Cubanálisis - El Think-Tank

IN ENGLISH LANGUAGE

FOR PEOPLE WHO READ IN ENGLISH: ORIGINAL DOCUMENTS IN ENGLISH  OR TRANSLATED. PUBLICATION DOES NOT MEAN WE ENDORSE OR REJECT CONCLUSIONS OR STATEMENTS OF AUTHORS

 Chinese investment in Angola, Zambia & Zimbabwe.

A social, political and economic analysis

 

Dr. Antonio Morales Pita, DePaul University

Salma Siddick, Graduate Student of International Studies, DePaul University

 

With this paper, Cubanálisis-El Think-Tank continues the publication of several monographic studies about countries and regions, as a contribution to underestand the context where Cuban international politics take place.

 

Introduction

 

China’s recent fascination with the African continent has been at the forefront of politicians and economists in the Western world. China’s own authoritative government has supported dictatorships in Angola and Zimbabwe, specifically ignoring and in some cases fueling the violation of human rights. Generally speaking, developing countries need loans and investments from the International Monetary Fund (IMF) as a “lender of last resort” or from countries with attractive investment proposals. The current relevance of this paper is to analyze the “newly found” Chinese Investment in African countries, whose economic actors prefer loan agreements that do not “have strings attached” like those of the IMF or World Bank; as a result, countries like Angola, Zimbabwe and Angola are likely to be drawn to direct trade with China.

 

What does the China-Africa relation mean for China as an international power, as well as to the above referred African countries? After a brief analysis of the inconvenience for African countries of borrowing from the IMF, this paper will be structured in the following sections: section I analyzes China’s convenience of investment in Africa, section II deals with the political, social and economic impact of Chinese relations with Angola, Zambia and Zimbabwe.

 

Inconvenience of borrowing from the IMF

 

The creation of the IMF and World Bank at the Bretton Woods conference in 1944, marked the beginning of a global economic fund, set up to ensure that all member countries had the option of borrowing money from the Fund to obtain short term loans when these countries experienced balance of payment complexities. Today the tune played by the Fund has changed from what Keynes initiated in 1944; the Fund is more like an “international judge of countries’ macroeconomic policies, offering loans conditional upon the adoption of a raft of free-market measures.” The imposing strict conditions that are attached are usually harmful to borrowers. The high interest rates attached to the loans keep borrowers in debt and the “one size fits all” structural adjustment programs established by the Fund require its borrowers to embark in measures of a pro-cyclical character that do not take into account the social, economic or political condition of each individual country.  The most important issue is that the IMF does not ensure that the monies borrowed are actually being used for the reasons stated by the borrowing country. This lack of follow through has lined the pockets of many corrupt governments and has in fact contributed to the ever increasing gap between the rich and the poor. Simply put, they have not been useful to borrowing countries;  see Fig 1 that shows that, while the volume of loans per year increased from 20 in the early 60s to almost 55 in the 1990s, in the same period the per capita growth descended from approximately 2% to negative values.

 

 Fig: 1 - Growth in developing countries versus loans granted by the IMF and the World Bank the 1960s – 1990s

  [1]

 

Section I - China’s convenience of investment in Africa

China’s presence within the African continent is not a new phenomenon. Africa was seen an ideal place for the growth of socialism when the first African countries gained independence in the 1950’s. China aided many African countries including Angola and Zimbabwe in their fight for independence by supplying weapons, providing military training and by assisting in the development of infrastructure. China’s history with Angola stems back to its fight for independence against its Portuguese occupiers, but ties were cut when the Angolan President Augustino Nehto condemned the Chinese 1979 invasion of Taiwan.

