News Column

Clash of the Titans - Chinese-West Rivalry On Africa

May 12, 2014

Asrat Seyoum

Fully geared with safety hats and reflective jackets, Getachew Belay and Getenet Mengiste are toiling away under the blazing sun moving around heavy metal, fitting rail profiles and more on the Addis Ababa Light Rail Transit (LRT) project.

The men are busy working under the scorching eyes of a Chinese and Ethiopian supervisor. Now 24 years old, Getachew came from Gojam in the Amhara Regional State a few years ago. Before joining the railway team he had trouble finding permanent occupation, mostly working as a daily laborer in construction projects. "I am happy to have a dependable monthly income," Getachew pauses to say a few words to The Reporter. Thanks to his new job, now he can chip in for the rent of a service quarter he shares with his friends. For Getenet, former stonemason, it is not about sustenance, but the railway work is a unique opportunity to get one step closer to the sophisticated construction machinery, which he would like to operate someday. "The experience will definitely get me ever closer to the machines so that I can watch and learn," he says in a confident tone.

What they have in common is the fact that both of them could not care less if the LRT project is made possible with the support of the Chinese, the US or any country. It is not their concern whether the USD 470 million project is an emblematic structure symbolizing Chinese growing interest and involvement in Africa. They do not contemplate the significance of the growing Chinese influence in Africa either. The reaction of the lately awakening western countries to China's advance and resultant rivalry over Africa is definitely not on the list of Getachew's or Getenet's pressing agenda items. In fact, they know little of the recent events where two of the worlds' biggest economies, the US and China, came to town. Li Keqiang and John Kerry, Prime Minister of China and Secretary of State of the United State of America, visited Ethiopia last week and the week before. According to official statements, Kerry's appearance pertained to the deteriorating conditions in South Sudan, while Li Keqiang's, who arrived just days later, had other matters at heart. Sixteen different issues to be exact, which he addressed by inking agreements with his Ethiopian counterpart, Hailemariam Desalegn. Nevertheless, the politics behind the curtain was a lot more than economic cooperation between the two countries, where the latter pledged to assist the development of export zones, roads, sugar plants, security systems and the like. Scholars and politicians are now convinced that fast advance of the Chinese into Africa has changed the dynamics of the geopolitics in the continent. Many agree on an ongoing rivalry between the classical donors like the west and Japan and emerging economic powers like China, India and Brazil over the virgin continent- Africa. Although the west started late, the two sides are now obviously in a race to amass economic interests in Africa. The Chinese relationship with Africa dates back to the 1950s where most of the African nations were under colonial rule. Gedion G. Jalata, a researcher on China/India-Africa relations, writes the Chinese widely supported liberation movements across the continent to which Ethiopia was an exception. But, formal Sino-Ethiopia cooperation can be traced back to the 1970s, which continued through the 1990s albeit at a very low tempo. However, the visit of the late PM Meles Zenawi to China in 1995 marked the rekindling relations between the two countries. On his visit, the PM sealed economic and technical cooperation deals with China, which was further fostered by the trade and investment pacts signed during the visit of the then Chinese president Jiang Zemin to Ethiopia two years after.

Currently, Ethiopia stands among the four countries in Africa, namely Nigeria, Angola and Sudan to receive close to 70 percent of the total development assistance coming to the continent from China. It (China) is also the biggest bilateral source of development assistance for Ethiopia, not to mention 40 of the country's overall trade volume is accounted for by China. The volume of trade is expected to reach three billion by 2015 while the stock of Chinese direct investment to Ethiopia was close to two billion in the past four years. "We mean business"

Of course, the classical donor nations and the newly emerging BRICs greatly differ in their foreign policy pursuit towards Africa. Extensive literature on the matter informs that the differences are of two respects. The first is the overall composition of the development packages offered by emerging economies like China and India and one offered by the classical donors. Chinese and Indian white paper on development assistance and on Africa indicate that their modality of assistance incorporates support with trade and investment creations for the source countries. Some writers refer to this as the 'Asian Model of Development Assistance' where a dollar of aid money spent on recipient economies is not only expected to give support but also create business and investment opportunities and market access for enterprises of source countries. According to Gedion's work, until 2011, Chinese firms were able to contract projects worth 10.9 billion dollars as a result of the Chinese assistance to Ethiopia. In fact, in just a single year, 2011, the contracts that went to Chinese firms amounted to 3.3 billion dollars as a result of the 3.3 billion dollar finance the country provided for some 46 development projects from 2006 to 2011. On the grand scale, the two alternative sources of aid to Africa differ in the conditions they attach to aid; non-economic conditions to be exact. Classical donor groups like the EU and US prefer to see that human rights, good governance and rule of law are up to the 'international' standards. That is not how the emerging economies do business. They follow a complete non-interference policy. Thus far, they seem to be the choice of African governments, most importantly Ethiopia's. Hailemariam articulated this view quite a number of times. The figure as well paints the same picture. For instance, the bulk of the FDI flow to Ethiopia seems to be sourced from emerging economies, particularly China, India, Turkey and the Middle-East.

