"The case is not what the Western reports described, that China went to Africa only for the energy.”
Wen Jiabao, Chinese Premier, in Sharm El-sheikh, November 2009

China’s energy strategy in Africa is vital for the Asian power even if not the single driver of its dealings with the continent. On November 8th 2009 Premier Wen Jiabao defended that China was not in Africa because of its booming energy needs, claiming that this has not been the prime factor driving its cooperation. He added, “Sinopec is the Chinese company holding largest oil deals with Africa, but the volume it explores and imports from Africa is less than one third of such trade volume between Mobil and the continent”. Wen Jiabao was factually right about Sinopec, understandably concerned about depictions of China as an “energymonger”, but understating the importance of Africa for China’s energy future.

China-Africa energy engagement – Climbing volume and aggressive investments

Let’s take a look at the numbers. Africa currently accounts for 25 pct of China’s foreign energy supplies and exports around 1 million barrels per day of oil to China. According to the last report of the Trade Law Centre for Southern Africa, up to 82 pct of China’s total imports from Africa pertain to mineral products, mostly oil, with Angola, South Africa, Sudan and Nigeria unsurprisingly topping the list of largest trade partners. This is the current depth of China’s energy engagement with Africa.

An important development influencing commercial relations is now the rise in copper prices in the world market which have just hit a 16 month high in December 2009, with a corresponding annual high that hit a 30 year maximum. It is only inevitable that Africa’s underexplored copper belt in Central Africa becomes more and more enticing for China and we will be seeing a strengthening in economic ties with copper rich countries such as Zambia and the Democratic Republic of the Congo (DRC). 

At the same time, one of the current trends in China-Africa energy relations is for China and its investors to be aggressive in their acquisitions of energy stakes in Africa. For instance, Nigeria‘s presidential adviser on energy, Emmanuel Egbogah, recently disclosed China’s interest  to invest up to US$ 50 billion, acquiring 6 billion barrels of Nigerian oil. If it comes together, the bulk of the deal would be signed at the expenses of expiring exploration licenses from American companies such as Shell, Chevron and Exxonmobil.

China is now trying to counterbalance its hunger for Africa’s fossil fuels by introducing renewable energy programs in the continent. Back in last November’s FOCAC Chinese Premier Wen Jiabao also vowed to build 100 clean energy projects in Africa over the next few years. Focus will be on solar energy, marsh gas and small-scale hydropower. Linked to this move, in October, the Export-Import Bank of China (China Eximbank) initiated a loan program specifically destined for wind power equipment manufacturers to sell their products and wind farms to the African market. This is on top of China’s involvement in a significant number of large hydropower dam projects in Africa, namely in Zambia, Egypt, Sudan and Mozambique.

China increasingly aware of the downsides of politically unstable partners

A second trend is for China to start feeling a growing need to overcome politically unstable commercial partners for its energy supply. Last October, weeks after serious clashes between government and protesters and amid international pressure, Guinea-Conakry’s military junta announced a US$ 7 billion deal with China over its vast mineral reserves. Unconfirmed by China, this announcement has not gone beyond speculation so far. It seems to have been the case that a lengthy ongoing negotiation was picked up off the shelf by Conakry’s junta to shake off political pressure.  China was once again highly criticized for being complacent with human rights violations and bad governance in Africa. Even if is sometimes the case, the trend will be for China to increasingly privilege the stability, security and sustainability of its investments, particularly when it comes to energy. As an NGO worker observed recently in Guinea-Conakry, “China has a reputation of ignoring a lot of things, but they do want to protect their investments”. 

Some particular instances of this move towards investment sustainability are on display in the solid findings of the Centre for Chinese Studies in South Africa (CCS). They carried out a focused evaluation of Extractive Industries Transparency Initiative (EITI) in Africa and its impact on China’s engagement. The EITI was established in 2003, aiming to improve governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas and mining. In a recently published report, evaluating the impact of EITI on China-Africa relations within the DRC and Gabon, the CCS concluded that: 

•    The Chinese are fast-moving actors that on the one hand get “into the game” quicker compared to their Western counterparts; they commence with providing employment opportunities to locals at an earlier stage;

•    Chinese actors are seen as more sensitive to market conditions and thus quicker to close down operations and move out of business; 

•    Chinese companies are generally very receptive to improvements in transparency concerning revenues and financial transactions; 

Will Africa unlock energy business opportunities offered by China’s growth? 

Africa’s energy success will depend of its ability to unlock the specificities of China’s economic strategy to its benefit. Africa’s policy-makers will need to be witty, quick-minded and fast-acting. Take a simple example: Sudan has just successfully shipped its first cargo of bio-fuel to Europe, the first step of a possibly highly lucrative business endeavor. Practically simultaneously, China happened to decide on new tariff reductions on alcohol imports to 5 pct from previous 30 pct taxes, which can be applied to ethanol.  These kind of untapped momentous opportunities need to be seized by Africa’s policy-makers and businesses, their pro-activeness is imperative for making China’s engagement work towards the economic development of the continent. At the end of the day, China’s energy policy in Africa is one amongst a varied pool of policies in the continent, but it is also the most strategically important one for the rising power. The quick changes bestowing the energy sector globally and Africa in particular are a mere mirror of the ongoing reshuffle of the international order. China and Africa growth will be progressively coupling in the next few years and so will the fate of their intermingled energy sectors. 


References:
Dickinson, E. 2009, Is China’s Guinea Deal for real? - http://blog.foreignpolicy.com/posts/2009/10/28/is_the_guinea_china_deal_for_real, Foreign Policy

Jansson, J.; Burke, C.; Wenran, J. 2009 Chinese Companies in the Extractive Industries of Gabon & the DRC: Perceptions of Transparency - Centre for Chinese Studies, Stellenbosch, South Africa

Tralac, 2009 Africa-China Trading Relationship, http://www.tralac.org/cause_data/images/1694/Africa-China09.pdf  http://blog.foreignpolicy.com/posts/2009/10/28/is_the_guinea_china_deal_for_real, Foreign Policy