It was not until 1983 that China re-established ties with Angola, and investment increased over the last decade.  In 2006, for example, the Peoples Republic of China offered $9 billion toward infrastructure in exchange for petroleum. [2] Zimbabwe like Angola, received funds from the Chinese government through weaponry, training and funding; the Chinese government funded President Robert Mugabe’s liberation struggle against the segregationist government of Ian Smith. “Groups of Rhodesian African nationalists have been trained in camps near Peking and Nanking. Instruction has been given by Chinese military instructors in revolutionary tactics, arms, explosives, sabotage technique, communications and strategy.” [3]

 

        Besides the military relations between China and some African countries, there are some examples of economic collaboration. For example, the Tanzania - Zambia railway (TANZAM), a railway system that runs from Zambia to Tanzania is an excellent example of Chinese investment to Zambia. China’s relationship with Zambia has been one of relative bliss since Zambia’s independence in 1964.  China’s assistance in the railway line from Zambia to Tanzania was seen at that time as the biggest infrastructural development t   hat China had done in Africa. The Chinese provided, “an interest-free loan of 988 million RMB Yuan and shipped about 1 million tons of equipment and material.” [4]

 

        As far as the bilateral trade between China and Africa is concerned, there has been a considerable improvement since 2004, as shown in Figure No. 2, which is in line with the increase in the real GDP growth as of the aforementioned year from 8.3% in 2001 to 13.7% in 2007.

 

Fig:2 – Bilateral Trade between China and Africa

 

http://go2.wordpress.com/?id=725X1342&site=crossedcrocodiles.wordpress.com&url=http%3A%2F%2Fcrossedcrocodiles.files.wordpress.com%2F2009%2F10%2Fbilateraltradeafrica.jpg[5]

 

Today China boasts the second largest economy and its foreign trade has grown faster than its Gross Domestic Product (GDP) over the last quarter century.  With the fastest growing economy in the world, China has to fuel its growth by ensuring a constant supply of cheap raw materials. China’s economy “has averaged annual 9 percent growth for the last two decades,” [6] The Chinese-African relationship is purely an economical one in which loans, cheap goods, and infrastructural developments are exchanged for the extraction of raw materials. China has proved its credibility with African countries, and is the only one offering monetary aid that will not cripple the economies of these countries.

 

Section II - Convenience of borrowing from China

 

Political Factors, Social Factors and Economic Factors

 

In opposition to the IMF conditionality loans, China does not interfere in local politics, ensuring that sovereignty is not violated.  China’s strategy toward Africa has five components: 1) China promotes a different type of global power, one that gives the impression that it understands Africa’s developmental needs and has in the past advocated for African countries at International trade negotiations. This historical antecedent, coupled with the fact that the Chinese aided African countries during their fight for independence, makes the Chinese “a trusted friend” to many African leaders.  2)  China promotes African states that do not have existing international relationships or that are currently isolated from the world.  Zimbabwe is an excellent example of this isolation.  Since the failure of Robert Mugabe’s “Land Reform” and economic drain that the country suffered as a result, as well as the immense human rights violations that occur daily, Zimbabwe has been expelled from the Commonwealth, and international monetary aid has fallen dramatically. The instability of the government has deterred investment, but since the “government sharing” in Zimbabwe, investment has been on the rise, with China being the biggest investor. 3)  China claims that China-Africa ties are a “win-win” situation and promotes this message bilaterally within African regional organizations.  Chinese investments give monetary aid that may or may not to be used for the purpose of developing the African country; there is no “follow up” or accountability for what the funds are used for. Chinese investors get the resources they need and African countries in turn get their funding. 4)  China has a “non-interference” policy and does not meddle in African domestic affairs of the state.  Unlike other investors the Chinese stick to a business only policy. 5)  Chinese diplomats and leaders visit the continent more frequently than other leading powers to cultivate relations.  China’s aid to Africa has increased three times more than that of the World Bank. Chinese assistance to Africa is based on business relationships, that will, according to African elites, benefit the whole continent as whole. It is interesting to compare data about political development indicators of Chinas with those corresponding to Angola, Zambia and Zimbabwe, as shown in table 1:

 

Political Factors

Table: 1 – Indicators of Political Development

 

Country

Regime Type

Rank

Overall

 

Electoral process

Functioning of    Government

Political Participation

Political Culture

Civil Liberties

China

Authoritarian

138

2.97

0.00

4.64

2.78

6.25

1.18

Angola

Authoritarian

151

2.41

0.50

2.14

1.11

5.63

2.65

Zambia

Hybrid

 97

5.25

5.25

4.64

3.33

6.25

6.76

 

Zimbabwe

Authoritarian

147

2.62

  0.17

0.79

 3.89

5.63

2.65

 