The rivalry

The so called 'behind the curtain' politics that is the rivalry is revealed by the accusations and counter-accusations going on between the West and emerging economies, especially China. Much of this is about the involvement of either party in the continent. Primarily the West accuses China of being too focused on extractive industries in Africa and that China is trying to push neocolonialism on the continent. Citing Chinese involvement in Angola, Nigeria and Sudan, a lot of writers point out resource hungry China and its interest in quenching that thirst. Zemedenh Negatu, managing director of Ernst & Young, an international management consultancy firm active in Ethiopia, offers a different perspective. He argues that back when the Chinese started to come to Africa, there was no strategic entry point beneficial for engagement. It is hard to imagine what Africa back then could offer for FDI other than natural resources he adds. But, that is not the case anymore, he continues to elucidate, now Africa is becoming a favorable investment destination and potential market. Hence, it is his belief that the investment portfolio is bound to diversify in coming years. "Ethiopia is a good example because the engagement of the Chinese with Ethiopia is strictly on a non-resource basis," Zemedeneh says. However, what emerging nations see in Ethiopia is a bit more than that according to Gedion. "For instance, India and China want to win Ethiopia's diplomatic support in the United Nations and other international and regional forums, since Ethiopia has geopolitical influence in the region," he wrote. On the flip side, the west modality of aid is also severely criticized for being a material to push their political agenda. Early bird

Given FDI flows on the ground in recent years, it is reasonable to conclude that the emerging economies must be doing something right. Experts argue, it is the approach that is helping the emerging economies like China assert dominance in Africa. On one hand, they offer a very good alternative to the classical donors and their stringent conditionalities, which they attach to their assistance. On the other hand, their much recent experience with challenges of development could also prove to be valuable to the conditions of the least developed economies of Africa. Zemedeneh says that the relatively more recent experience with development not only affects the chances of being a partner of choice for LDCs, but it could also have an impact on the success or failure of FDI invested in the underdeveloped markets. "The frontier challenges that developing countries face today are challenges that the advanced nations faced a hundreds years before. Whereas the emerging economies are better positioned to sail through economies like Ethiopia since they were in similar situation just a couple of decades ago," he continues to explain. Nothing speaks of this subtle difference in tolerances than a recent meeting held at the Hilton Hotel where the UK embassy invited IMF country representative, Jan Mikkelsen, to offer an alternative view on Ethiopia economy to UK business already invested or are planning to do so in Ethiopia. The gathering brought together important business personalities, and what they needed to know was the sustainability of Ethiopia's economic growth regarding what they have heard so much about from the government's side. The macroeconomic conditions Mikkelsen shed light on were a bit worrying for the business community, to say the least. None of the UK investors asked questions when it came to macroeconomic matters like when the 27 percent NBE bill took center stage. A directive applicable to private local banks, which cannot be and are not potential sources of finance for UK companies, the NBE-bill in connection with government shortage of finance for its mega projects and Growth and Transformation Plan (GTP) was the primary topic of discussion . Superficially, these issues could not appear to be directly relevant to FDI, but this shows the level of sensitivity of enterprises from that part of would have for issues in potential investment destinations. It is all about the level of tolerance businesses have, the risk appetite to function in markets like Ethiopia. Zemedeneh also argues it is a matter of spotting opportunities when it comes to investing in emerging markets. "The emerging markets know what it takes to grow and hence can see opportunistic markets when they start to open up. These might not be shared by the advanced nations," he contends. Still, recent moves in Ethiopia are indicative of the awakening of the West and realization that Africa and Ethiopia are the next favorable investment destinations. While competing for economic interest however, the two comps could offer good opportunities to Africa, experts agree. They also warn that Africans should know which is which, and how they get the most out of both worlds.

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Source: AllAfrica

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