I Rotberg, 2008, Brookings Institute Press, Washington D.C.
2. The date on the amounts to be invested in the SEZs was provided to the author by planning unit of the Ministry of Commerce of China in June 2010.
3. Martyn J. Davies, “Special Economic Zones: China's Developmental Model Comes to Africa” in China into Africa: Trade, Aid, and Influence, ed R I Rotberg,  2008, Brookings Institute Press, Washington D.C: For an overview of Sino-Angolan Ties see Dilma Esteves book, Angola  Almedina, 2008 (in Portuguese); In English see Indira Campos and Alex Vines, “Angola and China: A Pragmatic Partnership," Center for Strategic and International Studies (CSIS) Report, June 4, 2008, Washington D.C.


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