                         

[7]

 

This table shows the political nature and culture of the four countries. Though the concept of what a democracy entails is debatable, this chart takes into account, the political stability of a country based on: how and if their electoral processes measure up to the other countries, how functional governments are, how much civil liberties the people within those countries are allowed to have. The survey was applied to 167 countries and considered; the fairness of elections and campaigning (electoral process); the ability of the courts to uphold the law and not be influenced or over run by military or anything else (functioning of government); the number of citizens who participate in national elections, including diversity within parliament (political participation); how much control does the military have and is there a general consensus that there is somewhat of  a functioning democracy and separation of church and state (democratic political culture); and finally is there freedom of speech as well as freedom of the press,  and whether or not property rights and private businesses free from government influence and is there significant discrimination( civil liberties). 

 

The notion that economic development is a pre-requisite for democracy is not necessarily true. China proves this because even though China is ranked 138 out of 167, it is the fastest growing economy and is evidently able to loan money and invest in other countries despite the fact that it is not a democracy. Zambia ranked higher on the democracy index scale than China, Zimbabwe and Angola. Of the four countries, Zambia is the only the one that is not under authoritarian regime and is under a “hybrid regime” i.e. it contains both democratic and authoritarian elements. Hybrid regimes are considered more “democratic” because they are in transition toward becoming full democracies. How then, is China so far ahead of these African countries? Firstly, because China is far more advanced in terms of infrastructure. Secondly, unlike the other countries, when China borrowed from the IMF, it did not engage in what Joseph Stiglitz calls, “shock therapy,” that is to say, China privatized at a gradual pace so as to keep inflation rates low. Thirdly, adequate infrastructure is what is lacking in these African countries, but lacking even more is leadership that has the betterment of the country in mind. Fourthly, though China’s government is autocratic and wealth is unevenly distributed (see Gini coefficient in table No. 2), the leadership within that country has been able to boost its economy and increasingly repress social uprisings as in the case of the Tiananmen Square massacre in 1989.

 

In, “2004 bilateral trade between China and Angola totaled US $4.9billion, representing more than a 113 percent increase from 2003.” [8] At the end of 2009, Angola was China’s second largest African trading partner, signing an agreement called “Sonagol,” in which Angola’s state oil company, agreed on a long term supply of oil to China’s Sinopec oil company. [9] 

 After decades of civil war in a country that is considerably damaged physically as well as economically, China’s fresh ideas and “no strings attached aid” are welcome in Angola.  Angola has a population of approximately 11 million with a low life expectancy and high infant mortality, and literacy rates are one of the lowest in Sub-Sahara Africa (see Table 2) Angola’s economy is based on trade, primarily on the export of oil, which should according to the USAID 2005, “account for two thirds of government revenue in 2005.”

 

Since the development of the Tan-Zam railway in 1964 China’s relations with Zambia have strengthened.  The agreements have been both bi-lateral and multilateral (China, Zambia and Tanzania) relating to technical and economic growth with the first sub Saharan branch of the Bank of China opening in 1997 in Lusaka. Privatization of the copper mines was purchased for US $20 million in 2000, as “bilateral trade volume between the two countries in 2002 reached US $83.247 million, of which Chinese exports reached US $46.056 million, while imports, US $37.191 million.” [10] In Zambia however, Chinese aid seems focused on the copper mines and not as much on infrastructural development. The main problem therefore lies in the conditionality of the loan to which there aren’t any. African governments most of whom are corrupt do not usually disperse the money for development, but instead line their own pockets further widening the gap between the rich and the poor.

 

Since President Robert Mugabe’s “Land Reform Distribution” began in 1998, southern Africa’s bread basket, Zimbabwe, has been on the decline, socially, politically and economically. The country ranks third only to Liberia and Nauru according to CIA World Fact Book in terms of Unemployment, with an unimaginable inflation rate. Relations between China and Zimbabwe stem from the late 1970’s when China aided the black liberation struggle and Robert Mugabe’s ZANU Party by supplying them with machinery, training and funding. Mugabe’s regime leans heavily on funding from China, because of its recent exclusion from the commonwealth and isolation from European sponsors who continue to apply pressure to Mugabe and his cronies for violating human rights and for economically stripping the country. The Zimbabwean government created the “Look East” policy that included bilateral agreements with Malaysia, Russia, Japan, South Korea, Vietnam and India but has focused on strengthening ties with China mainly because Chinese investors were not concerned with the daily occurrence of Human rights violations within the country. China is especially interested in Zimbabwe’s platinum and gold sources but has also become the largest buyer of tobacco, while providing agricultural equipment and firearms to the country.

 

Since the independence of Angola, Zambia and Zimbabwe from their colonial rulers, all three countries have struggled with social issues concerning education and healthcare. Chinese loans have assisted these countries in improving educational facilities and health care infrastructure.  

 

Social Factors

 

The most important indicators of social development of the four countries are shown in the following table.

 

Table: 2 - Indicators of Social Development

 

Country

Life Expectancy

(Years)

Adult Literacy

(Percent)

Infant Mortality

(#  deaths /1000 live births)

Total Fertility (# of children born/woman)

Population below poverty line

(Percent)

Gini Co-Efficient
(out of 100)

 

Total Population

China

73.5

90.9

20.25

1.79

8

47

1,338,612,968

Angola

38.2

67.4

180.21

6.12

40.5

No Data Available

12,799,293

Zambia

38.63

80.6

101.2

5.15

56

50.8

11,862,740

Zimbabwe

45.77

90.7

32.31

3.69

68

52

11,392,629

[11]

 

Zambia and Zimbabwe have high literacy rates, but low life expectancies, largely as a result of the high AIDS rate, and lack of sufficient medical facilities. The working conditions within the mines in Zambia have been of concern recently with a mine collapsing in the city of Livingstone; protests have arisen regarding working conditions and wage earnings.  More than half of Zambia’s population is below poverty line. As of 2009, the poverty line according to the World Bank is $1.25 per day.  The population below the poverty line is directly influenced by the Gini co-efficient which is a measurement of the level of unequal income distribution within a country. All three African countries lack the medical facilities and expertise that China has, and as result life expectancy is low. Coupled with a high disease rate and extreme poverty, more than half of the population within Zambia and Zimbabwe live on less than $1.25 per day. Angola’s literacy rate ranks the lowest of the countries studied, and its infant mortality rate ranks the highest, but of the African countries, it has the least amount of its population below the poverty line and of the African countries in this research paper it has experienced the fastest growth within in the last five years.

 

Economic situation of Angola, Zambia and Zimbabwe


As it can be seen from the contents of table No. 3, the economies of each respective country studied in this paper differ. The two most similar countries in terms of economic resources are Zambia and Zimbabwe. Both have mineral wealth in terms of copper and gold respectively, whereas Angola’s main economic resource is oil.  Angola’s geographical location on the coast of southwest Africa also makes it an excellent trading port and entry point into the continent.


Economic Factors:
 

Table: 3 Parameters of Economic Development

Country

Per-Capita Income (PPP)

Labor Force

(Millions)

Unemployment Rate (Percent)

Exports

(Dollars)

Imports

(Imports)

Gross Domestic Product (GDP)

Inflation Rates (Percent)

China

$6,500

807.3

4

$1.435 Trillion

$1.074 Trillion

$8.767

Trillion

-0.8

Angola

$8,800

7.569

N/A

$40.02

Billion

$12.81

Billion

$113.9

Billion

13.1

Zambia

$1,500

5.325

50

$4.388 Billion

$4.131 Billion

$18.55

Billion

13.5

Zimbabwe

$200

3.84

95

$1.396 Billion

$1.915 Billion

$332.1 Million

5.1

[12]

 

            What does China hope to gain from African countries? The most obvious gain is access to natural resources that are abundant within the continent.  As each country slowly privatizes, trade regulations between each respective country and China become liberalized opening the doors for long term foreign direct investment (FDI) and decreasing state control over assets.

 

With Angola being one of the largest African oil exporters, China has increased aid specifically for infrastructural improvement within the country, especially in the capital Luanda.  It would seem that China has a large proportion of oil control within Africa, but in fact China has only, “2 percent of Africa’s 9 percent oil reserves,” [13] most of which comes from Sudan. Angola’s economy has been growing since the end of a 27 year civil war. Largely the result of a booming oil sector, FDI has flooded the country and boosted the Angolan economy with an, “increased oil production supported growth averaging more than 15% per year from 2004 to 2007.” [14]

 

 Zambia’s economy is based heavily on the export of copper, so should the mining industry collapse like it did in early 2009 when 3000 miners lost their jobs as a result  of the global recession [15] ,then the country will be in severe economic crisis.  Unless Zambia diversifies its economy it will continue to be susceptible to crises such as these. According to the IMF, “low income countries are more exposed to the current economic downturn than previously, as they are more integrated in the world economy.” Though Zambia has experienced economic growth since 2008, it still remains one of the world’s poorest countries with a 50% unemployment rate, ranks 8th in the world of countries with high percentages and has a high disease rate based on the spread of malaria and AIDS (see Table 2 & Table 3)

 

Zimbabwe has experienced a severe “brain drain” since 2000 as Zimbabwe’s elite and high skilled workers fled to surrounding countries or overseas;  as a result, medical facilities have deteriorated, diseases like cholera and dysentery are common as sanitation facilities become neglected.  There is lack of basic commodities in Zimbabwe including food, fuel, currency and medical aid. This dire situation makes Zimbabwe the most vulnerable of the three case studies, to Chinese exploitation, both in terms of labor and raw material extract. A country that used to export maize to surrounding countries now has to import maize from China to feed its people. This situation similar to that experienced by the Cuba; once the largest exporter of sugar for most of the twentieth century, now the country has to import sugar. It is not surprising that both President Fidel Castro and President Robert Mugabe have much in common in terms of their dictatorships and how these countries, each rich minerals and fertile soil, are today among the poorest in the world. 

 

Conclusion

 

The economy of the Peoples Republic of China has since the late eighties managed to implement reforms at a gradual pace by not following “shock therapy” encouraged by the IMF to emerging economies. China privatized slowly, opening doors to FDI, and increasing the flow of capital both into and out of the country under governmental regulation. China reduced its poverty level substantially in a short amount of time by introducing the “individual responsibility” system that entailed partial privatization. China also created the “two-tier price system” that allowed the Chinese to produce trade goods at different rates; it opened its doors to FDI and built the “institutional infrastructure” necessary for growth and sustainability.  Industries located in the rural areas were surprisingly large, because people could see progress and how their money was being utilized.

 

This government accountability of the Chinese allowed for social stability and economic growth.   Instead of using the IMF fund as a “lender of last resort,” as most countries, Zambia, Zimbabwe and Angola have found in China the more attractive option. A major reason for this option is that the sovereignty of these countries is not threatened by the “Chinese invasion.”  It remains to be seen whether or not China, like other colonialists, will extract all the resources necessary to fuel its expanding economy, and then forget about Africa. Thus far, there has been no imposition on African countries to adapt to Chinese lifestyle, language or culture.  It is this factor that separates the Chinese from previous imperialists and more importantly the mere fact that aiding these countries has in fact been successful in term of supplying labor markets, cheap goods and much need infrastructural development.  If accepting aid from China in exchange for actual infrastructural changes and monetary assistance assures that these African countries are able to ensure sustainability and compete in the market, should they not be allowed the option? These African nations need to solve the political issues within their regions in order for economic and social progress to occur. The inter-relationship between these three concepts determines stability as well as sustainability within a nation. Angola, Zambia and Zimbabwe, need to use Chinese investment to their advantage, much like the Chinese did with the loans it received from the IMF, foreign direct investment from the U.S. and East Asian nations.


BIBLIOGRAPHY

 

[7] Sources taken from: The Economist Intelligence Unit’s index of Democracy (2007).

 

The category indexes are based on the sum of the indicator scores in the category, converted to a scale of 0 to 10 with 10 being the highest number.  The index values are used to place countries within one of the four types of regimes: Full democracies, flawed democracies, hybrid democracies and authoritarian.

[11] Sources for table taken from CIA world Fact book 2009 and World Bank Statistics 2009

[12] Sources for table taken from CIA World fact book and World Bank Statistics 2009